This is true partly because of low interest rates and that became exacerbated when Powell took those rates to 0. Going back though Illinois bargained in bad faith promising 3% (I believe) annual increases regardless of their financial situation. Obviously the math doesn’t work when the promised increases outweigh the inflation and interest rates. Insurance companies and savers also get hurt by low interest rates.
Do the pensioners have a representative or several representatives? It seems they are going to have face some decisions…either willingly go back to the negotiation table to restructure the plans or the state declares bankruptcy and they are not part of the process. At some point…like now…they must realize that their pensions are unsustainable and need to be lowered. They must rather be a part of those negotiations than just waiting to see what happens and hope it’s not too painful. Are there any talks going on to any of this?
As a former resident of Illinois for my first 35 years, I would like to point out that this is not a regional problem. Just look at a map that shows state credit ratings as of 2019, before Covid 19.
Indiana, Iowa, and Missouri all have credit ratings of Aaa–the highest possible rating.
Wisconsin and Michigan both have a Aa rating, the second highest level.
In the middle of states that have been responsible in their spending and borrowing stands Illinois with the lowest rating of all 50 states.
For years, Illinois has used a budget balancing technique that would cause private company auditors to resign before they went to prison with their clients. Illinois simply assumed a higher rate of return for the public pension funds. It would take a miracle for the plans to consistently meet those goals, especially since the rate of return for investments never made is zero. Investment managers cannot get a return on funds that were not properly funded in the first place.
Illinois State pensions CANNOT be lowered because of the amendment to the Illinois constitution ratified in the 1970s (when the economy was booming here).
Talks don’t matter, Votes don’t matter. Protests don’t matter. There are no “bills” that can be presented to the Rules Committee (which consists of Speaker of the House Michael Madigan), because a bill to lower the pensions will be ruled unconstitutional.
The ONLY way that this problem can be fixed is with an amendment to the Illinois Constitution, and even if it makes it to a discussion phase, getting it ratified will probably never happen. After all, there are plenty of State employees (especially public school and state university teachers and administrators) who don’t want to have to start contributing to their pension. It’s nice to have the State (taxpayers) pay for a very generous pension for you! Would YOU want to lose that? I sure wouldn’t.
We’re completey without any recourse, other than moving away from Illinois, and plenty of people have done so. Every town and city in Illinois must contribute to the State Pension fund, EVERY town and city. There are towns an dcities in Illinois where the ENTIRE property tax bill goes to the Illinois pension fund, and ALL the town/city services must be privately contracted–garbage, police, fire, street repair, EMTs, etc.
Needless to say, this requirement to contribute to the pension fund first before meeting local expenses has resulted in many Illinois towns and cities stuck with unbelievably high property taxes. Our city has the 4th highest property taxes in the nation. When we lived in Raleigh, North Carolina, we paid $600/year property taxes, and when we moved back to Illinois, our property taxes were over $3000 for a much smaller house and lot in a much more dangerous and inner-city neighborhood.
We must be insane to stay here. But it’s home–it’s the Land of Lincoln, and I love it.I don’t want to be forced to move away from my home because of a foolish amendment that was made decades ago when the economy was completely different.
I want our politicians to stop being so greedy and be willing to tell their constituents, including the State employees, “I’m sorry, we can’'t do this pension thing any longer. Those of you who have counted on your pension will get it, but starting here and now, new Illinois State employees will have to chip in part of their pension instead of getting it all from the taxpayers. If you aren’t willing to do this, our State will be broke and you won’t get ANYTHING.” .
Well, obviously making it a constitutional requirement was idiotic! If pensioners began contributing…which they absolutely should…does that fix the problem. I’m sure it will in the future but for right now, what are the options. I agree, those taxes are killing the state. Who on earth would move or start a business there? It seems the state is in such dire straights that they can’t even offer tax incentives for new business…often a requirement to bring in new business…as they desperately need every penny. Have there been suggestions on how to generate more revenue? Are there portions of businesses that can be squeezed? Better investments!
I’m just horrified that this has been allowed to continue. I first heard of these problems several years ago and nothing has been done! Colorado had some issues with pension investments not meeting the demands of pensions but it sure wasn’t put into our constitution that they had to be mandatorily paid and never renegotiated! Yikes! Ours went back to the table and was restructured. I do think there are still some issues but nothing that is strangling our state like yours. I’m surprised yours passed constitutional muster in the first place. I really hate politics when I hear things like this. My heart goes out to you. I understand loving your state and wanting to stay there. It would take an awful lot to get me to leave Colorado and I wasn’t even born here!
Is there any Light at the end of the tunnel?
Well, there is the new marijuana tax.
Illinoisans are all law abiding and would never consider using their old drug dealers to avoid the tax. I moved from Illinois to Indiana in 1984 and pay less than half the real estate taxes my siblings pay in Illinois. I also pay less in income tax, less in sales tax, and would pay less in tobacco taxes if I would be dumb enough to smoke cigarettes.
With those lower taxes we still have lower housing costs, lower crime rates, and a voucher program that makes it possible for parents to better the lives of their children by making it affordable to send their children to authentically Catholic schools.
It is possible through bankruptcy, as in Blood v. Turnip. The judiciary might have to settle this in the end.
I honestly don’t think so as long as Speaker Michael Madigan is alive. He is 78 years old and healthier than most teenagers because he actually follows the health practices that all of us should follow. It also helps that he’s fabulously wealthy.
By his own admission, he has as much power as the President of the United States. I would say more–Donald Trump only did one campaign visit in Illinois, and it was very quick. Not worth his time–he knows he can’t win Illinois. Only Democratic candidates for Prez. win in Illinois.
I think Speaker Madigan will live into his hundreds, long after I’m gone. And he rules like a dictator. Any politician who crosses him doesn’t keep his/her office for long, and is lucky to keep their privileges to practice law in the State.
The chances of his being voted out are about as likely as the Protestants and Catholics becoming united within the next week. It could happen—but not likely. Every 2 years, Speaker Madigan wins re-election in his district by about 85% of the votes. His district is crime free (what criminal would be foolish enough to trangress in Speaker Madigan’s district–shudder! Lots of cornfields in Illinois!). The schools in Speaker Madigan’s district are new and beautiful, the streets are so clean that you can spread out your supper on them and eat off the pavement. If a pothole develops, it is repaired by the end of the workday. He attends school events, church events, community events, and greets his constituents likea loving father! They love him! My husband and I have been tempted to move to his district so we can eliminate our chances of being shot.
Since my college days (I’m 63!), Speaker Madigan has ruled the State with absolute power. No one would dare cross him by proposing an amendment to our Constitution. Even if they did, the judges under his control would find a reason to declare the amendment unconstitutional so that they could keep themselves and their families…healthy.
So the only recourse is moving. The other recourse is sucking it up and being fortunate enough to keep our jobs (this pandemic has thrown a monkey wrench into this and I predict that many Illinoisians will have to move) and be able to pay our taxes to sate Speaker Madigan’s needs and still have enough of our wages left for us to live on.
Don’t forget cities in Illinois are not permitted to declare bankruptcy. But when one sees smaller cities around Illinois forced to contract out all services while raising property taxes to feed the pension beast, one quickly realizes that the cities are effectively bankrupt already.
There are no limits in Illinois on property taxes. My understanding is that they have already doubled and are still increasing. Only a matter of time until the new taxes really start crushing residential and commercial real estate values. All Covid-19 has done is accelerate that process. People were already leaving the state in droves. Most people have been staying in state due to inertia and the ability to keep paying their bills. But once many more people can no longer pay their bills, what then? At what point does that become a critical mass that causes the state and city taxbase to implode? At what point does real estate start really emptying out because nobody will buy property even at dimes on the dollar due to the taxes on that property? At what point will banks having to take over the property will tolerate the tax burden on them?
I don’t really see a solution in sight as long as Madigan is in charge. This is why the Democrats have to win. Because Madigan and Chicago Mayor Lightfoot are counting on them to bail out the state and the city.
By coincidence, there is a very relevant article in Zero Hedge today. Doesn’t mention Illinois or Chicago; instead it talks about the overall trouble pensions are in.
If you’re dependent on a pension or anticipating depending on a pension, I would strongly suggest to look up your plan’s solvency and then look at alternate sources of income for your old age.
It’s already happening. One of my friends is trying to sell her very fine old home in our city–it has 5 bedrooms, 5 bathrooms, and an apartment above the garage (orignally intended for the maid or other servant).
The property taxes on this place are $18,000 per year. No one wants to buy the place. They would like to re-coup what they put into rehabbing it (it was a disaster when they moved in–the previous owners actually gutted the kitchen, but never put in a new kitchen. And there were many updates needed on the plumbing, heat, etc. ) They will be lucky if they can get what they paid for it 30 years ago.
There are many beautiful homes in our city–3 bedroom, 2 bathroom, full basement, 2 car garage, big back yard–that sell for $75,000 or less! My brother, who owns several properties in this city, showed me a beautiful ranch-style home with all kinds of amenities–the asking price was down to twelve-thousand dollars (because it’s in a dangerous" neighborhood!
In any other city, these places would fetch $150,000 or more. Not here. Who wants to pay a $4000 or more property tax bill every year–and STILL have absymal school achievement test scores (only 15% achieve grade level), and the highest percentage per population of murders in the state, even worse than Chicago!
I just listened to a news show about Texas budget crisis.
They say no to every avenue of revenue , and that will result in the substantial cutting of essential services. It doesn’t look like consumption of oil is soon to return either.
Maximus1, what is the cause of Texas’ budget crisis? Thanks!
I didn’t realize it was that bad.
$18k in property taxes for house listing at $75k? Who is anyone kidding? At that rate, one does not really own the property, one rents it from the state following a down payment akin to the initial payment on a lease. Plus that is in addition to the mortgage if one is carried. But what bank will make a loan on that property? Your friends may find themselves having to take whatever cash they can get and leaving. Hopefully enough to cover moving expenses and startup expenses somewhere out of state. Multiply that situation by thousands in your friends’ position. If the mad rush to get out really gets going, many people will get little to no cash out of the house, they will just have to leave the keys behind and walk away.
For an anecdotal perspective: in CA, an $18k property tax bill would imply an assessed value of about $1.5m. In TX, the average property tax rate is about 1.86%, iirc, so an $18k tax bill would imply an average assessed valuation of over $900k. All figures are approximate, but not far off.
NJ is another state with “get out of there” levels of property tax. I know someone there whose tax bill is $36k per year on a house that was purchased for $650k about 15 years ago. Due to the taxes, it is not worth that now and the owners will never get back what they put in. Multiply that situation by hundreds if not thousands.
I hate to say it Peeps, but we may see Detroit in your future. Where they razed hundreds of blocks in the outlying areas as those tracts were simply abandoned and the city’s footprint shrank drastically. It has to be remembered that rot took place over a long period of time. Who knows what it will look like in Chicago and Illinois the next few years?
All agencies have been asked to find a way to cut 5% from their budget to keep us balanced and prevent a real crisis. That is the extent of the crisis in Texas at this time. Most of it will be through deferring capital expenditures. This might hurt the infrastructure and cost more in the future, or might not. The extent to which cuts cannot be made, taxes may have to increase to make up the difference.
I apologize if my post wasn’t clear.
My friend’s 5 BR 5 Bathroom house gets an $18,000 tax bill.
The average ranch house (which should sell for around $150K, but goes for $75K) gets a tax bill of around $4000.
They’re still both unconscionably high!