Despite weak economy, local governments pushing through property tax increases

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While families are finding it tough these days to keep up with everyday outlays amid persistent unemployment and stagnant wages, cities are raising property taxes to boost payments to pension plans to maintain retiree benefits agreed to long ago, without much thought about how they would pay for it all.

Instead of the hoped-for and unrealistic projected annual gains, stock market losses have turned pension funds upside down, and city managers are scrambling to figure out how to make sense out of an impossible situation.

To keep up with dramatically rising pension costs, cities are cutting back hard on basic services, dipping into reserves and attempting to renegotiate pension benefits with stubborn unions. Even that doesn’t seem to be enough, and according to a report in the Wall Street Journal, cities throughout the country are beginning to aggressively raise property tax bills.

“Unless governments really want to squeeze essential services…there are likely to be a lot more property tax increases” across the country, said Don Boyd, a senior fellow at the nonpartisan Nelson A. Rockefeller Institute of Government at the State University of New York.

Upper Moreland, Pennsylvania is a good example of the pension funding crisis, and how it’s affecting city finances. As recent as 2005, when times were good, the city paid about $100,000 into its pension funds. Now that times are tough and revenues are down, the city paid $681,000 into the funds as its 2010 contribution. Next year’s estimated costs are set to be $1.1 million.

The city also receives contributions from the state, but only if the Upper Moreland makes contributions that are recommended by actuaries. And the only option left to enable a full payment now is to increase property taxes by 13.6 % in 2011.

In worse shape is Rolling Meadow, pop. 25,000, a suburb of Chicago. Officials there are planning on raising property taxes 9.8% next year, on top of the16% increase in 2010. The reason here is the same as elsewhere- increased pension and health costs for city workers. Despite the big increase in taxes, the police and fire pension plans are only about 45% funded.

City leaders made the same mistake here as in cities, large and small, across the country. Oversized promises were made for pension and health benefits with little concern how they would affect the communities when employees started retiring at age 50 and 55. Now that it’s happening, it may be too late to preserve all the benefits unless the taxpayers are willing to pay much higher taxes.

Even while increasing property and other taxes, lawmakers are starting to square off for a looming battle over reducing some of the generous retirement benefits won by the state and municipal unions.

What seems certain is that retirement eligibility, in many cases as early as age 50, will be pushed much higher for new hires and existing employees who have a long way to go before retirement. Employees will also likely be required to increase their own contributions into pension funds.

In Illinois, lawmakers recently passed a bill that would lift the retirement age for firefighters and police from 50 to 55. Other states are watching closely and may soon follow with their own version of it. Whether that will help enough, remains to be seen.

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Comment (1)
  1. Albatwitcher says:

    You can thank the unions and the cities they represent for this mess. The only good unions do is make who ever they work for bankrupt. Also, cities have been using thier pension funds for years to justify the overspending and waste in thier budgets.

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