Municipalities’ New Frontier: Ending Local Debt Disaster

“When written in Chinese, the word “crisis” is composed of two characters-one represents danger, and the other represents opportunity.”  — President John F. Kennedy

JFK’s quote is an older and classier version of Chicago Mayor Rahm Emanuel’s oft-repeated admonition to “never let a serious crisis go to waste” but the sentiment still applies today, especially when we’re assessing the financial dangers and opportunities sweeping over this area’s suburbs, towns and small cities.

A recent Better Government Association investigation found many Northern Illinois municipalities are buckling under the weight of a whopping public debt that threatens to forever alter the very standard of living that traditionally makes many hometowns desirable places to live, work and raise families.

We know that Chicago and Cook County have debt burdens but the raw numbers for our suburbs are also terrifying: Taxpayers are on the hook for a mind-blowing $140 billion in debt, or an average $35,774 per household in Cook County suburbs, according to Cook County Treasurer Maria Pappas.

Scary as these figures are, municipalities can take corrective action to lighten their debt loads and save these hometowns from financial collapse. Consider:

Cutting needless government. Muni leaders, and the voters, should support getting rid of unnecessary government entities that collect taxpayers’ money but offer too little in return. One example: The BGA has long favored dumping irrelevant townships, especially those in northern Cook County, which horde taxes, spend too much and provide little value to residents. Already, Evanston leaders are looking to drop its namesake township and save at least $400,000. With a record-breaking 2,000-plus government units in Cook County alone, there are plenty of candidates for the ash heap of history. Time, and money, is wasting.

Merging, consolidating or outsourcing. Tough financial times cry out for smart reorganization and cost cutting. Dump outmoded or unneeded departments or functions while outsourcing other in-house jobs in an honest and transparent manner—one that sidesteps the pitfalls of the much-hated Chicago parking meter deal. Furthermore, municipalities must aggressively seek to save money via appropriate cross-border mergers and shared services with other nearby towns or surrounding counties, including the option of forming new fire and police protection districts. Nothing should be overlooked or considered taboo.

Selling assets. Every suburb, village or town has a spare building, patch of land or garage that can be sold, hopefully at a premium, to private investors and used to pay down debt. Yes, spinning off these assets is tricky business. But in an era of mounting public obligations, unloading some public assets must be seriously explored.

Making a debt plan. The BGA policy unit found very few municipalities have a formal debt policy–an official guideline for making decisions about taking on more debt. A    policy can force municipalities to face some hard realities about the perils of too much spending and not enough thrift. Of course, a debt policy is only as good as the decision makers following it but having one is a best practice worth implementing.

Cleaning up local public pensions. With astonishing regularity, the BGA has uncovered suburbs and towns abusing the public pension system. Some examples: Double dipping, where employees get multiple pensions while working for the same employer; Pension-spiking, where end-of-career raises boost pension payments for life; Pension “tacking”, which allows outside consultants and contractors to improperly join public pension rolls even though they were not actual employees. It’s time for all municipalities to honestly re-examine their pension practices and end these costly and wasteful abuses.

Yes, the elephant in every City Hall is the multi-billions of dollars in public pension liabilities, which can be traced to the state’s decades–old mismanagement, inattention and lack of political will. Those liabilities are growing like a fungus for nearly every suburb, town and small city.

It’s a giant problem that must be remedied or we’re all in deep trouble.

In the interim, however, municipalities would profit from JFK’s advice — recognize the danger of this local debt crisis and use it as an opportunity to regain control of their finances and fate.

 Robert Reed is the BGA’s director of programming and investigations. Contact him at rreed@bettergov.org. Follow him on Twitter @bobreedbga.

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