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Politics & Government

Real Estate Boom Cannot Fill Police and Fire Pension Budgets

Morton Grove experiences a real-estate boom, then works to pay back police and fire pensions.

Just before the real estate bubble burst in late 2006, those last few pumps of “easy credit” air helped lift the Village of Morton Grove through the end of its "."

But during that same time, looming fire and police pension obligations led to a 20 percent increase in the village property tax levy -- the largest one-time increase in recent memory.

By the time the Great Recession hit, Morton Grove already had a higher property tax rate than every north Chicago suburb except Evanston, leaving the village few good options for staying solvent.

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Good Times

With the exception of the frenzy of home-buying by GIs returning from World War II, the years between 2003 and 2006 were probably the most active in history for real estate in the United States, Morton Grove included, local realtors and village officials say.

Adding to the trend, there were a lot of empty nesters in Morton Grove around the same time prices were peaking, said Nick Marino, broker/owner of.

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“We had a lot of older people who had bought homes in the ‘50s or ‘60s,” Marino said, “and the time had come to make a move.”

Though it was fueled in part by questionable no-down payment, easy credit mortages, the flurry of real estate transactions that ensued were a godsend for the finances of Morton Grove, according to Finance Director Ryan Horne.

The village had been reeling from the 2002 departure of Abt Electronics and Appliances which generated a full 10 percent of Morton Grove’s revenues in sales taxes the year before it moved.

Real estate transactions are a boon to the village budget, because it collects $3 on every $1,000 in property value, in what’s called a real estate transfer tax.

In 2001, the village took in $385,000 in real estate transfer taxes; by 2006 taxes had grown 150 percent, to $959,318. It was a badly needed windfall, Horne said.

A Property Tax Hike

But the spike in real estate transfer taxes was not enough to keep pace with the village’s growing obligations, particularly for police and fire pensions. In 2006, that same year of record real estate taxes, a newly seated board of trustees voted to raise the village property tax levy by 20 percent.

“It was probably the stupidest thing we could have done, politically,” said Georgianne Brunner, a Caucus Party candidate who served on the board from 2005 to 2009 and recently lost a bid for a new term.

“It was the right thing for the village, though,” she said. “That paid the bills, and the bills had to be paid.”

She said she did not sleep for a week leading up to the vote, and said she's bitter that she and other Caucus Party candidate are villified as tax hikers.

Unique Contributing Factors

There are several reasons that Morton Grove’s property taxes are significantly higher than its neighbors, and many of them are intrinsic.

Conceived as “bedroom community” to Chicago, the village’s makeup is tilted strongly towards the residential. With limited commercial and industrial properties to generate sales tax and corporate property taxes, the tax burden for paving and plowing the streets and to pay for things like police and fire protection falls heavily onto the pocketbooks of homeowners.

In addition, 20 percent of Morton Grove is made up of green space, parks and forest preserve, according to Village Trustee John Thill, who serves on the Natural Resource Commission. Neither parks nor forest preserve generate tax revenue.

An analysis of the new property tax revenues generated by the 2006 levy increase shows that by 2009 the new property tax funding was outpaced by additional village contributions to police and fire pension. (See chart).

Police and Fire Pensions

Accounts differ about why the police and fire pension obligations have skyrocketed from a combined $206,601 in 2001 to $3.76 million in 2011.

Municipal government advocates say that small cities are being asked to cover the wagers of bad stock market bets made by public pension fund managers – a charge police and fire representatives dispute.

But here is what everyone agrees on: For years, the Village of Morton Grove did not to put enough into the pensions to pay the benefits it promised to its policemen and firefighters, and now it is paying both current year obligations and playing catch-up.

In fact, the $206,601 that was paid in 2001 came entirely through paycheck deductions to officers and firefighters, said Brian Fennely, deputy police chief and president of the police pension fund.

For example, according to an actuarial analysis of the nearly $1.6 million that Morton Grove paid into the police pension in 2009, about $540,000 of it was current year and more than $1 million was payback.

That same year, about $1.1 million of the nearly $1.8 million the village paid into the fire pension was catch-up, which accountants call “unfunded liabilities.”

Even with a huge, resident-riling property tax hike, Morton Grove has not been able to keep up with the skyrocketing pension costs. By 2009, there were more additional dollars going into pension obligations than the additional property tax revenues generated by the 2006 increase and subsequent smaller tax levy increases combined.

With the exception of Evanston, Morton Grove now has higher residential property taxes than any north Chicago suburb, according to a recently released survey done by Park Ridge. (See chart.)

The survey included all taxing bodies, including school districts, and Morton Grove’s Dist. 67 has already announced that it plans to ask voters to approve a large property tax increase next year.

That severely limits the current board of trustees' ability to raise money with higher property taxes, according to Mayor Dan Staackmann.

Between the state’s recent increase of the Illinois income tax and the increased cost of gasoline, Staackmann estimates that the average Morton Grove household has between $300 and $600 less to spend.

“That can be the difference between someone staying in their home or not,” he said.

The Effect of the Real Estate Bubble Burst

When the real estate bubble burst in 2006, those real estate transfer tax dollars evaporated in the first of several body blows to Morton Grove's finances.

In 2006, Morton Grove took in almost $960,000 from taxing property sales. In 2007, it was $520,000 and by 2008 it was $294,000.

If it were only real estate transfer taxes in decline, the village might have been able to absorb the loss. But it was just the leading edge of what would come to be called the Great Recession, and with Morton Grove's budget already stretched to breaking, some hard decisions lay ahead for leaders in Morton Grove.

Tomorrow, the Great Recession impacts Morton Grove, prompting large-scale layoffs and painful service cuts.

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