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Daily Journal
     February 17, 2022      #42-48 KDJ
 

City of Kankakee eyes massive borrowing plan 

By Lee Provost
lprovost@daily-journal.com


KANKAKEE — In an effort to rid itself of nearly $100 million of police and fire pension debt, the Kankakee City Council is now mulling the idea of selling bonds to get the funds in order.

At Monday’s Budget Committee meeting, seven Kankakee council members intently listened as a public finance expert and the city’s pension counsel discussed where their massively underfunded accounts are and what this funding option could do to turn them around.

In all, the city owes its police pension $55.4 million and its fire pension $53.8 million. Those two figures account for just more than $109 million of pension debt.

No action was taken on the plan as this was the committee’s first look at the option, but early indications appear to be committee members could vote on this matter as soon as next month.

If the plan under these factors is approved, Mayor Chris Curtis noted, the owner of a city home with a homestead exemption would save an estimated $183 per year on the city’s portion of the property tax bill.

Based on calculations, if the city were to enter into this bond program, the city would be making bond payments of nearly $8.1 million annually and paying down that bond debt through $5.2 million from the 2-percentage-point sales tax increase and another $2.8 million from other sources, most likely property taxes.

Curtis, who some four years ago originated the concept of adopting a 2-percent-point increase in the city’s sales tax rate to help the city’s pension obligations, said the city could dedicate $92.4 million of the potential $96.3 million which could be generated by this 20-year bond sale.

During the nearly one-hour discussion of the potential program, the council members did not object to the plan.

MANY FACING SAME ISSUE

Kankakee is not breaking new ground with this plan. Many municipalities around the state are doing the same. In fact, the Bradley Village Board in February 2021 approved the sale of $11.8 million in pension obligation bonds — payable during 20 years — to wipe away $10.5 million of unfunded public safety debt.

The Kankakee administration, much like it did when working to approve a sales tax increase, will take its message to various neighborhoods and group gatherings to educate the public and gain support for the concept.

“This is a big number and a bold step,” Curtis said. He noted failing to solve the issues of these pension will only harm the city’s future.

“We have to develop an action plan rather than kicking the can down the road,” he said.

HISTORIC STEP?

Budget Committee Chairman Mike O’Brien, D-2, said failure to address this issue will result in higher taxes which places further stress on business and residential property owners.

“My sense is that there is more risk by not doing anything,” he said. “No one is disputing we have to pay this debt. Tonight’s discussion has just started the conversation. ... This could be a historic step.”

If council members believe this is the appropriate course of action, the blueprint would be to have the bond issue approved within the next 45 or so days and in time for the new budget year, which begins May 1.

Officials noted this plan, during the course of its 20-year life, actually would save taxpayers about $20 million because of interest on the outstanding balance.

These two accounts, which provide monthly financial benefits to either retired public safety officers or their spouses, have been struggling for a large number of years with cash shortages.

Currently, the fire pension, which has a current balance of $18.1 million (17.5 percent), provides benefits to 86. The police pension, with a balance of $32.9 million (26.6 percent), provides benefits to 75.

If the council were to choose the strategy of doing nothing, the taxpayer-funded payments simply will continue to grow at an ever-increasing rate, and the unfunded portion simply remains unfilled.

Eventually, the funds would become insolvent, meaning they would run out of money.

The State of Illinois has required all pensions be funded at least at a 90-percent rate by the year 2040.

Through the proposed plan, the city would be at just more than the 90-percent funding level by 2037.

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