With Evanston police and fire pensions about $140 million short, the city is looking to increase its real estate transfer tax to gain revenue. Some residents are criticizing the city for allowing the pension situation to become a crisis, while others question the information officials have distributed to educate residents on the issue.
Evanston residents will vote Feb. 5 on whether to increase the transfer tax from $5 to $6 per $1,000, or by 20 percent, to ease the city’s pension deficit. The increase would help support the Police and Fire Pension Funds, which pays former officers during their retirement. If the referendum is passed, it could add an extra $8 to $10 million – fewer than than 8 percent of the deficit.
The transfer tax was originally intended to be a small fee charged when an owner sells a property, but some communities have begun to use it to generate revenue, said Howard Handler, government affairs director for the North Shore Barrington Association of Realtors. After a failed attempt to increase the transfer tax in 2005 to fund affordable housing, Evanston is again turning to a tax increase to raise money.
Pension problems
Although the 40-year pension fund goals were established in 1993, the council paid very little attention to the issue in the mid-1990s, during which there were several years with no increases in property tax. David Ellis, president of the Fire Department Foreign Fire Tax Board, said he expects increases by at least 10 percent for years to come in order to fill the gap.
“The (pension) deficit has been coming on for a number of years and now it’s at what I consider to be crisis level,” Ellis said.
His board manages revenue for the Evanston Fire Department.
Ald. Elizabeth Tisdahl (7th) said the City Council’s lack of action in the previous decade is largely the fault of inaccurate predictions by Ted Windsor, the city’s former actuary.
Tisdahl said Windsor overestimated the duration of the average police career, which caused the expected drain on the pension fund to be significantly lower than expected. She added that the city replaced Windsor when it was discovered that he was not an accredited member of the American Academy of Actuaries.
Tidal suggested the transfer tax to the council last year as a way to increase pension funds, after working on the issue two years ago with Tim Schoolmaster, president of the Police Pension Board.
City Manager Julia Carroll proposed a 15.15 percent property tax hike in her draft of the 2008-09 budget, partially to aid the pension deficit. If the referendum passes, the revenue from transfer taxes could reduce that figure by 2 percent to 2.5 percent, according to Ellis.
Tisdahl said she supports the transfer tax because she believes raising the property tax will harm Evanston’s socioeconomic diversity.
“A 15 percent increase is going to be more than some people can handle,” said Tisdahl. “I think it will keep diversity in the community because property taxes drive people away.”
State law requires that the pension funds must be fully funded by 2033 through property taxes or “alternate sources of revenue,” according to the city’s Web site. The city could face litigation from the state in March if it does not meet a quota of approximately $12 million for the pension funds.
keeping up with the neighbors
Some have questioned whether the responsibility to pay for pensions for firefighters and police, who serve all residents, should fall exclusively to Evanston homeowners.
“It’s a community-wide problem,” Handler said. “The city can’t keep on turning to property owners to fund everything.”
Handler said the increase would make Evanston’s transfer tax considerably higher than those in neighboring areas. Many Chicago suburbs have no city transfer tax, and only charge the Chicago city and Illinois state fee of $1.50 per $1,000, he said. Skokie and Wilmette charge $3 for every $1,000 for a property transfer, while Winnetka and Glenview have no transfer tax.
A City of Evanston pamphlet distributed to residents paints a different picture. The pamphlet, which is also available online, lists 11 Chicago-area communities and their current transfer taxes. Only cities with a transfer tax are listed, and the average transfer tax listed was $5.86 per $1,000 – only $0.14 less than the proposed tax in Evanston.
Communities listed with higher transfer taxes in the Evanston pamphlet, like Cicero and Calumet City, are more than 45 minutes away by car. The North Shore Barrington Association of Realtors called this comparison “blatantly deceiving” in a Jan. 10 press release.
“What they did was try to pick and choose cities with a higher transfer tax and with a lower transfer tax, which is totally disingenuous,” Handler said.
Evanston Community Information Coordinator Donna Stuckert said the city used the same numbers in 2005 in an attempt to gain revenue for affordable housing, and no criticisms were raised then.
“This is an educational piece to let people know why the referendum was on the ballot,” Stuckert said. “We just want to let people know where we fall among the communities that have transfer tax.”
The cities were randomly selected, and were not chosen to skew the public’s perception of the referendum, she said.
“We’re not saying that we fall in the middle, we’re just saying that there are communities that pay more,” she said. “We’ll let (residents) decide if it’s high or if it’s low.”
Reach Elise Foley at [email protected] and Sean Walsh at [email protected].