Pain on the way

Illinois’ budget cuts hit home

LOCAL GOVERNMENT | Rich Rovito

Cash-strapped cities, towns and suburbs are set to slash public safety, reduce pension costs, tap rainy day funds and explore bankruptcy, a BGA Rescuing Illinois report finds.

Dire budgeting and cost-cutting scenarios are playing out in communities throughout Illinois in response to Gov. Bruce Rauner’s unprecedented push to slash funds the state provides local governments, a BGA Rescuing Illinois investigation finds.

In his proposed 2016 budget, Rauner is seeking to save $600 million by slicing in half the share of income taxes the state distributes annually to local governments. A final state budget is still being hammered out in Springfield, and municipalities are lobbying hard to retain their funding, but deep local cutbacks are expected no matter what the ultimate outcome.

For municipalities statewide, a reduction translates into significant layoffs, cutting or stretching vital services such as public safety, delaying necessary maintenance and abandoning some public projects.

The fiscal situation is so dire that local governments may rally behind a proposed law allowing Illinois municipalities to file bankruptcy and reorganize their debts. Others argue the state is trying to solve its financial crisis on the backs of local government.

“This shifts the problem from the state level to the local level,” said Ed Paesel, executive director of the South Suburban Mayors and Managers Association, which represents more than 40 communities.

Feeling a budget blast The plan, first unveiled by Republican Rauner in February, is the subject of much heated debate between him and the General Assembly’s Democratic leaders.

Sworn in as governor in January, Rauner wants to cut to 4 percent, from the current 8 percent level, the share of state income taxes distributed to municipalities through the Local Government Distributive Fund (LGDF).

Rauner claims the move is necessary for the state to deal with major budget woes, including $6 billion in unpaid bills and at least $100 billion in long-term pension obligations. His spokeswoman says LGDF has increased steadily over the years and should be rolled back.

The move would save the state roughly $600 million annually, if approved by lawmakers, the Rauner Administration contends.

Yet many municipalities cannot afford to wait for a budget to pass. Already, they’re mapping out contingency plans in anticipation of getting less from the state income taxes than before.

Springfield, Rockford The City of Springfield would take a hit of about $5.8 million if the LGDF funds are cut at the level Rauner’s proposed.

Bill McCarty, Springfield budget director, said the city could be forced to tap its reserve funds to cover a LGDF shortfall.

“Reducing (reserves) not only wastes the tremendous amount of work over the last several years that went into rebuilding it, but also puts us at risk of having to take drastic, unplanned measures should we experience another sharp downturn in the economy or some other negative occurrence,” McCarty said.

Depleting cash reserves also means those resources wouldn’t be as available for future pension and capital needs, he added.

To offset a severe LGDF cutback, Springfield would either have to boost taxes or make substantial job cuts, up to 75 positions, and trim services, McCarty said.

The city of Rockford would lose about $7.3 million from its budget as a result of the proposed reduction.

The cut would equate to a loss of 70 fulltime positions within the city, including about 40 police officers, Mayor Larry Morrissey said.

The police department would bear the brunt of the cuts because Rockford is contractually required to maintain a certain staffing level within its fire department, Morrissey said.

“For a city our size, it would be a huge hit to our public safety since we have one of the highest violent crime rates in the state,” he said.

Morrissey anticipates a cut but isn’t convinced it will be as high as 50 percent.

“I think that right now the governor is trying to send a message of what the implications are for a balanced budget,” Morrissey said.

Peoria’s predicament The city of Peoria, which would stand to lose $5.6 million, cut its workforce by nearly onefourth during the recession and can’t withstand another hit, Mayor Jim Ardis said.

“We don’t have the luxury to reduce police and fire services. We’ve already done that. And our (public works department) is already very lean,” Ardis said. “There would be some very, very painful cuts to public safety and other operations.”

To balance the budget, Peoria would be forced to potentially cut 48 jobs from its police department, which currently has 224 police officers and 28 civilian staffers; eliminate 45 jobs in the fire department, which consists of 212 employees, including 192 firefighters; or cut 26 full-time and 27 temporary maintenance jobs in the public works department, which has 85 full-time equivalent positions, according to the city.

Rauner’s proposal is putting communities in a tenuous position, especially if they are forced to tap into reserve funds, Ardis said.

“I think it’s difficult when we’ve been putting our money away for a rainy day and now we’re being told to just suck it up,” Ardis said.

Peoria has about $17.5 million in its rainy day fund, which already is short of its goal of $22 million, or 25 percent of the city’s annual expenditures, said Jim Scroggins, the city’s finance director.

Depleting the reserve account would hinder the city’s ability to borrow funds, he added.

“It would hit our bond rating hard,” Scroggins said.

Despite it all, Ardis said he’s sympathetic to the challenge faced by Rauner.

“The governor inherited this mess,” he said. Many municipalities already have had to adopt balanced budgets this spring, further complicating matters, said Brad Cole, executive director of the Illinois Municipal League.

“It’s been highly problematic in the budgeting and planning process,” Cole said. “Balancing the state budget on the backs of municipalities isn’t the way to go.”

Affluent suburbs gear up Naperville would take a $7 million hit to its budget.

The city’s diverse and broad tax base would soften the blow, newly seated Mayor Steve Chirico said, adding that he doesn’t anticipate that cuts in essential services would have to be made.

“We would manage through it,” Chirico said. “We have a robust local economy.”

Naperville has been paying more than legally required into its pension fund for several years, bolstering its fiscal position.

“We’d reduce that if we had to,” Chirico said. In Wilmette, the LGDF cut would amount to a $1.3 million loss in funds.

Absent any property tax increase, the village would have “nothing left to do but to make cuts,” said village manager Timothy Frenzer.

Significant cuts in staffing and expenses were made during the economic downturn and not restored, Frenzer added.

“The fat is already off the bone. Now you have to decide which bone you want to lose,” he said.

For the village of Northbrook, a 50 percent cut in the LGDF equates to about a $1.6 million annual loss to its general fund, which stands at $45.2 million for the fiscal year that began May 1.

The village board hasn’t enacted any cuts yet, but has instructed staff to look at options for board consideration should Rauner’s proposal gain approval from the state legislature, village president Sandy Frum said.

“Ultimately, this will be a policy decision that will need to be made by the entire board, but it is likely that personnel would be affected in some way,” Frum said.

Backlash builds Illinois municipalities have partnered with the state to maintain the LGDF since 1969 to fund core municipal services.

Rauner’s plan to cut local governments’ share of state income tax revenue “is inadvisable at a time when many municipalities are under severe strain,” the Chicago-based Civic Federation’s Institute for Illinois’ Fiscal Sustainability stated in a release.

“The state’s fiscal position will suffer if the finances of the City of Chicago – the state’s economic engine – are allowed to deteriorate further,” the federation said.

The federation opposes the governor’s recommended fiscal 2016 budget “because it relies heavily on projected savings that do not appear to be achievable or prudent in light of the state of Illinois’ obligations and long-term policy objectives.”

Rauner responds Rauner spokeswoman Catherine Kelly said the amount of money transferred to local governments has soared by 42 percent over the last decade.

“In that time, decisions made by (Democratic House) Speaker Michael Madigan and (Senate) President John Cullerton and the career politicians they lead have created a $6 billion budget deficit,” she said. “The governor’s turnaround agenda freezes property taxes and gives communities the tools they need to control costs at the local level to get more value for their tax dollars.”

The reductions to local governments proposed in the budget put Illinois in line with neighboring states, Kelly said.

She also pointed to Rauner’s creation of a local government task force charged with finding efficiencies and encouraging streamlining of local government functions in order to reduce costs.

Only in office since May, Dixon Mayor Liandro Arellano is part of an entirely new five-person city council that already has been forced to go over the city’s finances with a fine-tooth comb.

“Our biggest issue is uncertainty,” Arellano said.

A 50 percent cut in the LGDF would cost Dixon about $750,000 annually.

Arellano isn’t convinced that Rauner will hold firm with his planned slashing of the LGDF.

“It’s a starting point for negotiations,” he said.

Cuts to the LGDF at any level will cause hardships for municipal governments, said Paesel of the South Suburban Mayors and Managers Association. “A number of our towns are disadvantaged and don’t have sales tax revenue coming in. Some are even struggling to make payroll,” Paesel said.

Most municipalities don’t maintain large reserves, and some have little at all, he added.

Locals push back Other municipal advocates are pushing back on the cuts.

The Metropolitan Mayors Caucus, which represents 273 municipalities in northeastern Illinois, claimed that a 50 percent reduction in its members’ share of income tax revenue will reduce the revenues for services like police, fire and infrastructure improvements by nearly $50 per resident.

Chicago would see its local share diminish by about $135 million annually, according to the caucus.

A spokesman for Chicago Mayor Rahm Emanuel didn’t respond to repeated requests for comment.

The DuPage Mayors and Managers Conference launched a website, ProtectMyTown.com, to rally public support for their cause. The effort also has garnered support from mayors of communities in Will and McHenry counties, and elsewhere.

The website claims that the proposed 50 percent cut in funding will result in losses of “millions of dollars for many municipalities, causing a drastic reduction in operating revenue” that will lead to cuts in front-line services and infrastructure projects.

“The biggest problem is that we had no idea this was coming,” said Joliet Mayor Bob O’Dekirk. “The first thing we would have to do is cut back on overtime, especially in the police department,” he said.

Joliet would stand to lose about $4 million. “I think we will have to dip into our reserves for this year,” O’Dekirk added.

Muni bankruptcy? Rockford Mayor Morrissey thinks the time has come to think about a radical reorganization of municipal debt. He believes bankruptcy is one way to accomplish that task.

Debt-ridden municipalities, faced with such revenue cuts, should have the option to at least consider filing for bankruptcy under Chapter 9 of the U.S. Bankruptcy Code, he said.

A bill under consideration would allow municipalities to seek bankruptcy protection.

“Ultimately, if cities are backed into a corner, Chapter 9 is something we should have to consider,” Morrissey said.

That bill is stuck in committee. Meanwhile, Rauner and House Speaker Madigan and Senate President Cullerton remain deadlocked on passing a new state budget.

Rich Rovito is a regular freelance contributor who specializes in reporting on local government issues for the BGA. He can be reached at [email protected].