Post-COVID-19, public finances are grim — but …

Globally, the International Monetary Fund said spending to fight the coronavirus and its financial effects was bursting government budgets. With $11.7 trillion committed by fall, and more needed, cumulative public debt was close to 100% of global gross domestic product (GDP) — a record.

In the U.S., like the coronavirus itself, the financial numbers are worse. The nation’s budget deficit tripled in 2020 to $3.1 trillion — also a record. Federal debt was 102% to 106% of GDP, depending upon your source. The New York Times picked the latter number, saying data from the Congressional Budget Office shows debt growth higher than during World War II. In fact, fiscal 2020 saw the biggest one-year jump in debt since Alexander Hamilton founded the nation’s credit in the 1790s.

In Illinois, we’ve scraped the bottom of the monetary barrel since Hamilton was a baby. We reached $141 billion in unfunded pension liabilities in December — yet another record. COVID-19 increases pressure on already-precarious finances. The Center on Budget and Policy Priorities predicts Illinois’ 2021 revenues will be down $4.6 billion, or 12% from pre-pandemic levels.

In Peoria, we’re among the 90% of American cities Bloomberg Philanthropies estimates will lose $360 billion in revenue over the next three years. Like the other towns, we were not included in end-of-2020 federal relief.

And none of us are post-COVID-19 yet.

Virus impact: Until the pandemic, outgoing Mayor Jim Ardis thought the city was on track financially, at least short-term. Then COVID-19 escalated long-standing budget tensions, revealing how rickety that track was.

“We’ve been talking about that light at the end of the tunnel for years and the realization that it’s a freight train is a reality,” said Ardis.

The city has been hit with a triple-whammy: plummeting revenues, fast-rising costs, and the multi-million-dollar resolution of a long-anticipated combined sewer overflow (CSO) project.

“It’s been a challenge,” said Peoria City Manager Patrick Urich. “Right after the pandemic started in March, we started looking at our revenues.”

At first, the city expected to lose $60 million over 2020-2021. In response, the city council closed a fire station, cut staff, implemented early retirements, stopped capital spending.

“We still anticipate having to borrow $10 million this year to balance the budget,” Urich said. “It’s a 20-year impact on the budget just to get through this year.”

Before you applaud cutbacks, consider Urich’s observation that each of those jobs and projects sparks other jobs and projects. No capital budget? Hello, potholes and flat tires. And, potentially, goodbye federal and state matching funds. So the city juggles projects as it can, knowing higher costs are likely in any reboot down the road.

Furthermore, the city cushions other impacts around the community. People and businesses are suffering; hotels and restaurants are getting squeezed. And Hotel, Restaurant and Amusement taxes underwrite the Peoria Civic Center, which has no business at all.

“With no business and no reserves they have to come to us for assistance,” Urich says.

Not just COVID-19: The two-year shortfall has been revised down to $36 million. That’s still a bite in a $230 million annual budget, especially when those budgets are balanced on hope of a state-wide graduated income tax that didn’t pass and additional federal relief nixed by Republicans in the U.S. Senate in December.

But the immediate coronavirus crisis uncovers a long-simmering pension crisis the city can’t solve with cuts. Current staffing is around 650 employees, down 200 staffers from 20 years ago. The current number of city retirees is also around 650. While revenues are dropping, legacy costs are rising.

“Ten years ago our public safety pensions were about $10 million dollars. In 2020 it was $26 million,” said Ardis. “In 10 more years (2030) it will be $46.6 million and in 2040 an incredible $83.5 million dollars. CLEARLY unsustainable.”

Employees covered by the Illinois Municipal Retirement Fund are in good shape, but the lack of funding is steep for police and firefighters. The Illinois General Assembly mandates those benefits, but does not cover the cost. Peoria has a temporary fee to fund those pensions which expires at the end of 2021. Without those revenues, the situation deteriorates fast.

“I’m projecting by 2023, nearly $1 out of every $8 in the general fund will be devoted to pensions,” Urich says.
Reducing staff to reduce benefit costs has a side effect: high salaries for those who remain. Almost 100 of the current 650 city employees make more than $100,000 a year. That’s some managers, who don’t get overtime, and many higher-ranking police and firefighters, who do. Overtime doesn’t count toward benefits (or toward that $100,000 salary number.)

Meanwhile, the median income in Peoria — the point where half are above and half below — is $47,000 to $48,000.

“I’ve always wondered if people are aware of a) how much overtime police and fire get ($3.6 million in 2019 per their website) and b) how many police and fire officers live outside the city. That is a lot of tax dollars going to collar communities for property taxes instead of ours,” says one former city employee.

Then again, according to Urich, 30% of properties in the city don’t pay taxes. The resulting pressures are part of the difficulty in resolving the CSO problem. After decades of finagling, the city council approved a consent decree for a $110 million deal over the next 18 years. That means increased sewer costs for citizens and another $7 million out of the annual budget — until almost 2040.

Not all doom and gloom: Short-term, the federal calvary may be on the way.

“In terms of helping the states and local government, when Georgia went blue I said, ‘Hallelujah!’’ says former city councilman Dave Koehler.

Now State Sen. Koehler, a Democrat, has heard that a good chunk of the Biden Administration’s $1.9 trillion virus/stimulus plan is relief for state and local governments. Given Democratic control of the U.S. Senate, Koehler thinks it likely some aid will squeak through, as does Urich.

Under the “don’t let a good crisis go to waste” theory, this may also be the time to address long-term problems. Both Peoria’s city manager and mayor are adamant change is needed at the state level, particularly on pension reform.

“There has to be a state-wide effort to demand the General Assembly address the situation before the state implodes,” says Ardis. “Until the state addresses the pension crisis, current businesses, new businesses and the jobs they will retain and attract will be minimized.”

He says the mayors’ and Illinois Municipal League’s work to consolidate police and fire pension boards last year was a start.

“Another heavy lift will be to extend the amortization period beyond 2040 to give municipalities some breathing room while the General Assembly works on solutions,” the mayor adds.
Koehler does not disagree.

“The logical thing is the amortization schedule,” he says.

But, he emphasizes, all stakeholders must be part of the pension reform discussion, highlighting why this is a complex negotiation. The pension calculation includes the percentage to be funded and the time frame and it affects multiple labor contracts.

If it was easy, it would have been fixed by now, but there is hope.

“I don’t want to sound all doom and gloom,” says Urich.

He cites a huge bump in development — $90 million in 2018, $104 million in 2019, $163 million in 2020 — although a good chunk of that development was from Bradley University and OSF St. Francis. But there is also the promising Warehouse District, OSF employment of thousands of people, strong neighborhoods, big-city amenities within a 10-minute drive.

“Peoria is a very unique community and unlike many others around the state, we have strong areas for job growth (Peoria Innovation Hub/Illinois Innovation Network, OSF Comprehensive Cancer Center and others),” Ardis says.

With five people vying to take his job — and two advisory referendums to establish taxes funding police and fire pensions on the ballot — expect these issues to come up a lot over the next few weeks.

Solutions won’t be easy. But we’ve all got a stake in finding them.

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