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 Illinois’ worst-in-the-nation pension debt has become a
well-known problem. Over $144 billion in pension debt for the five statewide
retirement systems breaks down to nearly $30,000 in debt for each household,
which must be paid with further tax hikes or further cuts to core government
services.
Less well known is the nearly $75 billion of pension debt held by local
governments in Illinois, which is the primary reason for Illinois’
second-highest in the nation property taxes. Combined with the state’s pension
debt, politicians who mismanaged the pension system dug a $219 billion hole.
But local pension debt varies widely based on where a taxpayer lives in
Illinois. And there is a way to climb out of Illinois’ pension abyss.
In Peoria, the average household owes $37,684 in state and local pension debt,
with roughly $7,900 of that debt stemming from local systems for police,
firefighters and municipal workers. Pension debt equals 73% of the $51,771
average annual income per household in Peoria.
The city of Peoria has more than $364 million in local pension debt, according
to the most recent data provided to the state comptroller for fiscal year 2019.
That debt includes $171.8 million for fire pensions, $161.6 million for police
pensions and $30.9 million for municipal workers.
Pension experts consider a funding ratio of less than 60% to be “deeply
troubled.” A 40% funding ratio may be a “point of no return,” meaning an
inability to make required contributions or maintain adequate funding levels –
without painful cuts or serious structural reforms. The Peoria firefighters fund
is only 48% funded, while the police pension fund has only 50 cents saved for
each $1 in future promises.
Pension contributions cost Peoria nearly $24 million in fiscal year 2019. That
means pensions ate more than 63% of the $37.9 million collected from property
taxpayers.
The local pension crisis drives property tax hikes as mayors
and other local leaders struggle to keep up with the growing financial burden.
Local leaders have been saddled with pension systems created by state law and
have virtually no options to reduce costs or improve sustainability on their
own. Property taxes equal roughly $4,550 on a Peoria home valued around the area
average $125,700, according to information from the county assessor. That’s
3.62% of the home’s value going to property taxes each year.
Peoria’s pension woes have directly harmed its community in numerous ways. The
city’s struggles to pay former police officers, firefighters and municipal
employees have led to multiple layoffs. In November 2018, Peoria eliminated 22
firefighter and 16 police positions. Revenue losses from COVID-19 forced the
city to cut an additional 45 jobs in June 2020. Despite reducing the public
workforce, Peoria taxpayers in 2019 faced a new property tax fee devoted
entirely to funding public safety pensions. The fee ranged from $10 to $200.
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In Peoria and many other 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 already been forced to either
lay off current workers, raise taxes or both to keep up with the
cost of these pension systems. For example:
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Jerome, Geneseo, and Norridge raised property
taxes to pay for pension costs in 2018.
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The south Chicago suburb of Harvey in 2018 laid
off one-quarter of its police officers, more than half of its
other police department personnel and 40% of its firefighters
after the state intercepted money bound for the city under a
pension law intended to force cities to make required pension
contributions.
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In 2019, the pension intercept law was also
triggered in North Chicago and East St. Louis. The resulting
increase in pension costs for the cities’ budgets resulted in
$1.3 million worth of cuts in North Chicago, including layoffs
for three firefighters, and nine firefighter layoffs in East St.
Louis.
The combination of higher taxes and worsening
services is a major reason Illinoisans have increasingly fled to
other states. The 2020 Census marked the first time in 200 years
that Illinois lost population between decennial Census counts, which
was driven by migration of Illinois residents to other states.
Illinois’ state and local pension crisis is the most severe public
policy challenge facing the state. It contributes to nearly every
other fiscal and economic problem, including high property taxes,
cuts to government services, economic stagnation and the Illinois
exodus.
The only viable solution to Illinois’ pension crisis starts with a
constitutional amendment to allow for reductions in future benefit
growth for current workers and retirees. The current pension clause,
which prevents changes not only to earned benefits but also the
future growth rate of benefits for work not yet performed, is a pair
of fiscal handcuffs on mayors left with few options besides hiking
taxes and cutting services.
A “hold harmless” pension reform plan developed by the Illinois
Policy Institute for the state’s systems can save roughly $2.4
billion for the state budget the first year and more than $50
billion through 2045. The plan would also totally eliminate the
state’s pension debt during that time, rather than the 90% reduction
state leaders hope for. It accomplishes all of that while preserving
every dollar of pension benefits promised to public workers for work
already performed.
Similar reforms to local pension systems could offer significant
property tax relief to overburdened homeowners, free up resources
for spending on current services, or finance a combination of the
two. In Peoria, such relief is sorely needed.
True pension reform, starting with a constitutional amendment, is
the only way to stop the Illinois exodus by finally giving taxpayers
value for their money. |
