Saturday, May 5, 2018 || By Michael Romain || @maywoodnews
Featured image: The Harvey water tower. | Loco Steve/Flickr
Word that the state had been garnishing $1.4 million in tax revenues owed to the city of Harvey, apparently forcing officials there to cut 40 police and fire department personnel last month, reverberated well beyond the troubled south suburb.
During a recent public meeting in Maywood, some residents wondered aloud whether what happened in Harvey could also happen here, prompting village officials to offer reassurances that, no, Maywood is not the next Harvey.
The concerns, however, are not unreasonable. The circumstances that precipitated Harvey’s crisis — mainly underfunded police and fire pensions — were ripe in Maywood until recently, when the village started ramping up payments into its pension funds, village officials explained.
For years, Harvey had so severely underfunded the Harvey Police Pension Fund that the pension fund sued, winning a large judgment against the city in 2005. The pension fund claims that the city is currently more than $7 million behind in pension payments, according to a Chicago Tribune report.
Since February, at the police pension fund’s request, the state comptroller’s office has been withholding the more than $1.4 million in tax transfers owed Harvey. A city spokesperson told the Tribune that the state will continue playing keep away unless its ordered to do otherwise by a court.
“By law, the comptroller must seize tax revenues before they flow to a municipality when a claimant – in this case, the Harvey Police Pension Fund — certifies that the municipality is delinquent in making required pension fund payment,” the Tribune reported.
The Tribune added that the controversial law, “which has been on the books for a few years but had not previously been utilized, has sparked concern among local officials and state legislators who believe it could have punitive effects on cash-strapped communities that are further punished for being unable to keep up with pension payments.”
As news of Harvey’s predicament has spread, many other municipalities with similarly underfunded pension systems have been feeling the heat.
Between 2003 and 2010, the village of Maywood had shorted the Maywood Firefighters Pension Fund by roughly $5.5 million, according to a report by Amanda Kass, with the Center for Municipal Finance at the University of Chicago Harris School of Public Finance.
During those eight years, the village put $4.6 million into the pension fund, when it should have contributed $10.2 million, the analysis shows.
Kass analyzed data from the Department of Insurance for 632 police and fire pension funds in the state, and found that 71 municipalities paid into the pension funds half, or less than half, of the amount specified by the insurance department.
In an interview with Chicago Tonight last month, Kass said that before 2011, state law required pension contributions but “lacked an enforcement mechanism, and so in practice municipalities could — and did — significantly underfund their pension systems.”
Along with Maywood, Melrose Park was among the list of 71 municipalities funding less than half of DOI’s specified amount. Between 2003 and 2010, Melrose Park, Kass’s report showed, put only $8.6 million into the Melrose Park Firefighters Pension Fund, when it should have contributed $18.4 million.
According to the Better Government Association, a “common way to judge pension fund health is by its funding ratio, that is, take its assets (how much money the fund has) divided by its liabilities (how much money the fund needs to pay out all its benefits).
“For example, if a pension fund has $90 million in assets and $100 million in liabilities, it would have a funding ratio of 90 percent,” the BGA adds. “There is no official standard to what is considered a “healthy” public fund, but in the private sector, a fund generally is considered “at risk” when it’s under 80 percent funded.”
The funding ratio for pension funds across the state is roughly 58 percent, the BGA reports. According to the BGA’s funding ratio database, the Maywood Firefighters Pension Fund was funded at around 39 percent, while the Maywood Police Pension Fund was funded at around 34 percent, as of 2016.
Charts from the BGA’s pension funding database that show funding levels for police and fire pension funds in Maywood. | BGA
During an interview on Friday, Maywood Village Manager Willie Norfleet Jr. said that the analysis by Kass and the BGA are correct, but don’t necessarily reflect the village’s current situation.
“At that time, the village was not putting in the proper amounts into the pension funds,” Norfleet said, adding that the inadequate funding levels were, in part, attributed to the fact that the state allowed municipalities a lot of leeway in how it paid into the funds.
“In the past, the firemen wanted to bring a suit against Maywood because the village wasn’t putting money in,” Norfleet said.
Things, however, have changed in the last three years, said Norfleet and Lanya Satchell, the village’s finance director, in response to residents who brought up concerns last month.
“Will the situation in Harvey happen here?” asked Lee Jeffrey, a longtime Maywood resident, during an April 17 budget hearing.
Norfleet pointed out during the hearing that, since he was hired three years ago, the village has contributed to the police and fire pension funds the amount that has been called for by outside actuaries.
In 2016, the village Board of Trustees begrudgingly approved a massive 12 percent increase over the 2015 tax levy in order to pay more into its pensions.
A state law that went into effect in 2012 requires municipalities to make annual pension contributions that would put them on pace to have pension funds that are 90 percent “fully funded” by 2040.
Tax levy requirements for the fire pension fund increased from $2,428,188 in 2015 to $2,601,079 in 2016 — an increase of 7 percent. Tax levy requirements for the police pension fund increased from $2,533,343 in 2015 to $4,013,846 in 2016 — an increase of 58 percent.
At the time, Michael Jurusik, the village’s attorney, issued an eerily prescient cautionary tale for Maywood board members that sounds like a forecast of Harvey’s current plight.
“You have to make that payment because it is required by state law and there’s a penalty, because if you don’t, other money coming from the state that the village has budgeted to pay bills with will be taken and put into the pension fund,” Jurusik said back in 2016. “It will put the village in a bad hole because you will be short paying your other bills and services.”
On Friday, Norfleet said that the 2016 pension payments, while painful, were necessary and have now put Maywood within compliance with state law and on track to reach that 90 percent funding threshold by 2040.
“We’re on schedule,” said Norfleet, before emphasizing that the village must continue to find ways to meet its pension obligations, which are paid with property tax revenue.
“If you increase your assessor valuation with new improvements, then that helps pay [the pension] bill,” Norfleet said. “If you fill and improve vacant lots, sell properties that have been sitting empty for decades and make other improvements — those things will help you. That’s the way we’re going to be sustainable.” VFP
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