STERLING – City leaders are getting ready to elevate property taxes to the top of their agenda, and tax-weary residents are wondering how painful the next tax levy increase will be.
The tax levy conversation won’t begin in council chambers until November, but the talk among residents never really stopped since police and fire pension realities left a sizeable dent in property owners’ pocketbooks.
In 2015, the city instituted a tax levy increase of 18.76 percent, and at the same meeting, approved a utilities tax. Last year, the levy increase came in at 6.06 percent, but the wild swings are making it difficult for taxpayers to budget.
Adding to the overall tax burden, voters still OK’d a sales tax increase in April that is earmarked for costly stormwater sewer upgrades.
Property taxes were a hot topic at Thursday’s town hall organized by Jim Wise, Sterling’s newest council member. Wise, along with Alderman Bob Conklin and City Manager Scott Shumard, met informally with a small group of residents at Woodlawn Arts Academy.
“Property taxes have doubled since I came to Sterling, and I’m not seeing many improvements,” Darlane Davis said.
Shumard told Davis that property taxes aren’t channeled in that direction.
“Public works improvements come mostly from the capital fund, and 95 percent of the property tax increases go to pensions,” Shumard said.
When Wise was running for alderman, taxes were at the center of his campaign. He said residents were suffering from “taxation saturation”, citing property tax rate increases totaling 52 percent since 2010.
Wise vowed to stop the runaway train of excessive taxation by reining in spending.
“Sterling is overtaxed, and I believe it’s time to restructure the city’s finances to meet the needs of its citizens,” Wise said.
Wise has even talked about the possibility of abating taxes or putting in caps. Since joining the council 5 months ago, Wise said he has a better understanding of the pensions situation.
“The state runs the pensions game, and there’s not a lot that can be done at the local level,” Wise said.
He does, however, still hold out hope that residents can get some tax relief.
“Taxes are a necessary evil, but maybe we can control them,” Wise said. “Property taxes have been up 18 percent one year and 4 percent the next – we need a smoother ride and increases would be more acceptable.”
Abatement, or a tax reduction, is more common at school districts because of their dependence on property taxes. Wise doesn’t rule it out for city government.
“We can’t do what school districts do because we don’t get that much from property taxes, but I think there’s a way to even out the ride.”
Some residents pointed to a changing local economic landscape that has put more of the tax burden on a smaller group of people.
“The economic situation was very different 10 years ago,” said Rod Kleckler, a Rock Falls resident who is a Sterling business owner. “Economic incentives for the businesses, especially the big-box stores have cut into the tax base.”
Others cited a drop in population, which in addition to impacting the property tax base, affects other city revenue sources such as the motor fuel tax because it is calculated according to population.
The growth of online shopping also continues to cut into sales tax revenues. A drop in several types of state funding is playing a role in decreasing general fund projections at the local level.
“We’re losing cable franchise fees because more people are cutting the cable cord, the state is taking more of our replacement tax money, and we’re looking at a 10 percent drop in income tax distributions,” Shumard said.
Sterling is estimating about a $350,000 drop in general fund revenue next year. The state’s latest replacement tax raid is projected to cost the city about $142,000 in the next fiscal year.
The state, in its appropriations bill, diverted $297 million from the fund to pay for an array of expenses that had previously come from the general fund. The diversion upped the reduction of local distributions to 23.8 percent.
Shumard said the pensions situation spiraled out of control in 2008, when the stock market crashed and investment losses in pension funds piled up. Another contributing factor is that the city’s retired police and fire workers outnumber those still active.
“For every dollar of fire salary, the city puts 96 cents into fire pensions,” Shumard said. “When you compare that with IMRF, it’s 10 cents on every dollar.”
The Illinois Municipal Retirement Fund is the pension system used for other city workers, and many local government leaders would like to see it set up for police and fire.
Shumard said the pensions situation spiraled out of control in 2008, when the stock market crashed and investment losses in pension funds piled up. The state instituted mandates for minimum funding of the pensions, and the state has the authority to channel distributions into underfunded pensions. That change played a big role Sterling’s nearly 19 percent increase 2 years ago.
There are no easy answers as cities struggle to meet pension obligations without burying people in higher property taxes.
“The only way around higher taxes is to get rid of people, and that’s hard to do with public safety jobs,” Shumard said. “The city laid off firefighters a few years ago and the outrage was much greater than what we got from raising taxes.”
From fiscal year 2011 to 2016, the city’s required contribution to the firefighters pension fund has jumped by 87.66 percent, while the police pension fund is up by 81.66 percent. Last year, the city’s actuarial firm recommended the city make a nearly $2.2 million contribution to its police and fire pensions.
• Last year, actuaries recommended the city contribute a minimum of $1,132,888 to its fire pension, up from $974,055 the previous year.
• Last year, actuaries recommended the city contribute a minimum of $1,058,614 to its police pension, a $79,784 increase from last year.
• The actuarial reports project payment increases of 15 percent to 20 percent for fire, and between 30 percent and 35 percent for police in the next 5 years. Ten-year estimates show increases between 35 percent and 40 percent for fire, and between 60 percent and 65 percent for the police fund.