Glenwood Mayor Kerry Durkin knows the dangers of gambling with taxpayer money: A reminder looms just across a bank of trees from Village Hall.
Taxpayers in the south suburb have long had to subsidize a golf course that officials bought more than a decade ago. And to try to lessen the losses, the town recently doubled down, borrowing big again to build a new clubhouse.
That borrowing — coupled with plummeting property values — pushed Glenwood into a growing list of Chicago-area cities and villages with debt levels once barred by state laws meant to safeguard taxpayers.
Though much public attention has focused on soaring state and national debt, the increase in local IOUs has sparked worries that the next generation in some communities will face crushing tax hikes.
"It will drive the cost of living up and drive the cost of business up," said Grayslake Mayor Rhett Taylor, whose north suburb is debt free. "If we start having businesses pull out and move to Wisconsin and other states, simply because costs are too high, that will have a ripple effect."
As some officials suggest tightening the rules on town borrowing, a Tribune analysis found that by the end of last year, at least 52 towns in the Chicago area exceeded a limit that was in place until 1970: Taxpayer-backed debt couldn't be more than 5 percent of a community's property tax base.
Those towns helped raise the level of taxpayer-backed debt for all Chicago-area municipalities to more than 5 percent. The findings follow previous Tribune investigations that revealed Illinois' hands-off approach to local borrowing allowed some places to go deep into debt in money-losing ventures.
Durkin defended Glenwood's latest project as financially smart and popular. But he's uneasy that his small town's debt rate is now more than double the pre-1970 limit.
"I'm probably the only person in this town that loses sleep on this, but I do," he said.
In an unprecedented look at municipal debt, the Tribune collected data on 270 communities in Cook, DuPage, Kane, Lake, McHenry and Will counties for 2010 and 2011 — the most recent, widely available figures.
It focused on so-called general obligation bonds — the kind of big loans that municipalities promise to pay back even if it means hiking taxes. To compute debt levels for each, a common industry standard was used: The amount owed by each city or village was divided by its equalized assessed property value.
Some cities and villages' rates rose simply because their tax bases shrank, such as Stone Park.
The near west suburb's property values sunk by a fourth. Stone Park had previously borrowed to buy land, upgrade streets and even pay typical bills. The village's debt load is now more than 20 percent.
And some municipalities' rates rose because they borrowed more as their tax bases sunk, such as Evanston.
Records show the city slightly boosted borrowing to cover an early retirement program and infrastructure improvements, including park and street upgrades. That helped send Evanston's debt rate, by 2011, to just above the state's old limit.
Others borrowed at a bolder pace, such as Carpentersville. The far northwest suburb nearly doubled its outstanding general-obligation bonds to build a new public works facility and make street improvements, its finance director said. The village's debt level topped 7 percent.
Those municipalities can trace their ability to borrow heavily to the 1970 rewrite of the Illinois Constitution, which lifted the 5-percent borrowing cap. In its place, the constitution created a class of municipalities called "home rule" that, among other things, can borrow and tax with few limits and no requirement to first seek voter approval. About two-thirds of Chicagoland residents live in such communities.
For the rest of municipalities, taxpayer-backed loans are capped at nearly 9 percent.
The Tribune found the collective debt rate of all municipalities has now eclipsed the old threshold for individual towns.
By 2011, the area's cities and villages collectively owed about 3 percent more than they owed in 2010 — fueled mostly by the city of Chicago's borrowing. At the same time, the 270 municipalities' collective equalized-assessed property values sunk about 10 percent.
The resulting collective debt load rose from 4.5 percent to 5.1 percent. And that doesn't count other types of debt that can also come back to bite taxpayers, such as unfunded pensions.
Or additional debt they may have added this year.
Those who study municipal finance note that borrowing isn't inherently bad. It depends mostly on who's borrowing, how and why. Better bets: Growing communities that need to build or fix basic infrastructure such as streets and sewers. Worse bets: Towns in decline that borrow big — and borrow in ways that put taxpayers on the hook if projects go bad, such as through general obligation bonds.
"Most of the suburban communities around Illinois are pretty much mature communities," said DePaul University assistant professor Martin Luby. "So I think having really high (rate) numbers probably isn't justified."
Critics of Illinois' largely hands-off approach to borrowing complain the loose laws allow taxpayers to be fleeced.
A September Tribune investigation showed how Bellwood residents now pay among the area's highest municipal property tax rates after the flop of a redevelopment plan laced with heavy consultant fees.
Its debt rate is four times the old limit.
A June Tribune investigation showed how municipal property taxes tripled in Bridgeview to help cover the loans for a soccer stadium that struggles to make ends meet but has enriched high-level village employees and town leaders' political supporters.
Its debt rate is nine times the old limit.
At the other end of the extreme are more than 70 area suburbs that, like Grayslake, carry no debt.
Taylor said the formula is simple in Grayslake, population 21,000. Keep a lean workforce. Budget for salaries, pensions and operating costs. And then, with what's left over, prioritize needed improvements. That's how they built a new Village Hall in the 1990s — and built a police addition in 2007 — all without going into debt.
"It can be very tempting to borrow and spend money you don't have so you can do things without having to pay for it through taxes," he said. "But if today's taxpayers don't pay for it, then taxpayers 20 years from now have to pay for it."
A fifth of area communities carry debt rates above the old limit. That includes Chicago, where the rate in 2011 rose to 9.2 percent.
And then there are towns where debt has become a way of life, such as Rosemont.
An August Tribune investigation found that the tiny town near O'Hare International Airport pioneered outsized borrowing. It built and runs entertainment ventures that often enrich friends and relatives of the village's ruling family. It borrowed again last year for another venture, helping boost its debt rate more than 12 percentage points — the highest jump in the area — to nearly 40 percent. Add in other debt backed by future taxes, and Rosemont's rate approaches 54 percent.
Despite the high level, the ventures owned by the village have returned enough money to town coffers to keep the village's taxes on homeowners relatively low — although the village snagged state grants and cab taxes to subsidize its struggling convention business.
Other suburbs emulating Rosemont's business model have endured far heavier losses.
That includes Bridgeview, where the debt load jumped 11 percentage points. That was partly from extra loans to help make payments on stadium debt — similar to taking out a new credit card to cover monthly payments on an old one. The village's general-obligation rate rose to nearly 46 percent. When other debt is included, the village's load grew to 48 percent.
The third biggest jump was in Glenwood, where another sports venture had saddled the town with bad debt.
Sixteen years ago, Glenwood officials — without needing any OK from voters — borrowed more than $6 million to buy the Glenwoodie golf course with the hope of turning a profit, records show. Its general-obligation debt rate, at the time, climbed from 6 percent to nearly 15 percent.
Durkin estimated the course has drawn about half the business that officials once forecast. It's never made enough to cover its debt payments, and never will, he said. So by the time he became mayor in 2009, he said, the perennial money-loser was showing its age.
"I had to either chain it up or improve it," he said.
By then, the village's tax base had grown, and it paid down enough of the loan for its debt rate to drop to 3 percent. But it would soon jump to nearly 12 percent, after village officials borrowed $10 million more — some for basic infrastructure but nearly a third to add a 14,000-square-foot clubhouse attached to the golf course. Durkin expects the clubhouse to make enough money to cover its share of loan payments with some profit remaining to subsidize other debt.
He said the town shouldn't have to raise taxes to cover loan payments so long as the economy improves in the next five to seven years. Otherwise, "all bets are off."
State and local officials from both political parties have questioned such borrowing. They've proposed reforms, such as limiting how much towns can borrow without first seeking voter approval. The issue may be coming on the radar screens of legislative leaders, such as state Sen. Don Harmon, D-Oak Park, who is also a municipal finance lawyer.
"It appears this is an issue that may warrant a closer look," he said in a statement.
Mayor Durkin said he'd even support mandatory referendums on big borrowing deals.
"I'm suffering from decisions that my previous board made before I held office," he said. "If there was a referendum to buy that golf course in 1995, I would have voted no."Copyright © 2015, The Baltimore Sun