Homewood on Slippery Slope Raiding Pension Funds; But What Is The Alternative?

The Southtown Star reports that Homewood, Illinois, is considering a measure to dip into police and fire pension funds to balance the budget. The measure calls for reallocation of 25 percent of property tax revenue from its pension funds to pay for day-to-day operations in its 2010-2011 budget.

That’s operations, not capital projects. Homewood needs to dip into pension funds just to maintain the status quo.

From the Southtown Star:

The move would offset an expected drop in sales and income tax revenue during the fiscal year from the economic recession, the village’s financial director, Dennis Bubenik, told trustees during the village board meeting Tuesday night.

"We have 30 years to recoup the loss in the pension funds. We need the money to run day-to-day operations now," Bubenik said.

He said Homewood’s police pension fund is currently funded at 82 percent, and the firefighters pension fund is at 78 percent.

First, let’s consider the percentage figures. If the police pension was funded at 100%, that would mean the pension fund would support each and every police officer if they all went on pension now. Right now, immediately. So funding at 82% is pretty good. 78% for fire isn’t bad either.

If this measure passes, funding levels will be less than those figures, of course.

The big problem, as I see it, is the financial director’s claim that Homewood has "30 years to recoup the loss in pension funds."

Here’s the rub: if the economy was a static, growing entity, then I would have no problem with that statement. But what about future recessions in the next 30 years? And why the incredible hole in the budget in the first place? No doubt, last year, Homewood was counting on revenues that simply did not materialize due to the Great Bush Recession, whether they were from sales tax, real estate transfer taxes, or whatever. Many towns in the south suburbs are facing similar conundrums.

But dipping into pension funds is dangerous. What happens in 12 years, theoretically, if there is another Great Recession? At that point, Homewood is 18 years shy of the 30-year mark necessary to recover the pension funds. Does that future Village Board dip into pension funds again to save the day? Does the 30-year recovery then become a 45 year recovery? And what if Homewood faces a tragic fire event in the interim? What if, tragically, 7 or 8 firefighters lose their lives? Their spouses would receive full benefits.

I’m imagining the impossible because the impossible can happen. Challenges like these require critical thought now so future boards are not faced with a future slippery-slope quandaries.

More conservative budgeting would help Homewood in the long run. As would a healthy reserve fund.

The bottom line is this: municipalities should not need to dip into pension funds to pay for operations. No matter what.