Pension Woes Sink Oak Lawn's Credit Rating to 'Junk Level'

OAK LAWN, IL — One of the big three ratings agencies has downgraded the Village of Oak Lawn’s credit to “junk level” status. Moody’s Investors Service gave the village a Ba1 rating, citing the village’s ongoing pension liabilities that are below state mandated levels. The change reflects a slight downgrade from the village’s previous Baaa rating.

The Moody’s report, released on Dec. 23, acknowledges public safety pension contributions as a cause for continued concern that could leave the village vulnerable to a diversion of state shared revenue. coupled with a weak cash flow across major operating funds.

At the same time, the report acknowledged the village’s significant debt reduction, low outstanding debt burden, sizable and diverse tax base and economic ties to Chicago, which also has a Ba1 rating.

Mayor Sandra Bury expressed frustration that so much emphasis is placed on pension obligations, “when they are a problem for every municipality in the country.”

“The Village of Oak Lawn has no control over what is promised by Springfield, and yet we have to find a way to pay what is promised and do it over and over,” Bury said. “There are way too many unfunded mandates, but the pension crisis can only be fixed in Springfield. We have begged our state legislators for relief and without that, the pension debt will continue to negatively impact every aspect of the services that the village can provide.”

Per the Dec. 10 village board meeting during which the 2020 budget was passed, the village expects to contribute $9.7 million toward police and fire pensions in 2020, an 800-percent increase from the $1.2 million contributed less than a decade ago.

The rating change wasn’t entirely devoid of positive news. Moody’s upgraded its outlook for the village’s future ratings from negative to stable, citing the village’s overall debt reduction (from almost $90 million to $67 million), an almost 30-percent reduction in full and part-time employees, and continued strong interest from developers who are investing millions of dollars in Oak Lawn.

That “stable” outlook reflects an expectation that Oak Lawn would slowly improve its cash flow, add revenue and avoid the village’s share of state tax revenue garnished by the state’s public safety pension boards.

The village risks a further downgrade if it continues to narrow the fund balance and available liquidity or cash assets, diversion of state revenue to a pension fund that creates additional operating pressures and potential increase in property taxes, or significant growth in debt or pension burden, according to the report.

Earlier this month, the Oak Lawn Village Board passed a 2020 budget of $60,058,338, marking the seventh consecutive year the village did not increase its share of the available property tax levy. The village board nixed a recreational marijuana dispensary along with a potential tax revenue of $300,000. However, the village added a “penny per push” tax on video gaming machines that could reap annual revenue of $500,000 to help fund pension liabilities.

Unless the state or federal government comes up with a fix for the current pension system, Bury said, “more and more of our tax dollars will be consumed by pensions the result of which is ongoing budget pressure for current services."