Rapidly rising property taxes and rising pension costs mean that homeowners have to pay more to get less. Remedy requires a structural pension reform, starting with a constitutional amendment.
Illinois’ worst pension debt has become a known problem. Over $ 144 billion in pension debt for the five nationwide pension systems equates to nearly $ 30,000 in debt for each household that must be paid for with further tax hikes or further cuts in core government services.
Less well known is the nearly $ 75 billion in pension debt held by Illinois local governments, which is the main reason behind Illinois’ second-highest wealth tax in the country. Combined with the state’s pension debt, politicians who poorly managed the pension system dug a $ 219 billion hole that left every Illinois household an average of $ 45,151 in pension debt.
However, local pension debt varies widely depending on where an Illinois taxpayer lives. And there is a way to get out of the Illinois pension abyss.
Chicago is driving the state average significantly higher because it has more pension debt than 44 US states. The Chicago Police Pension Fund is only 22% funded and the Fire Department Pension Fund saved only 18 cents for every $ 1 in future promises.
Pension experts consider a coverage ratio of less than 60% to be “deeply concerned”. A coverage ratio of 40% can be a point of no return, the inability to make the necessary contributions or maintain an adequate level of funding – without painful cuts or serious structural reforms.
Pension debt has grown to crisis levels in at least 20 other large communities in Illinois. Each of these 20 cities and towns has a public safety pension fund with less than 50 cents for every $ 1 of future promises. All of them have a population of over 25,000 – with the exception of Harvey and Melrose Park, where populations recently fell just below that threshold.
Pension debt per household in these communities ranges from $ 34,412 in Carbondale to $ 47,341 in North Chicago, which is both local debt and each household’s share of the state’s pension debt. In seven of these cities, taxpayers’ annual pension contributions are higher than the total annual municipal property tax levy. And in a further six cases, the pension debt per household exceeds the median household income reported by the Census Bureau.
The local pension crisis is driving property tax hikes as mayors and other local leaders struggle to keep up with the growing financial burden. Local executives are overwhelmed by state laws with pension systems and have virtually no options to reduce costs or improve sustainability on their own.
In these and other 20 cities, taxpayers are being asked to pay more to get less. Rising annual pension costs are crowding out local government spending on services that residents want and need. In recent years, Illinois cities have been forced to either lay off current workers, raise taxes, or both to keep up with the cost of these pension systems. For example:
- East St. Louis has halved its active police force since 2003, a decrease much more than the 16% population decline.
- In 2019, the Federal Pension Act was triggered in North Chicago and East St. Louis. The resulting increase in the cost of retirement homes for urban households resulted in cuts of $ 1.3 million in north Chicago, including layoffs of three firefighters and nine layoffs of firefighters in East St. Louis.
- Danville increased its special public safety pension, which is on top of normal property taxes, by 178% to $ 267 per year in 2017.
- Alton was forced to sell its water and sanitation system in 2019 to keep up with the rising costs of local pension funds, and Granite City followed suit in 2020.
- Jerome, Geneseo, Norridge, and Moline raised property taxes in 2018 to pay retirement costs.
- Rock Island hiked property taxes 8.9% to pay the pensions, and Niles hiked them nearly 5% in 2019.
- Rockford leaders were told by advisors that the city would have to cut 40 sworn police posts, shut down an entire fire station, freeze and sell all city employees’ wages to 2019 rates to absorb rising pension costs without the money in five Years ago its water system ran out.
- Chicago’s southern suburb, Harvey, sacked a quarter of its police officers, more than half of its other law enforcement officers, and 40% of its firefighters in 2018 after the state intercepted funds destined for the city under a pension law to force cities to die to make the necessary pension contributions.
- Peoria, which cut 38 first aid jobs and 27 community jobs in 2018, had to cut another 45 jobs in 2020 after COVID-19 exacerbated the city’s pension-related budget problems. In addition, in 2019 the city introduced a special property tax on pensions of up to $ 200.
The combination of higher taxes and deteriorating services is likely a primary reason Illinois residents have increasingly fled to other states. The 2020 census marked the first time in 200 years that Illinois lost population between ten-year censuses, driven by the emigration of Illinois residents to other states.
The outbreak of the COVID-19 pandemic has compounded the financial challenge posed by local pension debt. Cook County Treasurer Maria Pappas told the New York Times that the state of local pensions in the COVID-19 era “is like a rubber band stretched too thin” and warned that “the rubber band is about to tear” .
Local layoffs were the largest contributor to job losses during the pandemic and an obstacle to reaching pre-pandemic employment levels. If not so many cities and towns across the state were grappling with unsustainable growth in pension spending, many of these layoffs could have been avoided.
The Illinois state and local pension crisis is the greatest public policy challenge the state faces. It contributes to almost every other fiscal and economic problem, including high property taxes, cuts in government services, economic stagnation, and brain drain from Illinois.
While the laws passed in 2019 to consolidate local pension fund investments will help funds achieve slightly better returns, these efforts lag well behind the structural reforms needed to stabilize the local pension crisis. The bill also allowed improvements in pension benefits that will increase pension debt, and failed to fully consolidate the police and fire coffers in the lower state as the roughly 650 local pension committees remained in charge of managing benefits.
The only viable solution to the Illinois retirement crisis begins with a constitutional amendment that allows for a reduction in future performance growth for current workers and retirees. The current pension clause, which prevents changes not only in employment benefits but also in the future rate of growth in under-work benefits, is a pair of fiscal handcuffs for mayors who have few options besides tax increases and benefit cuts.
A pension reform plan developed by the Illinois Policy Institute for the state systems âkeep it harmlessâ can save around 2.4 billion in the first year instead of the 90 percent reduction that the heads of state are hoping for. All of this is accomplished while preserving every dollar of retirement benefits pledged to public service workers for work already done.
Similar reforms to local pension systems could provide overburdened homeowners significant tax breaks, free up resources for spending on ongoing services, or finance a combination of both.
Real pension reform, starting with a constitutional amendment, is the only way to stop the Illinois exodus by finally offering taxpayers value for their money.