It may be tempting to think that only pensioners are being affected by the nationwide pension crisis, but that’s certainly not the case. In some states, runaway taxes are a reality, and the problem is only going to get worse in states governed by leaders who did nothing about the pension crisis but kick the can further down the road. In the case of Illinois, every single person who owns property is likely going to be penalized—for the state government’s avoidance of the issue.
A solution that’s not really a solution
The Chicago Fed revealed its “solution” to the statewide pension crisis last month during the pension event it cosponsored with The Civic Federation, reports Wirepoints. On the table is a proposal to levy yet another property tax on top of the already-high property taxes being doled out on Illinoisans. The Chicago Fed wants to levy a special property tax estimated at about 1% of property value annually for 30 years.
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At first, that might not seem like a bad solution, but the state already has the highest median property tax rate of all the states, at 2.67%, according to data from Corelogic. Southern Cook County residents are already being hit hard on the property they own, with rates averaging more than 5%, the Chicago Tribune estimated a few years ago, and that high tax rate has been steadily drifting higher.
In fact, this runaway property tax issue due to unfunded public pensions shows no sign of abating, in light of a bill that Illinois lawmakers passed a few years ago. The bill PA 99-0506 mandates automatic, unlimited property tax increases to pay for fire and police pensions beginning in 2020. Some sources have reported that property taxes in Illinois could nearly quadruple in the next seven years just to support these police and fire pension shortfalls alone, although ValueWalk has not been able to independently calculate this increase.
Most of southern Cook County is working class, so it’s a wonder that anyone living there can afford the taxes on their properties at all. There has been a steady flow of homeowners out of southern Cook County and into neighboring Lake County, Indiana, and if/ when this new special property tax is enacted, it seems likely that the steady stream will turn into a raging flood.
Lawmakers fail to fix the pension system, homeowners to pay the price
The Chicago Fed doesn’t even think the high property taxes will keep people from moving to Illinois because home values are expected to plunge, offsetting the high taxes with lower mortgage payments. But what the central bank fails to see is the price current property owners will pay to support the state’s pension crisis.
Anyone who already owns property in Illinois is going to take a huge hit when the value of their properties tumbles even further. There’s no escape from it because the Chicago Fed expects the higher property tax to be reflected in home prices very quickly, leaving current homeowners to shoulder the burden of a failing pension system that state lawmakers failed to fix over years of mismanagement.
Chicago Mayor Rahm Emanuel openly admitted the city’s failures when it comes to the public pension system.
He’s quoted in a post on Medium as saying, “We were not honest. The whole system wasn’t honest. The city didn’t contribute the honest amount. Worker were not contributing the honest amount, and we winked at the public, yet left them with a problem because nobody had the leadership to be honest.”
It seems safe to say that other Illinois lawmakers are equally to blame for the state’s pension crisis, as Moody’s estimates that Illinois’ unfunded pension liabilities at as much as $250 billion, amounting to about $50,000 per household. Illinois is hardly the only state facing such a massive burden in unfunded pension liabilities either, but given what the Chicago Fed proposed recently, it’s the one in the spotlight right now.