Chicago has been grappling with a growing crisis of unfunded bonds and pensions that has led to ever-increasing property taxes, with no end in sight. Unfortunately, the never-ending tax increases are leading to taxpayers fleeing the city in droves, and taking tax revenue with them. This is creating a death spiral of debt like what ultimately led Detroit into bankruptcy.
In 2014, Chicago’s debt had already been reduced to junk-bond status by several credit agencies. Additionally, the population had been reduced to below the levels last seen in 1920, taking close to $18 billion in taxable income out to the suburbs between 1992 and 2010. The budget shortfall for the city of Chicago and the Chicago Public Schools was expected to total over $1 billion between 2014 and 2016, and as of 2014, Chicago’s per capita pension liability was the highest of the country’s 25 largest cities.
In 2015, the unfunded liability for Chicago’s four pension plans amounted to $20.1 billion. However, because it was a mayoral election year, the city chose to raise taxes far less than what it needed in order to fund the police and fire pensions, falling over $500 million short of the legal requirement just for those two pensions. Analysis showed that the city of Chicago would need to increase property taxes by over 150% in order to fully fund the pensions it was responsible for, and that says nothing about issues with underfunding of pensions at the state level.
In 2016, Chicago raised property taxes again, working toward fully funding the pensions by 2048. Yes, 2048. Some property owners saw increases of over 30%. Others saw their taxes even double when hit simultaneously with reassessments and higher tax rates. Still more reported property tax bills tripling, quadrupling, or more. The politicians had little sympathy for them, saying that everyone knew this was coming for years because of the lack of funding for the pensions, and the fact that property tax rates had been kept artificially low for years.
In 2017, property taxes were raised another 10%, once again to help fund those pesky pensions. Where the funding shortfall for the city’s pension funds was a mere $20 billion in 2015, today reports show that it is at a staggering $137 billion. That’s how much they are SHORT, not how much is actually owed. City officials have already admitted that more increases are coming down the road.
The more taxes are raised, the more people move out of the city, leading to decreases in actual tax revenue. In 2015 and 2016, people weren’t just leaving Chicago for the suburbs anymore, but the Chicago metropolitan area declined in population both years. The 2016 loss was the largest loss in population for any metropolitan area in the country. Worse still, people are leaving the state. Illinois ranked 3rd in 2015 when measuring the number of people moving out of the state, and had been in the top five for the previous five years. When the city and state are attempting to bridge gaps in pension funding as well as overall budget shortfalls, raising taxes to the point that it is driving taxpayers away is counterproductive.
The bottom line is that the gravy train of government employee pensions needs to end. This isn’t just a Chicago problem. The Marjory Stoneman Douglas school resource officer who failed to enter the Parkland, FL school during the recent mass shooting to mitigate the tragedy has recently been awarded his pension after he “resigned” (retired) from the Broward County Sheriff’s Department – a pension that amounts to over $100,000 per year, far more than most people make while they are still working! A pension like this is simply outrageous for anyone, especially on the taxpayer’s dime.
In the private sector, companies have long since figured out that pensions are unsustainable, and have moved to 401K plans. An analysis showed that in Oklahoma, where teachers have been striking for higher pay, their pension benefits are worth 23% of their salaries. In the private sector, the average employer match into a 401K is only 3%. The teachers could get an increase in pay by changing to a 401K with an employer match greater than the average 3% in the private sector, but less than the 23% that is currently going into their pension benefits. The cost savings could go into their take-home pay, making them happier, and saving taxpayers money.
Why should government employees get a pension that is worth more than six times the retirement benefits that employees in the private sector get on average? Especially when those private sector employees are the ones footing the bill for the extra retirement benefits. The unfunded pension liabilities are bankrupting cities across the nation, because they are flat out unsustainable. They are effectively a giant, government-sponsored Ponzi scheme. It’s time to put the old, ill-conceived idea of pensions to bed once and for all.