Facing a pension-funding crisis, the North Riverside village board finds itself in a position where it may look to privatize some village services — potentially its fire department — in order to balance its budget.
No decisions have been made, but the village board’s finance committee is scheduled to meet June 30 at 6 p.m. in the council chambers at North Riverside Village Commons, 2401 Desplaines Ave., to come up with a path forward.
“We have to do something radical,” Mayor Hubert Hermanek Jr. told the Landmark during an interview on Saturday. “Nothing is off the table.”
Hermanek said the “radical” idea is expected to come out of discussions at the finance committee meeting. The village’s attorneys are already working on possible scenarios, Hermanek indicated.
“I expect an idea to be presented that will be able to nip the pension crisis in the bud and have a future solution for the village,” Hermanek said.
The June 30 finance committee meeting will follow in the wake of a hearing before the Illinois Department of Insurance that village officials have been ordered to attend at the Department of Insurance, 122 S. Michigan, 19th floor, in Chicago on June 26.
According to Kimberly Parker, communications manager for the Illinois Department of Insurance, the hearing is being convened to allow North Riverside to present a course of action for coming into compliance.
“I cannot predict the outcome,” Parker said. “Obviously, in such cases, it is our intention to work with the municipality to get them back in compliance.”
In February 2013, the Department of Insurance issued a notice of non-compliance to the village regarding North Riverside’s contributions to its police and fire pension funds.
North Riverside was one of five municipalities to receive the notices last year. At the time, North Riverside was warned to “take immediate steps to bring itself into compliance” with the state pension code.
Since 2008, North Riverside has paid just a fraction of its pension obligations; for four years running, the village paid nothing into its pension funds. During the 2013-2014 fiscal year, which ended April 30, North Riverside contributed about $340,000 to its police pension fund and about $223,000 to its fire pension fund.
In order to fully fund its police and fire pensions for the 2014-15 fiscal year, North Riverside must contribute about $1.8 million.
On Saturday, Hermanek said that’s exactly what the village wants to do.
“My hope is that we will completely fund the pensions,” said Hermanek. “It’s going to be difficult.”
That’s because if the village is to fund both its pension obligations and maintain village services at their current levels, the village will see its general operating reserves cut by almost $2 million.
That would drop the village’s general operating reserves to just about $2.1 million, which represents about 13 percent of annual expenditures. And that reserve would disappear completely by 2015-16 if service levels remain unchanged and pensions are funded completely.
“We would have a balanced budget if it wasn’t for the pensions,” said Hermanek. “It’s imploding the village. We have to do something out of the box. It’s not fair to residents to cut services and lay off people to make our pension obligations.”
A 2011 state law requires municipalities to meet its fire pension obligations. If a municipality doesn’t meet those obligations, according to the law, the state comptroller in 2016 will deduct up to “one-third of the total amount of any grants of state funds to the municipality” to cover the shortfall.
In 2017, that amount jumps to one half of any grants of state funds; in 2018, the comptroller can deduct the total amount to meet the shortfall.
In 2014-15, the village’s fire pension obligation is almost $744,000 and is projected to rise to $950,000 by 2016-17. Officials project spending $4.74 million (including the pension obligation and a $612,000 line item for paramedic services) for fire protection in 2014-15.
The village board still hasn’t approved a budget for the present fiscal year, which began May 1. And the board hasn’t made any final decisions on service cuts or delays in capital expenditures.
Those decisions will be finalized after the June 30 finance committee meeting, according to Hermanek. According to state law, the village must pass its annual appropriations ordinance, which is based on the budget, by the end of July.
But the board has made one budget decision, which will directly affect residents and businesses. For years the village substantially subsidized water service, freezing customer rates for many years while the village was hit with rate increases by the Brookfield-North Riverside Water Commission.
The village in recent years has raised rates somewhat, but not nearly enough to keep up with substantial increases being passed along to the suburbs by the city of Chicago. As a result, the village’s water fund has been running annual deficits in excess of $350,000, leaving the general operating fund to make up the difference.
In many municipalities, the water and sewer fund operates at a surplus. Those funds are then used to maintain the water and sewer systems.
At a special village board meeting that’s been scheduled for June 23, North Riverside trustees are expected to increase water rates by $1.50 per 1,000 gallons of water and impose a $15 per month “water operations fee” on all residential and commercial water customers.
The increases are expected to bring the village an additional $800,000 to its water fund.
“That will get our fund, for the first time in memory, in the black,” said Hermanek.
A draft version of the 2014-15 budget shows the village is predicting sales tax revenue will recover after coming in substantially below expectations in 2013-14. During the last fiscal year, sales tax revenues fell short of expectations by almost $720,000.
But officials are hopeful that a full year of sales at Costco, a new Chick-fil-A, Red Robin and other new retail businesses at the Costco outlots will cause sales taxes to rebound.
This story has been changed to correct the address of the June 26 hearing at the Illinois Department of Insurance.