Chicago pension debt drove city property taxes up 164% before COVID-19

Chicago pension debt drove city property taxes up 164% before COVID-19

City property taxes rose 30% faster than in suburban Cook County from 2000 to 2019. Record inflation in 2022 will bring increases statewide in 2023.

Chicago property taxpayers were asked for 164% more in the 20 years before COVID-19 hit, but the hikes really escalated in 2015 and more pain is expected as inflation drives up local governments’ abilities to ask for more.

And they will ask for more, because massive pension debts are forcing them to.

As homeowners pay their first Cook County property tax installment on March 1, 2022, a look back at how Chicago got to this point should start in 2015. That’s when former Mayor Rahm Emanuel set off a $543 million property tax hike, with all that new money going toward pensions. It’s also when city residents started seeing taxes grow nearly 30% faster than suburban Cook County residents.

Mayor Lori Lightfoot has continued Emanuel’s tax-hike legacy. The average Chicago property taxpayer paid $255 extra in 2021, when city residents were collectively asked for $94 million more. Then in 2022 the average was hiked another $180 for a grand total of $76.5 million in new money.

But the pensions keep consuming: $2.3 billion of the $16.7 billion city budget in 2022. That is every dollar from Chicago’s $1.7 billion property tax levy, and then some. Total pension costs equal 21.4% of the city’s own-source revenue.

Despite eating more, the pensions are in desperate shape and perhaps the worst of any in Illinois. The eight funds Chicago taxpayers are responsible for hold $46.9 billion in unfunded liabilities, more pension debt than 45 U.S. states.

Broken down, that is $43,995 per household. Add in the pension debt for the five statewide systems, and each Chicago household is responsible for eventually paying $81,679 per household beyond current tax collections.

Those outside Chicago also carry a heavy property tax load, and more is coming. Because of runaway inflation, 2022 will be the first year local governments subject to tax caps will be able to raise property taxes up to the maximum 5% allowed by law.

Still, more property taxes going to pensions has not prevented local governments from owing $75 billion in pension debt. The statewide average state and local pension debt per household is $45,151.

Combined with the more than $144 billion in debt officially reported by the five statewide pension systems

While the state reports an improvement to $139.9 billion in fiscal year 2021 after strong market returnsexperienced by nearly all large pension funds, Moody’s Investors Service in late September 2021 reported debt in the five state systems at $312.6 billion. Moody’s uses more accurate accounting methods similar to those required in the private sector.

Chicago residential property tax collections across all units of government in the city were up 164% from 2000 to 2019.

Property taxes paid by homeowners within the city grew nearly 30% faster than property taxes in suburban Cook County during those 20 years. Suburban residential property taxes grew 116% while total residential property tax collections county-wide grew 133%.

While some of Chicago’s increase was driven by new property or growth in existing property tax values, the average homeowner still saw an 85% increase in their bill from 2000 to 2019. Since the record-setting 2015 property tax hike to pay for pension debt, the average Chicago bill has risen 27%. Prior to that hike, property taxes were on a lower trend from 2011 to 2014.

In 2019, the average Chicago homeowner paid $3,342 in property taxes on an average home value of $258,000 for an effective rate of 1.3%.

Even though total tax extensions – the amount of taxes requested by government units in a taxing area – grew slower in the suburbs, the bill paid by the average residential homeowner grew faster than in Chicago during the 20 years at 95.6%. This indicates the suburbs saw slower growth in taxable property value.

Pension debt is also a leading cause of municipal property tax increases outside Chicago, where many medium- and large-size cities face similar challenges keeping up with unaffordable retirement benefit structures.

However, Chicago median residential property tax bills have grown faster than the suburbs since 2015. The average suburban bill has grown roughly a third as fast as in Chicago since the 2015 pension property tax hike, at just 9.6% compared to Chicago’s 27%.

In 2019, the average Cook County suburban homeowner paid $5,971 in property taxes on a home valued at $246,600 for an effective rate of 2.4%.

Commercial property taxes grew slower across the board from 2000 to 2019, at 81% within Chicago and 54% in the suburbs. That could change soon with new assessment procedures put in place by Cook County Assessor Fritz Kaegi, which will cause business property taxes to rise faster.

Chicago’s pension spending is up nearly $1 billion just during the three years Lightfoot has been in office and nearly 500% since 2004 in nominal terms. Without significant reforms, it will continue to grow.

Because of restrictive legal interpretations of the Illinois pension clause, only a constitutional amendment can unlock meaningful reforms.

The Illinois Policy Institute has proposed a “hold harmless” constitutional amendment to allow for reductions in future benefit growth for current workers and retirees. It would still treat benefits earned for work already performed as an inviolable contract, but would clarify that adjustments can be made going forward to ensure pensions are sustainable and affordable.

Recent polling by the institute showed 61% of voters supported such an amendment, with broad bipartisan agreement. That represents enough support to pass at the ballot box, but first Springfield lawmakers must pass the amendment to give voters that chance.

Property taxpayers throughout Chicago and Cook County deserve the opportunity to vote on their best option for lasting relief.

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