By: Mark Glennon*
How could a city that seems so prosperous be so broke? Why the big tax hikes?
Aside from pensions, the most obvious reason is average pay increases far beyond inflation. Those excess pay increases account for over half of Chicago’s proposed $588 million property tax increase. And as for pension benefit hikes exceeding inflation, well, you better sit down.
Let’s look at just police and fire salaries. Suppose average pay was the same today as in 1985, adjusted upward only for the Consumer Price Index. Understand that this is average salary across the city, and these salaries do not include overtime. Chicago has been paying out almost $200 million of that:
Average salary today in the police department is $89,000 per year. In 1985 it was $33,000, which is $72,000 in today’s dollars.
Average salary today in the fire department is $92,000 per year. In 1985 it was $31,000, which is $68,200 in today’s dollars.
Multiply out that excess of actual salaries today over what they would be had we stuck with a 1985 base, increase it for inflation, then multiply that by the number of police and fire employees today. You get $312 million per year. That’s over half of the proposed property tax increase, just looking at police and fire. Chicago has other workers whose pay increases outpaced inflation but they, on average, have lower salaries and their historical numbers are not available.
Were salaries in 1985 fair and should we have stuck with that base? You can decide that for yourselves as well as anybody.
Now, those over-inflated salaries are pensionable, driving up pension benefits as well. That factor, along with other increases in pension benefits, make for some really crazy comparisons to inflation-adjusted 1985. Specifically:
Average annual police pension payment today is $60,000. In 1985 it was $13,000, which is $28,600 in today’s dollars
Average annual pension in the fire department is $70,000 per year. In 1985 it was $14,000, which is $30,940 in today’s dollars.
In other words, the average police pension is up 362% and the average fire pension is up 400% since 1985. After adjusting for inflation, the have increased by over two times the rate of inflation, or about 120%.
What’s the total effect on pensions? Payouts from the police pension zoomed from $50 million in 1985 to $560 million last year. Payouts from the fire department jumped from $26 million to $208 million. That’s despite Chicago’s population dropping over nine percent since 1985, and the number of workers declining a bit as well.
Those numbers came from the most recent actuary reports for the firefighter and police pensions. We put most of them in tables we published last week, but the impact didn’t seem to sink in. They explain much of how Chicago went broke.
*Mark Glennon is founder of WirePoints. Opinions expressed are his own.
Updated 9/27 to correct the line on fire department pension (which earlier said “salary”) and clarifying what is inflation adjusted.