$75 billion local pension debt drives Illinois’ high property tax burden

CHICAGO (Sept. 28, 2021) — Illinois homeowners are making their property tax payments this fall with the uneasy knowledge their future tax bills will climb, that is, unless Springfield acts to help local governments control pension growth.

While Illinois’ nation-leading $144 billion in unfunded pension liabilities in the five state retirement systems eat at the state budget, local governments are accountable for another $75 billion in local government pension debt, which consumes significant chunks of property tax dollars.

With a combined state and local debt burden of $219 billion, each Illinois household is on the hook for an average of $45,151 worth of future taxes, according to the original Illinois Policy Institute analysis.

The analysis shows in 20 large Illinois municipalities, pension debt has reached crisis levels and is hurting taxpayers and city services. Each of these 20 cities and towns has a public safety pension fund with less than 50 cents saved for every $1 in future promises. Despite these cities dedicating large, growing shares of municipal property taxes to fund pension debt, they can’t keep up with the debt and have been forced to cut staff or services.

Illinois Policy Institute experts developed a “hold harmless” pension reform plan that preserves every dollar of pension benefits promised to public workers for work already performed and could offer significant property tax relief while preserving state and local government services. State lawmakers would first need to put a referendum on the ballot asking voters to amend the Illinois Constitution to allow for changes to the growth in future pension benefits for current workers and retirees.

How cities are struggling under pension debt:

• In seven of the 20 cities and towns, required pension payments exceed all the local property taxes collected.
• In six of the cities, per household pension debt exceeds the area median household income.
• The city of Carbondale’s pension spending is nearly three times what it collects in property taxes, the worst ratio of all the cities.
• Among the cities where households are on the hook for the most to fund pensions are North Chicago, Melrose Park and Granite City, where each household is on the hook for over $45,000 in pension debt.

Examples of Illinois cities that have seen tax hikes or service cuts due to rising pension costs:

• Rockford leaders were told by consultants that to absorb rising pension costs without running out of money in five years, the city would have to eliminate 40 sworn police officer positions, close down an entire fire station, freeze all city employee wages to 2019 rates and sell its water system.
• 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 city money under a law intended to force cities to make required pension contributions.
• Peoria, which in 2018 eliminated 38 first responder jobs and 27 municipal jobs, has already been forced to cut an additional 45 jobs in 2020 after COVID-19 exacerbated the city’s pension-driven budget woes. Additionally, the city in 2019 implemented a special property tax fee for pensions that ranges as high as $200.
• East St. Louis has cut its active police force in half since 2003, a much larger reduction than the 16% drop it has seen in its population.
• Danville in 2017 hiked its special public safety pension fee, which is levied on top of normal property taxes, by 178% to $267 per year.
• Alton was forced to sell off its water and sewer system to try to keep pace with the rising cost of local pension funds in 2019. Granite City followed suit in 2020.
• Rock Island raised property taxes 8.9% to pay for pensions and Niles raised them nearly 5% in 2019.
• 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, and layoffs for nine firefighters in East St. Louis.

Adam Schuster, senior director of budget and tax research for the nonpartisan Illinois Policy Institute, offered the following statement:

“Illinois’ pension clause serves as a pair of fiscal handcuffs on mayors across the state. State law saddles them with an unsustainable financial burden with no options to control costs. As a result, local governments are forced to simultaneously raise property taxes year after year while making cuts to vital government services such as police and fire protection.

“The only viable solution to Illinois’ pension crisis starts with a constitutional amendment to allow for future benefit reform. Only when the skyrocketing pension costs are brought under control can Illinois families have confidence they’re getting value for their tax dollars, and be spared from being asked to pay more to get less.”

To read more about Illinois’ local pension debt problem, visit illin.is/propertytaxpension.

For bookings or interviews, contact media@illinoispolicy.org or (312) 607-4977.