Naperville’s $6M budget surplus to shrink its pension gap
By Susan Frick Carlman firstname.lastname@example.org February 25, 2013 10:02PM
Steve Chirico, a 1978 graduate of Naperville Central High School, is the founder and owner of Great Western Flooring in Naperville, and a member of the Naperville City Council.
Updated: March 28, 2013 6:20AM
Naperville City Council members have decided how they’d like to make use of an extra $6 million in the current municipal budget: they’ll ease the city’s own pension headache.
The city’s unfunded pensions for police and firefighters total some $97 million, and its existing payment schedule anticipates bringing both funds solvent by 2033.
But if the Council members follow through on a straw poll taken at a budget workshop Monday evening, rather than funnel the budget surplus into capital projects that otherwise would call for more loans, the sum will be split, bringing down the public safety retirement liabilities by $3 million each. Then they’ll borrow about $6.5 million to help cover some of this year’s $46 million capital program.
Credited in large part to a resurging local housing market, the city’s tax receipts exceeded expectations last year, leaving more than $10 million available to help meet assorted needs. Some $4 million of the surplus will help balance the new city’s fiscal blueprint for 2014.
Doug Krieger, city manager, told the Council its usual approach to budget surplus is redirecting it in directions that eliminate the need for more loans. The suggested $5.6 sum would leave about $400,000 for the police and fire departments to share.
Budget Director Karen DeAngelis said the Council’s options for using the $6 million include holding it in the city’s investments portfolio – though she noted that returns currently are quite low; abating the tax levy, which would translate to an average credit of $120 per homeowner; paying off debt principal with a one-time $4.4 million payment, which would shave compound interest expenses by about $11 million; and using it to avoid new borrowing.
But council members weren’t entirely averse to new debt. Steve Chirico pointed out that the city is eligible for relatively negligible loan repayment rates, and Bob Fieseler said in borrowing for the projects and reallocating the surplus to alleviate some pension pressure, the city would be able to “err on the side of being generous now.”
Some of the Council was hestitant to borrow more money, though.
“Just because money’s cheap, it doesn’t make me want to put more on my credit card,” Councilman Grant Wehrli said.
Kenn Miller said he also would rather avoid a new loan. The $120 tax levy abatement sounds attractive, but he preferred the proposal of making regular pension payments.
“I’m not against giving taxpayers money back. It’s not that,” Miller said. “But I think longterm they’re going to wind up paying more.”
Wehrli said the city will levy more for pensions this year than it will for general funds.
“I’m trying to find a way that we can manage property taxes for people going forward, by not relying on them,” he said, opining that a $120 break on the tax bill would bring less benefit than focusing on the city’s long-term financial health.
He had another creative take on revenue use, which could also get a look soon.
Saying, “I’m going to sort of jump to the chase,” Wehrli pitched the prospect of taking a small slice of the city’s food and beverage tax income and paying down on the outstanding pension with it. At 0.25 percent, the receipts would provide about $825,000 this year, he estimated.
Some of Wehrli’s colleagues were skeptical. Fieseler said with most of the food and beverage surcharge revenue coming from people who don’t live in Naperville, he sees a “disconnect” in using that income to pay pensions, but Wehrli asserted the plan makes plenty of sense.
“It’s the slow and steady investor that’s going to win the race,” he said, predicting that the redirection of what once were Special Events and Cultural Amenities funds would ultimately save the city substantial sums, and retire the pension obligation three or four years sooner.
The $2.5 million SECA fund will be discussed at a March 11 Council workshop in the Municipal Center.