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?Harvard UniversityKennedy School of GovernmentAvoiding Government Meltdown:Are There Effective Legal Solutions toUnaffordable Pension Liabilities?Tale of Two Cities:Needed Pension Reform inCranston, Rhode Island and Oak Lawn, IllinoisAppendix IJames E. SpiottoChapman Strategic Advisors L.L.C.312.845.3763spiotto@September 26, 2019?2019 by James E. Spiotto. All rights reserved. James E. Spiotto is a retired partner of Chapman and Cutler LLP as well as Managing Director of Chapman Strategic Advisors LLC, President of JASSEE Advisors, LLC and a member of the Board of Directors of Retirement Security Initiative L.L.C. This document is for informational purposes, general in nature and based on authorities that are subject to change. It is not intended as a recommendation or advice, legal or otherwise, with regard to any action or inaction to be taken. The views expressed herein are solely those of the author and do not reflect the position, opinion or views of Chapman and Cutler LLP or Chapman Strategic Advisors LLC.Appendix ITale of Two Cities:Needed Pension Reform inCranston, Rhode Island and Oak Lawn, IllinoisIntroductionThe recent history of financial crises of state and local governments has demonstrated the unfortunate trend of states and local governments suffering from unaffordable pension liabilities. In such cases, the government is either permitted by state law and state supreme court rulings to (a)?adjust pension obligations to that which is affordable and thereby improve financially or (b)?begin the unwanted pattern of continuing to increase taxes, reduce expenditures on essential governmental services and discover individual and corporate taxpayers who can do so leave resulting in less revenues and the evolving financial meltdown. A past example is Vallejo, California with its unwillingness to adjust its CALpers pension obligation being forced, after confirming a Chapter?9 plan of debt adjustment, to reduce police and fire by half the prebankruptcy number and two years later still face budget deficits and threats of bankruptcy. Likewise, similar sagas are to be found in Detroit, Michigan and Bridgeport, Connecticut and their slow but steady financial declines before bankruptcy and state intervention.These actual examples are the best way to demonstrate why state legislatures and supreme courts should permit the state and local government legislatures to be able to exercise their police powers to adjust when necessary, as a last resort, unaffordable pension benefits when taxes no long practicably can be raised and expenses can no longer prudently be reduced. This permitted adjustment is for the higher purpose of the health, safety and welfare of the citizens of the government to provide essential services and needed infrastructure improvements at an acceptable level. In essence, to avoid government meltdown.The drama of real situations best explains the dynamic of these alternatives and therefore the Tale of Two Cities: namely, Cranston, Rhode Island, where state law and supreme court rulings permitted reasonable and necessary pension benefit reductions and Oak Lawn, Illinois, where state constitutional provisions, given state supreme court interpretation, prohibit any reasonable and necessary pension obligation adjustment on an involuntary basis, and unlike virtually all other states preclude the use of police powers to prevent government meltdown. The following is some background information on both cities to facilitate the Statements of Mayor Fung of Cranston, Rhode Island and City Manager Larry Deetjen of Oak Lawn, Illinois as to their respective pension problems and whether they can successfully be solved.I.The City of Cranston, Rhode Island, and the Village of Oak Lawn, Illinois, have somewhat similar demographics even though they are 962 miles apart (See Appendix?A)A.Urban Cities. Both Cranston and Oak Lawn are urban cities – Cranston 99% and Oak Lawn 100%. Cranston’s population of 81,201 (2017) is larger than Oak Lawn’s 56,087, but the breakdown of male, female and median age is virtually the same.B.Household Income, Housing Costs Other Similar Factors. Cranston’s estimated Median Household Income (2016) of $67,275 is close to Oak Lawn’s $61,951, Cranston’s Estimated Per Capita Income (2016) is $32,011 compared to Oak Lawn’s $29,688. Cranston’s Median Price for All Housing Units (2016) is $224,200 compared to $196,838 for Oak Lawn. Cranston’s Cost of Living Index (March 2019) of 91.4 (U.S. Average 100) is lower than Oak Lawn’s 102.5. The percentage of Residents in Poverty is relatively low – Cranston 6%, Oak Lawn 10.6%. The Average Household Size was the same for Cranston and Oak Lawn – 2.5, as well as the percentage of Family Households of 64.4% and 64.3%, respectively.The breakdown of the population by race for Cranston and Oak Lawn is generally similar: Whites alone – 73.4% versus 70.1%, respectively, Hispanics – 16.9% versus 18.7, respectively, and Blacks alone – 3.4% versus 6.8%, respectively.C.Land Size, Density, Taxes and Industry. Cranston has a larger footprint – 28.6?square miles compared to Oak Lawn’s 8.6?square miles. Accordingly, Oak Lawn has greater density of population – 6,525?people per square mile compared to Cranston’s 2,842?people per square mile. Cranston’s Real Property Tax paid by Housing Unit with and without a mortgage (2016) is $4,389 (1.9%) and $3,875 (1.82%), respectively, compared to Oak Lawn’s $5,345 (2.6%) and 4,672 (2.5%), respectively. Major Industry in Cranston and Oak Lawn is very similar: Health Care, Educational Services, Construction, Finance and Insurance and Accounting for Cranston is 10.0%, 8.3%, 4.8%, 7.1%, and 6.4%, respectively, compared to Oak Lawn’s 10.3%, 8.4%, 8.2%, 8.1%, and 4.1%, respectively. The Unemployment Rate (2016) was virtually the same for Cranston 5.1% and Oak Lawn 5.3%.D.Education of Population. Cranston and Oak Lawn have the same educational level for the percentage of Population of 25?years and older (2016) and Unemployment Rate.Data PointOak Lawn, ILCranston, RIEducation of Population 25?Years or Older (2016):High School or Higher90.7%90.2%Bachelor’s Degree or Higher27.2%32.4%Graduate or Professional Degree9.4%13.6%Unemployed5.3%5.1%Mean Travel Time to Work34.8 Minutes22.6 ernment Employment and Payroll (March 2016 ). Oak Lawn and Cranston have about the same Police Officers per 1,000 population – 1.92 compare to 1.8, respectively, but Oak Lawn’s Average Yearly Full-Time Salary is significantly higher $123,857 compared to Cranston’s $65,353. Cranston has more Firefighters per 1,000 population than Oak Lawn – 2.3 compared to 1.2, but again the Average Yearly Full-Time Wage is higher for Oak Lawn $124,933 compared to $65,353 for Cranston, respectively.Data PointOak Lawn, ILCranston, RIGovernment Employment and Payroll (March 2016)Police Protection:Officer Full-Time108 (1.92 Officersper 1,000 Population)146 (1.8 Officersper 1,000 Population)Monthly Full-Time Payroll$1,114,712$762,813Average Full-Time Yearly Wage$123,857$62,697Firefighters:Full Time Employees73 (1.2 Firefighters per 1,000 Population)189 (2.3 Firefightersper 1,000 Population)Monthly Full-Time Payroll$760,008$1,029,302Average Full-Time Yearly Wage$124,933$65,353Total for Government:Full-Time Employees3392,045Monthly Full-Time Payroll$2,818,7328$11,744,257Average Full-Time Yearly Wage$99,778$68,915F.Long-Term Debt. Long-Term Debt as of the beginning of 2016 is $108,347,000 for Oak Lawn and $93,878,000 for Cranston with the Per Resident Number higher for Oak Lawn of $1,931.77 compared to $1,156.10 for Cranston.II.The Pension Liability and Funding Ratio for Cranston and Oak Lawn Has Some Similarities and Differences Per CAFR Cranston (6/30/18) and Oak Lawn (12/31/18)A.Pension Unfunded Liabilities and Funded Ratio. Cranston has an old Police and Fire Plan for employees prior to July?1, 1995 that has only 27 of the 341 Police and Fire personnel currently active and has 422 retired. The Old Police and Fire Pension Plan is functionally frozen and has a Funding Ratio of 21.92% and Net Pension Liability of $236,296,164 as of FY2017 EOY. The two new Cranston Sate Agent Plans for Police and Fire Net Pension Liability as of FY2017 EOY $10,862,240 for Police and $193,145 for Fire for a Funding Ratio of 78.03% and 102.22%, respectively. The combined Funding Ratio for Old and New Cranston Police and Fire Pension Fund is 39.2%. Oak Lawn has Net Pension Liabilities for Police $85,403, 504 and $78,520,318 for Firefighters for EOY2017 and Funded Ratio of 45.8% and 47.2%. The Net Pension Liability for all Police and Fire Pension Funds per Resident for Cranston is $3,043 and for Oak Lawn $2,927. All Pension Funding Liability is at a 7% Discount Rate except the Old Cranston Police and Fire at 7.9%.CAFR AnalysisOak Lawn, IL(12/31/18)Cranston, RI(6/30/18)Long-Term Liabilities:($000)FYEOY2018201720182017General Obligation Bonds$63,700$63,700$73,700$76,600Net Pension Liability$171,600$133.60$404,800$403,600OPED Liability$26,800$26,500$50,800$53,400Pension Liability as% of General Fund Revenues329%180%General Fund: ($000)General FundTotal Governmental FundsGeneral FundTotal Government FundsRevenues$52,183$70,480$225,000$306,460Expenditures$55,643$73,658$131.3$302,328Excess (Deficit) Revenues over (Under) Expense$(3,461)$(3,178)$93,700$(93,869)PensionOak Lawn, IL(12/31/18)Cranston, RI(6/30/18)Pension Liabilities and BeneficiariesIMRFPoliceFireTotalOld Police and FireCurrent PoliceCurrent FireTotalNet Pension Liability$14,118$85,404$78,520$178,042$236,296$10,862$(840)$246,318Retiree3541051174221914Inactive1662491Active1771086127141173Net Pension Liability Per Resident$252$1,525$1,402$3,179$2,190133(10.3)$3, Pension Liability as Percentage of General Fund Revenues and Deficits. Cranston’s Net Pension Liabilities as a percentage of General Fund Revenues for 2018 is 180% while Oak Lawn is 329%. Cranston’s Net Pension Liability increased about $1,200,000 from 2017 to 2018, while Oak Lawn Net Pension Liabilities increased about $38?million or 28% between FY2018 and 2017. Cranston had a Total Government Funds Deficit of $13.869?million (June?30, 2018) and Oak Lawn had a deficit of $3.178?million (December?31, 2018). This is a deficit of $170.80 Per Resident for Cranston compared to $56.75 for Oak Lawn.C.Detailed Pension Fund Analysis (2015-2018) for Cranston and Oak Lawn. (See Appendix?B, source Merritt Research Services LLC)1.Historical (2018-2015). Required Contribution under GASB 67/68 which replaced the ARC or ADEC. Namely, the actuarial Required Contribution is calculated under GASB 67/68 for the pension fund being 90% funded by 2040 for Cranston and Oak Lawn. Between 2015-2018, Cranston made 100% or more of the Required Contribution while Oak Lawn only made 6175% of the Required Contribution. For all pension funds, Cranston’s historical contribution for 2017, 2016 and 2015 was 100%, 100% and 10288%, respectively, compared to 75.56%, 73.34%, 72.35% and 67.58% for 2018, 2017, 2016 and 2015, respectively, for Oak Lawn. For Cranston’s New Police Pension Fund, the Required Contribution was 100% made for 2017, 2016, 2015 and for Oak Lawn it was 67.88%, 66.01%, 66.01% and 61.50% for 2018, 2017, 2016, 2016, respectively. For Cranston’s New Firefighters Pension Fund, the Required Contribution was 100% for 2017, 2016 and 2015 compared to 74.91%, 71.6%, 69.42% and 61.39% for Oak Lawn for 2018, 2017, 2016 and 2015, respectively.III.Legal Framework for Cranston and Oak LawnA.Ability to File for Chapter?9 Municipal Bankruptcy. In order to file for Municipal Bankruptcy (Chapter?9 Municipal Debt Adjustment) , the municipality must be specifically authorized by state law to be able to file a Chapter?9 proceeding. There are 12?states that generally authorize its municipalities to file, 12?states that have a conditional authorization subject to the approval of state governor or other elected official, legislative committee or authority or other review process by the state before the municipality can file, 2?states generally prohibit Chapter?9 filings, 3 have very limited use by a designated type of municipality, irrigation district, special district, etc. and 21?states do not specifically authorize their municipalities to file Chapter?9. Illinois does not authorize its municipalities like the Village of Oak Lawn to file Chapter?9. Rhode Island allows a state-appointed budget commission to appoint a receiver to restore financial stability for a city, and the receiver can file a Chapter?9 proceeding for a city like Central Falls did in 2011.B.Financial Distress, Oversight and Prevention. Rhode Island has a three-phase process under the State Department of Revenue Director who, after certain triggering events, may request the appointment of a Fiscal Overseer to recommend sound fiscal policies. If the Fiscal Overseer concludes the city is unable to balance its budget, it may request the appointment of a Budget Commission. The Budget Commission may request the appointment of a receiver if it concludes its powers are not sufficient enough to restore fiscal stability. The ability to have a receiver appointed that can file Chapter?9 places pressure on elected officials and public workers and unions to promptly resolve issues. While Illinois has a Financially Distressed City Law, it has not been used given its basically unworkable process and lack of real power to address distressed issues other than authorizing the borrowing of additional funds. Illinois has had proposed in HB?2575 in the 100th Legislative Session a Local Government Protection Authority that would encourage negotiated resolution including of pension issues and, if not resolved, there is a quasi-judicial body that can order a debt restructuring enforced in a pre-package Chapter?9. This bill never came out of Committee.C.Elimination of Public Debt Controversy in Rhode Island. Rhode Island has granted public debt a first in priority statutory lien on all ad valorem revenues (property taxes) and all general funds, so that its public debt is secured and will be paid thereby limiting the credit wars to trade creditors and public workers without threatening the ability to borrow or credit contagion on other governmental bodies by a distressed government. While Illinois has proposed legislation for a statutory lien for public debt, the bill never came out of Committee.D.Pension Reform Legislation. Illinois pension reform legislation, as noted above, was declared unconstitutional by the Illinois Supreme Court in 2015 as a violation of Article?XIII, Section?5, the Pension Protection Clause of the Illinois Constitution that membership in a retirement system “shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.” The Illinois Supreme Court ruled this meant no ability to involuntarily through legislation alter by reduction of pension benefits from date of employment for any reason and since the police powers were not explicitly reserved in the language of Pension Protection Clause, no impairment for a higher public purpose is permitted. In contrast, Rhode Island passed a law in 2011 permitting modification of a pension plan that was in “critical status” as determined by its actuary and the plan was less than 60% funded. As noted above, the Rhode Island Supreme Court held Cranston’s needed pension reforms were constitutional and a permitted impairment for a higher public purpose under the well-established police powers of the city and state.IV.Background on City of Cranston Police and Fire Pension ReformsA.Creation of Pension Fund and Historic Underfunding Problems and Move to State Retirement System. In 1937, Cranston established a pension fund for its police and fire. By the mid-1980’s, the pension fund had become a significant financial concern. In 1996, the City passed an ordinance with the agreement of the union that personnel for police and fire hired after July?1, 1995 would be enrolled in the state pension system, and those with less than five years of service could elect to stay in the old fund or move the the state fund. The 1996 Ordinance provided for a minimum of 3% compounded COLA. This did not reduce underfunding that by July?1, 1995 exceeded $169?million. Then, the Great Recession occurred in 2008 and 2009, and Mayor Fung took office. The City experienced a high unemployment rate and over $1?billion decrease in property value. State aid decreased substantially, and there were two devastating floods in the Spring of 2010. By June?30, 2011, the underfunding for police and fire pension obligations had risen to $256?million or $87?million more than 12?years earlier. By 2012, the pension system was only 16.9% funded meeting the definition of “Critical Status”.B.The Pension Reform Proposal. The Mayor, Allan Fung, in 2012 wrote to the pensioners informing them of the critical status of the pension fund. Raising taxes, cutting more personnel and eliminating city services were all explored. In September 2012, the Mayor met with pensioners and proposed a ten-year COLA suspension plan. Ultimately, ordinances were past suspending COLA benefits for ten years starting July?1, 2013.C.Litigation, Settlement and Litigation in Cranston. In 2013, the Cranston Police Department Retirees Association Inc. and Local 1365 Retirees Association filed a lawsuit against the City that the ordinance violated the United States and Rhode Island Constitution. This lawsuit was settled with agreement for a COLA suspension in alternating years for ten years and 1.5% COLA payment for the eleventh and twelfth years with the individual retiree right to opt-out and retain the right to sue for damages. Thereafter, members of the Cranston Police Retirees Action Committee opted out and sued for damages on breach of contract and constitutional rights. The expert for the Plaintiff Action Committee asserted the average loss per retirees, given the change in benefits, was $210,000 per retiree. The City cited the Great Recession, loss of over $18?million in state aid between 2007 and 2011, the $1?billion loss of property value, the devastating floods of 2010, over 50% increase in unfunded pension obligation between 1999 and 2011 and 16.9% funded ratio were all present to demonstrate the City’s significant financial crisis. On June?3, 2019, the Rhode Island Supreme Court ruled the ordinances for pension reform were reasonable and necessary given the financial emergency and the impairment of contract rights of the retirees was permitted and was constitutional as an exercise of police powers for a higher public purpose.V.Background on Village of Oak Lawn Pension IssuesA.The Village of Oak Lawn’s Inability to Obtain Needed Pension Reform Due to the Illinois Supreme Court Ruling. The increase in unfunded pension obligations for Oak Lawn in one year FY2017-2019 EOY of over 28% with total net pension obligations being 329% of the Village’s FY2018 General Fund Revenues. Labor Agreement that mandated set number of personnel per equipment, even if evolving times, reasonable justified reduced personnel and this “overstaffing” resulted in unnecessary overtime creating budget deficits. Given rulings by the Illinois Supreme Court as to state pension reform, arbitration, state labor relation board, and state court ruling as to Oak Lawn, there was provided no relief for reasonable and necessary adjustment to work rules and related pension benefits.B.Oak Lawn’s Credit Rating Downgrades Due to Growing Pension Burden and the Pension Intercept Law for Police and Fire Pension Funds. Since 2008, Oak Lawn (then Moody’s Aa2) has suffered six credit rating downgrades by Moody’s, the last downgrade being October?10, 2018 when Oak Lawn was downgraded to just one notch above “junk” status. (Moody’s Baa3 with a negative outlook.) Moody’s attributed the credit slide to “heighten operating risk” powered by “high and growing pension burden” and Illinois Pension Intercept Law for police and fire pension funds (Pubic Act 096-1495), that took effect on January?1, 2018, that allows police and fire pension funds to compel the state controller to withhold state tax revenue that traditionally would go to the Village and pay it to the pension fund that has not been fully funded under a statutory funding formula to bring the actuarially determined funding ratio to 90% by 2040. The City of Harvey, Illinois, had needed funds withheld from it causing it to layoff half of its police and fire force. The Village’s fire pension fund in 2018 filed a claim with the state comptroller for a $3.3?million shortage that is equal to almost 16% of Oak Lawn’s FY2018 General Fund Revenue. Oak Lawn does not want the fate of Harvey, Illinois.Appendix ATale of Two CitiesBasic Data ComparisonSource: Data PointOak Lawn, ILCranston, RIPopulation (2017)56,087 (100% Urban)81,201 (99% Urban)Males48.3%49.9%Females51.7%50.1%Median Age41.3 years41.9 yearsEstimated Median Household Income (2016)$61,95167,275Estimated Per Capita Income (2016)$29,688$32,011Mean Price All Housing Units (2016)$196,838$224,200March 2019 Cost of Living Index (U.S. Average 100)102.591.4Percentage of Residents Living in Poverty (2016)10.6%6.0%Race:White Alone70.1% 39,62073.4% 59,495Hispanic18.7% 10,57916.9% 13,676Black Alone 6.8% 3,859 3.4% 2,735Asian Alone 2.2% 1,269 4.6% 3,692Two or More 1.4% 797 1.4% 1,144Other 0.1% 78 0.3% 203American Indian0.08% 450.04% 32Incorporated19091754Land Area (Square Miles)8.6028.6Population Density (People Per Square Mile)6,5252,842Median Real State Property Tax Paid Housing Units with Mortgages (2016)$5,345 (2.6%)$4,389 (1.9%)Median Real Estate Property Tax Paid Housing Units Without Mortgages (2016)$4,672 (2.5%)$3,875 (1.8%)Most Common Industry:Health Care10.3%10.8%Educational Services8.4%8.3%Construction8.2%4.8%Finance and Insurance8.1%7.1%Accommodations and Food Services4.1%6.4%Professional Scientific, Technical5.9%0%Public Administrative, Support and Water Services3.3%5.9%Miscellaneous Manufacturing0%5.0%Major Medical FacilityAdvocate Christ Hospital749 Beds Teaching1,300 Affiliate PhysiciansCommunity Hospital of Rhode Island80 BedsAverage Household Size2.52.5% Family Household64.4%64.3%Education of Population 25?Years or Older (2016):High School or Higher90.7%90.2%Bachelor’s Degree or Higher27.2%32.4%Graduate or Professional Degree9.4%13.6%Unemployed5.3%5.1%Mean Travel Time to Work34.8 Minutes22.6 MinutesGovernment Employment and Payroll (March 2016)Police Protection:Officer Full-Time108 (1.92 Officersper 1,000 Population)146 (1.8 Officersper 1,000 Population)Monthly Full-Time Payroll$1,114,712$762,813Average Full-Time Yearly Wage$123,857$62,697Firefighters:Full Time Employees73 (1.2 Firefighters per1,000 Population)189 (2.3 Firefightersper 1,000 Population)Monthly Full-Time Payroll$760,008$1,029,302Average Full-Time Yearly Wage$124,933$65,353Total for Government:Full-Time Employees3392,045Monthly Full-Time Payroll$2,818,7328$11,744,257Average Full-Time Yearly Wage$99,778$68,915Beginning Outstanding$108,347,000$93,878,000Per Resident$1,931.77$1,156.10Appendix BPension Fund Data Analysis (2015-2018)Source: Merritt Research Services LLCIn ($000) or (%), as applicableData PointOak Lawn, IL (EOY)Cranston, RI (EOY)20182017201620152018201720162015All Pension PlansNet Pension Liability (Unfunded)$178,042$133,242$151,850$145,746$391,543$388,472$362,637$341,827Funded Ratio57.32%66.40%60.73%61.08%57.17%56.37%58.10%59.71%Required Contribution$12,406$11,442$10,177$9,453NA$37,582$36,924$35,457% Actually Contributed75.56%73.34%72.35%67.58%NA100.00%100.00%102.88%Police Pension PlanRIMERS – Police New PlanTotal Pension Liability$149,610$144,407$139,476$178,454$49,432$39,613$35,996$29,987Net Pension Liability$85,404$70,062$73,319$70,162$10,862$5,904$3,419-$944Funded Ratio45.80%53.17%49.23%49.68%78.03%85.10%90.50%103.15%Required Contribution$5,739$5,186$4,463$3,997NA$1,040$1,109$858% Actually Contributed67.85%66.51%66.01%61.50%100.00%100.00%100.00%Discount Rate7.00%7.00%7.00%7.00%7.00%7.50%7.50%7.50%Firefighters Pension PlanRIMERS – Fire New PlanTotal Pension Liability$148,821$142,394$137,776$132,512$62,747$54,737$51,468$44,990Net Pension Liability$78,520$63,991$67,884$64,320-$1,393-$840-$2,582-$6,158Funded Ratio47.24%58.06%50.73%51.46%102.22%101.53%105.02%113.68%Required Contribution$5,173$4,800$4,245$4,008NA$972$992$1,227% Actually Contributed74.91%71.00%NA100.00%100.00%100.00%Discount Rate7.00%7.00%7.00%7.00%7.00%7.50%7.50%7.50%Municipal EmployerIMRFRIMERS – GeneralTotal Pension Liability (EOY)$110,222$104,580$104,461$102,471$152,978$141,598$139,760$136,010Funded Ratio87.25%100.78%89.81%89.03%88.64%89.83%95.26%99.46%Discount Rate7.25%7.50%7.50%7.50%7.50%7.50%7.50%7.50%Old Cranston Police and Fire Employee Pension Planfor Employees Hired before July?1, 1995($000) or (%), as applicableData Point2018201720162015Total Pension Liability$302,630$309,848$313,727$327,937Net Pension Liability$236,296$247,131$245,859$258,295Funded Ratio21.92%20.24%21.63%20.51%Required ContributionNA$21,404$21,316$22,376% Actually Contributed100.00%100.00%104.79%Discount Rate7.90%7.90%7.74%7.29%CAFR Analysis($000)Oak Lawn, IL(12/31/18)Cranston, RI(6/30/18)General Fund Revenues:ActualBudget6/30/186/3019Total$57,210$57,412Taxes$38,635$40,290Expenditures$56,529$57,416Change in Fund Balance$681,000$(3,598)Long-Term Liabilities:FYEOY2018201720182017General Obligation Bonds$63,700$63,700$73,700$76,600Net Pension Liability$171,600$133.60$404,800$403,600OPED Liability$26,800$26,500$50,800$53,400Pension Liability as% of General Fund Revenues329%180%General Fund:General FundTotal Governmental FundsGeneral FundTotal Government FundsRevenues$52,183$70,480$225,000$306,460Expenditures$55,643$73,658$131.3$302,328Excess (Deficit) Revenues over (Under) Expense$(3,461)$(3,178)$93,700$(93,869)PensionIMRFPoliceFireTotalOld Police and FireCurrent PoliceCurrent FireTotalNet Pension Liability$14,118$85,404$78,520$178,042$236,296$10,862$(840)$246,318Retiree3541051174221914Inactive1662491Active1771086127141173Net Pension Liability Per Resident$252$1,525$1,402$3,179$2,190133(10.3)$3,043Appendix CIllinoisMunicipal Bankruptcy AuthoritySpecific state authority to file a municipal bankruptcy petition only exists with respect to the Illinois Power Agency. With the exception of the Illinois Power Agency, no other municipal entity in Illinois is authorized to file a municipal bankruptcy petition without further state authorization.Courts in Illinois have entertained municipal bankruptcy petitions, including In re Village of Brooklyn, Case No. 03-34272 (Bankr. S.D. Ill. Nov.?23, 2004) (confirmation of plan); In re Village of Alorton, Case No. 05-30055 (Bankr. S.D. Ill. Dec. 11, 2006) (confirmation of plan); but see In re Slocum Lake Drainage Dist. of Lake County, 336 B.R. 387 (Bankr. N.D. Ill. 2006) (finding no specific authority and dismissing); In re Washington Park, Case No. 09-31744 (dismissed Dec. 21, 2010 due to lack of authorization). The cases in which plans were confirmed likely were not dismissed because the municipal filings were not challenged.Home Rule and Taxing Power of MunicipalitiesMunicipalities’ Ability to Self-GovernIllinois operates under Dillon’s Rule by default. However, counties in Illinois with a chief executive officer elected by the electors of the county or any municipality with a population of more than 25,000 are automatically deemed home-rule units. Any other municipality can become home rule by referendum. Similarly, those units that are automatically home-rule units may elect not to be a home-rule unit through referendum.The state legislature may not deny or limit the power of home-rule units to levy or impose taxes upon areas within their boundaries. Additionally, municipalities that are not home-rule units are still granted the authority to levy taxes upon areas within their boundaries in order to provide special services to that area.Taxing Limitations In certain taxing districts, property taxes may not be increased by more than the lesser of 5 percent or the increase in the national Consumer Price Index for the year preceding the levy year, but this rate may be increased by a majority of voters voting in a taxing district.Debt Default PreventionDebt LimitationVarious debt issuance provisions in the Illinois Code contain limitations on how much debt a particular municipal entity may issue. For instance, municipalities with fewer than 500,000 people may issue debt up to 8.625?percent of the total equalized assessed valuation of taxable property in the municipality. A school district for either kindergarten through eighth grade or ninth grade through twelfth grade may only issue bonds up to 6.9 percent of the taxable property in the district. Should a school district contain kindergarten through twelfth grade, the district may issue bonds up to 13.8 percent of the taxable property in the district.Other debt limitations include (a)?2.875 percent of taxable property in counties with populations less than 500,000 and townships, schools or municipal corporations with populations less than 300,000, or park districts, but this 2.875 percent limit does not apply to schools for acquiring or improving a site; constructing, extending, improving and equipping school buildings; or establishing a working cash fund; and (b)?5.75 percent of the value of taxable property for fire protection districts.Financially Distressed City LawUnder this provision, a financially distressed city may receive assistance from the Illinois Finance Authority, which may provide financial aid to the city so that it can provide basic municipal services, while permitting the distressed city to meet its obligations with creditors and bondholders.Refunding BondsIn certain situations, a municipal entity may issue refunding bonds to refund and refinance outstanding debt.Mechanisms for Resolution after DefaultFinancial Planning and SupervisionUnder the Local Government Financial Planning and Supervision Act, a local government with a population less than 25,000 and suffering a “fiscal emergency” in certain instances may upon two-thirds vote of the members of its governing body petition the governor for the establishment of a financial planning and supervision commission in order to remove the “fiscal emergency.” A unit of local government may contract out of the provisions of the Local Government Financial Planning and Supervision Act.ReceivershipIn certain revenue bond default situations, a receiver may be appointed to take possession of and operate the project for which the bonds were issued.Remedies on DefaultAppropriate ReliefIn certain situations, a bondholder may obtain relief from an “appropriate civil action in the appropriate circuit court.”ForeclosureIn certain default situations, bondholders may foreclosure on a mortgage and seize and sell the underlying asset.Injunctive ReliefIn certain situations, bondholders may obtain injunctive relief to enjoin an action with respect to a bond issuance.MandamusIn certain situations, bondholders or their trustee may bring a court action to compel the local governing body to perform a ministerial action that it has refused to undertake, such as collecting taxes or fees where the underlying bond authorization requires such a collection.Other Bondholder ProtectionsSpecial Revenue BondsAs provided by Section 922(d) of the Bankruptcy Code, payments to bondholders holding special revenue bonds would not be stayed on the filing of a municipal bankruptcy petition, and payments to holders could continue. Whether an issuance would qualify as a special revenue bond depends on the provisions of the authorizing statute with respect to the bonds at issue.Statutory LiensWere a municipal entity to file a petition under Chapter 9 of the Bankruptcy Code, bondholders holding bonds to which statutory liens have attached would continue to receive payment on those bonds. For a statutory lien to apply, the authorizing law of the bond issue must contain such a lien. Categories SL-1 and SL-2.Rhode IslandMunicipal Bankruptcy AuthorityRhode Island law includes provisions that allow a budget commission to appoint a receiver to restore fiscal stability in a city, town or fire district. Among other powers, the receiver may file a petition in the name of the city, town or fire district under Chapter 9 of the Bankruptcy Code. Outside of this situation, a municipal entity in Rhode Island may not file a municipal bankruptcy petition. Between 1980 and July 31, 2016, two municipal entities in Rhode Island have filed such a petition.Home Rule and Taxing Power of MunicipalitiesMunicipalities’ Ability to Self-GovernRhode Island is a Dillon’s Rule state. Although the state constitution includes an article granting the people of every city and town the right to home rule, the state legislature maintains power over those entities. The state constitution provides that cities and towns may not levy, assess and collect taxes or borrow money without authorization by the state legislature. The Rhode Island General Laws authorize certain local taxes.Tax LimitationsRhode Island law provides the maximum levy that a city or town may make in a year but allows the city or town to levy taxes above the maximum rate in certain situations. Rhode Island law, however, provides that the power and obligation of cities and towns in the state to pay general obligation debt are unlimited and that cities and towns must levy sufficient ad valorem taxes to pay general obligation debt.Debt Default PreventionBond Issuance RequirementsTo issue bonds, a city or town must (1)?have a longstanding “A” credit rating; (2)?represent that the proposed bonds will finance a capital asset and that the average useful life of the asset will be greater than or equal to the average maturity of the proposed borrowing; (3)?be in compliance with statutory financial reporting requirements and not subject to enforcement proceedings or remedies; and (4)?approve the issuance by local referendum or financial town meeting. Cities and towns must receive ministerial approval from the auditor general, who will approve only if these standards are met.Debt LimitationCities and towns may not incur debt exceeding 3 percent of the full assessed value of taxable property within the city. This measure is net of (i)?borrowing in anticipation of tax proceedings and (ii)?the amount in any sinking fund. The state director of revenue, however, may allow a city to borrow above this limit.Debt Default PreventioncontinuedFiscal OverseerThe director of the state department of revenue may appoint a fiscal overseer for any town or city where the elected chief executive officer and city council so request or the city or town has suffered at least two of five events, including a projected deficit in the current and upcoming fiscal years, failing to file its required audits in the past two years, being downgraded by a nationally recognized rating organization, otherwise being unable to obtain access to reasonable credit or not having promptly responded to requests from the state to assess its financial condition. The fiscal overseer shall recommend to the city sound fiscal policies, supervise all finance services and activities, advise assessors and financial personnel of the city, provide assistance in all matters related to municipal financial affairs, assist in preparing the city’s budget and spending plans, review all proposed contracts and obligations, monitor expenditures, approve annual municipal budgets, and report monthly to the state on the city or town’s progress. Within 120?days of being appointed, the fiscal overseer shall develop a threeyear plan to achieve fiscal stability in the city or town.Budget CommissionIf the fiscal overseer concludes that the city, town or fire district is unable to balance its budget, faces a fiscal crisis that poses an imminent danger to the safety of the city, town or fire district or will not achieve fiscal stability without a budget commission’s assistance, or that the tax levy of the fiscal year should not be approved, it may request that a budget commission be appointed. The budget commission has significant powers, including to approve all appropriations, borrowing authorizations, transfers and other municipal spending authorizations; to increase or decrease municipal fees; to restructure the city, town or fire district’s government and departments; and to issue general obligation bonds of the city, town or fire district. If the budget commission concludes that its powers are not sufficient to restore fiscal stability, a municipal receiver could be appointed.Refunding BondsIn certain situations, a municipal entity may issue refunding bonds to refund and refinance outstanding debt.Mechanisms for Resolution after DefaultBond Payment GuaranteeIf a city or town is unable to make a payment of principal or interest on a bond, and the state certifies, the state treasurer shall pay the bond paying agent the amount of the due or overdue debt to the extent of the sum that would otherwise be then payable to the city or town and sums estimated to become payable during the remainder of the fiscal year. The amount paid will be in trust and charged against the amount that would otherwise be payable by the treasury to the city.Municipal ReceiverIf the budget commission concludes that it has insufficient power to restore fiscal responsibility to the city, town or fire district, the director of revenue shall appoint a receiver with the powers of the financial overseer and budget commission and additional powers to exercise governmental functions. The receiver’s power is superior to that of the elected official of the town or city.Further, if the director of revenue determines that a fiscal emergency exists, he shall appoint a receiver without having first appointed a fiscal overseer or a budget commission.ReceivershipIn certain default situations, Rhode Island law allows for the appointment of a receiver with respect to revenue bonds.Remedies on DefaultAccountingIn certain default situations, bondholders may bring a proceeding to require the authority in question to account as if it were a trustee of an express trust.ForeclosureIn certain situations, bondholders may take possession of a project in the event of default.MandamusIn certain situations, bondholders or their trustee may bring a court action to compel the local governing body to perform a ministerial action that it has refused to undertake, such as collecting taxes or fees where the underlying bond authorization requires such a collection.Other Bondholder ProtectionsSpecial Revenue BondsAs provided by Section 922(d) of the Bankruptcy Code, payments to bondholders holding special revenue bonds would not be stayed on the filing of a municipal bankruptcy petition, and payments to holders could continue. Whether an issuance would qualify as a special revenue bond depends on the provisions of the authorizing statute with respect to the bonds at issue.Statutory LiensWere a municipal entity to file a petition under Chapter 9 of the Bankruptcy Code, bondholders holding bonds to which statutory liens have attached would continue to receive payment on those bonds. For a statutory lien to apply, the authorizing law of the bond issue must contain such a lien. Category SL-1.Rhode Island law also includes strong provisions requiring that payment of bond debt will have first priority of ad valorem and property tax revenues of a municipality over all other debt.Appendix DVillage of Oak Lawn Police and Fire Pension Fund Data568960132080002133600401320001335088-178149200175941-206569900185420-189166500 ................
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