"Seventeen suburbs are holding on to enough cash to fund municipal operations in those towns for at least one year.
That includes Pingree Grove, which has more than two years’ worth of the village’s operating expenses in an unassigned reserve account, according to a Daily Herald analysis of 84 suburban municipal audits.
“It’s the classic argument of whether you operate on the issuance of debt or whether you operate pay-as-you-go,” said Pingree Grove Village Manager Jeff Cook. “Our approach has been to attempt to not place too much of a debt burden on the village.”
Cook said the village didn’t have a capital improvement fund until 2021, and that’s what most of the reserve dollars will ultimately be used for. He noted the village is one of the fastest-growing towns in Illinois, having more than doubled in population from 2010 to 2020, when residents topped the 10,000 mark.
Future capital improvement projects are a common refrain among municipal leaders in towns with higher reserve balances. But critics argue towns can build sizable reserve funds unfettered and circumvent voter approval for spending on these types of projects.
“There is a reason for having true reserves, which are necessary,” said Sheila Weinberg, founder and CEO of Truth in Accounting, a group advocating for more uniform, understandable and accessible government financial reporting requirements. “Reserves are intended to support disturbances in operational revenues, like what we saw with the pandemic. That showed some governments didn’t have enough reserves then.”
The Government Finance Officers Association recommends a minimum of two months of operating expenses be held in reserve “to mitigate current and future risks.” The group does not recommend a maximum amount of reserves.
Among the towns in the analysis, only Aurora, Elmhurst and Fox Lake reported unassigned reserves below two months of those towns’ operating expenses.
According to the municipal audits, an average of 54.6% of annual operating expenses are being held in reserve among the 84 suburbs, which is the equivalent of nearly $1.3 billion combined.
“Just because your reserves are at 100% of annual operating expenses doesn’t mean you’re too high as long as your process has been completely transparent with constituents,” said Ralph Martire, executive director of the bipartisan Center for Tax and Budget Accountability. “Voters have the right to know why you are taxing at a level more than is needed to maintain current operations.”
Hanover Park Mayor Rod Craig expects the village’s reserves to take a significant hit next year when a new fire station is built using some of the $37 million it has in reserve. The village’s reserves are currently 100% of its annual operating expenses.
“We’re going to chip away at that amount because of the fire station,” he said. “I like having reserves because it minimizes the impact on taxpayers and homeowners. We haven’t raised property taxes in at least five years.”
Other towns with more than a year’s worth of expenses in reserve include Barrington Hills, Bensenville, Inverness, Kildeer, Lake in the Hills, Lindenhurst, Lisle, Oak Brook, Prospect Heights, Rosemont, Round Lake Park, South Elgin, Vernon Hills, Wayne and Winfield.
Round Lake Park Mayor Linda Lucassen said the village has been “frugal” in the past, allowing the town to generate a reserve account that is 118.2% of annual operating expenses. She said one plan for the town’s reserves is to beef up the village’s “skeleton crew” of a police department.
However, Martire warns that using reserves to fund ongoing operational costs may not be the most prudent use of the excess resources.
“That will just come back to bite you,” he said. “You create a fiscal cliff because at some point you run out of that revenue source.”
Many of the towns with higher reserves are smaller suburbs or municipalities without a diverse mix of revenue sources.
In Oak Brook, the village relies almost entirely on sales tax revenue from Oak Brook Center and other commercial properties to pay for operational expenses. The village does not levy a property tax.
According to its most recent audit, the village was holding nearly $31.3 million in reserve, while its annual operating costs were just $22 million.
“We have a lot less sustainable taxing basis from year to year than other towns,” said Oak Brook Village Manager Greg Summers. “We are so heavily reliant on the sales tax to fund our operations, and sales taxes are so heavily reliant on the economy.”
At the start of the COVID-19 pandemic, Oak Brook was one of the hardest-hit suburbs, because when businesses were shut down, the revenue faucet for the village was essentially turned off as well. The strength of the village’s reserve fund allowed officials to continue full operations, despite the lack of incoming revenue.
“What the village did not do was cut a single full-time employee,” Summers said. “As soon as things started to reopen, we saw an immediate and healthy recovery.”
A 2016 study of Illinois municipal reserves by researchers from Northern Illinois University concluded that “municipalities could benefit from clearer guidance on the levels of reserves that they should strive to maintain.”
In fact, very few municipalities outline their reserve policy in their audits.
One such suburb, Roselle, noted village leaders had increased the desired level of reserves from 35% of operating expenses to 45%. But currently Roselle is holding onto 57.5% of the village’s annual operating costs in reserve, according to the village’s most recent audit.
Village officials have earmarked excess reserves to cover public safety pension debt, according to the town’s audit."
Read the full article on: Chicago News Insight