The new village treasurer presented a preview of the Village of Oak Lawn’s 2014 budget and it wasn’t pretty.
In a move to multi-year budgeting instead of just one year in advance, Village Treasurer Pat O’Donnell noted that village expenditures are outpacing revenue growth over the next five years.
“All governments need to stop using overly rosey forecasts,” he warned the village board at Tuesday’s meeting. “We need to stop kicking the can down the road with pension liabilities.”
O’Donnell presented a preliminary budget of $51,184,269 for 2014, with a modest surplus of $164,262.
Revenue sources through 2018 are expected to remain static, with no significant growth in sales, property, income and other taxes. The five-year budget projections did not reflect expected growth in sales tax revenue from the 111th Street and Cicero Avenue development.
After 2014, however, it’s a different tune. O’Donnell projected budget deficits to leap from $850,013 in 2015 to $4,234,979 in 2018.
“The numbers get more negative as we go on in time,” the village treasurer said. “The reason is because expenditures are basically increasing faster than revenue.”
Part of the growing deficits over the next five years can be attributed to increased contributions to the village’s pension liability funds.
As of Dec. 31, 2012, Oak Lawn’s pension liability fund was $110 million underfunded. Pension liabilities refer to the amount that the village has to account for in order to make future payments.
O’Donnell advised village board members to think about how much they wanted to fund the police, firefighter and municipal employee pension funds to bring funds in compliance with the state-mandated 90-percent actuarial recommended pension payment by 2040.
Inaction on the board’s part to avoid putting off replenishing liability funds could cause the state to start diverting state-collected local revenue, such as sales tax, to make up the employer contributions that fall short of the full actuarially-required contribution beginning in 2016.
An actuary compiles and analyzes statistics, and uses them to calculate insurance risks and premiums.
“We didn’t deal with pensions and didn’t fund it where needed to fund it,” O’Donnell said. “Furthermore, we didn’t fund retirees’ medical. Those numbers weren’t funded to being balanced.”
The village has been underfunding the three pension liability funds for police, fire and municipal employees.
Beginning in 2010, the village has contributed roughly $1.2 million to the pension liability funds. Recommended contributions range between $3.3 million and $5.1 million for police and fire through 2018, to bring pension liabilities within state-mandated actuarial requirements.
O'Donnell said that Oak Lawn needed to be much more aggressive in funding its pension liabilities.
"Compared to other municipalities in the state, Oak Lawn is in the top 40 percent," O'Donnell told the village board.
The bond-rating agency Moody’s has downgraded the village’s debt rating to A1 from Aa3, O’Donnell said.
Some of the reasons include an inability to increase the general fund balance and liquidity without one-time revenue sources, such as the selling off of village-owned property last year in order to balance the 2013 budget as required by state law.
Underfunding of pension contributions and continued declining property taxes with lower EAV also factored into the downgrade.
O’Donnell recommended a continued replenishment of general fund reserves and liquidity, and full and consistent funding of the village’s pension plans.
The Oak Lawn Village Board is expected to enter budget talks in the fall. Among O’Donnell’s recommendations to the village board:
- Board approval for the 2014 budget to include 90 percent of actuarial recommended pension payment;
- Immediately freeze hiring for all positions
- 90-day hiring freeze on all new project
- 90-day freeze on new loans, and
- 90-day pay freeze for all non-union employees.
Mayor Sandra Bury said that the village board is committed to not raising the tax levy.
"It's not just Oak Lawn's problem, it's communities all over the country," she said.
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