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A referendum question on the Feb. 5 ballot asks for an increase of $1 – from $5
to $6 – for every $1,000 of value of real estate being transferred. The transfer tax is only paid when real estate is sold, and, in Evanston, is usually paid by the sellers.
At present, the revenue from the transfer tax is used in the City’s General Fund, its main operating budget. Should the increase be approved by voters, that increment would be used to fund the state-mandated police and firefighters pension funds.
The City estimates that the amount of revenue generated by the proposed increase would be $800,000 per year. The transfer tax paid on the sale of a $300,000 house for example, would increase from $1,500 (300 x $5) to $1,800 (300 x $6). Approximately 1,700-1,800 parcels of real estate are sold annually in the City of Evanston.
Need for Pension Funding
As of March 1, 2007, the police and firefighters pension funds had an unfunded actuarial liability of approximately $140 million. The police pension fund was 44.3 percent funded; the firefighters pension fund was 41.1 percent funded. The state mandates that the liability be 100-percent funded by 2033.
The 2006 property tax levy contribution to the two pension funds was $7.9 million; the actuarial recommendation is $12.1 million.
In order to reach full funding by 2033, it is anticipated that the annual cost of the City’s employer contributions to the police and firefighters pension funds will require increases in property taxes over the next 26 years unless other sources of revenue are found.
Moody’s Ratings Service recently cited the growing unfunded pension liabilities when it downgraded the City’s Aaa credit rating to Aa1.
On Sept. 24, 2007, the City Council directed the City Clerk to submit a referendum question for the Feb. 5, 2008 ballot, asking voters to determine whether or not to increase the real estate transfer tax to provide an alternate revenue source for public safety pensions.