By: Mark Glennon*

 

With tax increase proposals “popping up like weeds,” as one headline put it today, voters, particularly in Chicago, are justified in asking if those increases will solve much, or would just throw good money at an insoluble problem. This should be an all-important question for them: How much would taxes have to increase to properly fund the eleven overlapping pensions Chicago taxpayers are responsible for?

 

Incredibly, no source provides anything close to a useful answer. Without that answer, politicians and voters are driving blind. The sources that are available suffer from a variety of problems and produce very misleading results. Most are outdated and incomplete. Most ignore healthcare costs, which are now constitutionally protected along with pension benefits. Few are clear about the assumptions they use. Most rely on officially reported numbers that are far different from those required by new governmental accounting standards or by Moody’s, the ratings agency.

 

For example, Crain’s last week published an analysis under the very misleading headline, How much could Chicago pension payments jack up your property tax bill? Try 30 percent. All kinds of problems with that headline are admitted by that article once you dig into it. It covered only the four pensions for the city, not the other seven pensions for municipalities that overlap Chicago (aside from the five state level pensions). It did not include healthcare. It evidently was based on the city’s own reported numbers, which nobody should believe. It said the increase would actually be over 70% if the city funded the pensions out of property taxes at the same rate as it has been. It even assumed that Mayor Emanuel’s proposal to defer the contribution increases becomes law. In other words, it assumed a can-kick.

 

Most importantly, that article made a very common, huge mistake. It looked just at the 2016 pension payment that everybody is fretting about. The fact is that the 2016 increase is only a start towards funding pensions adequately. Contributions are scheduled under current law to increase at an average annual rate of 8% in 2017-21 and by an average annual rate of 3% in 2022-26.  Even those numbers are probably far too low since they are based on the optimistic assumptions that plague contribution schedules set by government.

 

A few of the ratings agencies have published estimates with higher numbers but each of those, too, is deficient in some of the ways mentioned. Total per capita unfunded liabilities are sometimes published, but they mean little. It’s taxes that voters and politicians understand.

 

The Civic Federation has consistently produced the most useful numbers on all overlapping Chicago pensions, like the report linked here from last year on how the total unfunded liabilities have spiked in recent years. But nothing they’ve done has pulled it together in a manner taxpayers can understand.

 

We need somebody, anybody who is credible, at least to estimate the true, annual, total contribution that should be going to fund pension obligations as they currently stand. It should:

 

• Include healthcare;

• Use realistic assumptions — probably those required under the new GASB rules that went fully into effect this month;

• Assume a realistic ramp-up based on population, inflation or number of employees — something reasonable instead of the annual 8% increase currently assumed;

• Include all overlapping pensions, not just the city’s four;

• Use current numbers or make an estimate thereof, because all pensions are deteriorating rapidly;

• Have input from an honest, independent actuary who is not vying for government work; and

• Be translated into how much of an increase in property or other tax would be needed, so that both voters and politicians can really see the scope of the problem

 

In his budget address last year, Mayor Emanuel said Chicago property taxes would have to double to make pension contributions unless the pensions are reformed or massive service cuts are made instead. Is that the right number? Based on hundreds of pension stories we’ve published here over the last few years, I’m confident the real number is at least that, and I think that would turn Chicago into a ghost city. But I can’t do that analysis in a convincing manner and do not expect anybody to take my word for it. Reporters, also, cannot do that analysis.

 

C’mon, Civic Federation, Civic Committee, ratings agencies, actuaries — can’t somebody please give us what we clearly need?

 

*Mark Glennon is founder of WirePoints. Opinions expressed are his own.

 

 

 

 

 

 

 

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Steve-Oh
Mark: Great article, and great comments by ‘Mike’ ! What’s stunning is that the grand total of taxes (fed/st/loc) that are taken from the private sector golden goose of workers & owners — adding to about $5T/yr when all the pay for all, adds to $13T…..is STILL not enough to support all the govt spending. And it’s almost criminal that private sector workers must work many years longer with less vacation/sick days each year…….than the govt “public servants”……and then lead much less prosperous years in retmt compared to the ‘servants’. Jeez, by age 50 police & fire new retirees are net-worth multi-millionaires into the $2-3M range, yet… Read more »
Mike
The public sector pension systems evolved into political tools. At the expense of long term sustainability. More games can be played with Illinois pensions than perhaps any other political tool. Once again, the pensions are not designed to be sustainable. That is key. They are often part of the patronage system of politics. This is done in a variety of ways such as writing an individual or small set of individuals into the pension code, allowable end of career salary hikes to spike the pension (the employer contributes a larger amount but unlimited salary hikes are still allowable), errors which not caught within 6 months cannot be… Read more »
Mike

Typo correction.
…exchanging votes for campaign contributions and election assistance and legislation, …

Mike

The Civic Federation has no data on the Regional Transportation Authority (RTA) pension fund.

mark glennon

Good catch. That would make it 11 not 10 total overlapping pensions and I have updated it. Thanks.

Mike
I could have been more complete. 10 was correct for Chicago + Cook County. I just meant literally the Civic Federation has no information on the RTA pension fund (which includes RTA, Metra, & PACE); hopefully they will add it to their reports in the future.. CTA is a separate pension fund from RTA. Chicago residents thus have to worry about CTPF, Chicago Police, Chicago Fire, MEABF, LABF, Chicago Parks, CTA, MWRDRF, Cook County, Cook County Forest Preserve); that’s funded through local/property taxes; plus the 5 state pension funds (TRS, SERS, SURS, GARS, JRS) which are funded largely through income taxes. Cook County suburbs: Downstate Police, Downstate… Read more »
Mike
For those who need an Illinois public sector pension fund acronym cross reference. The first four pension funds are referred to as the four pensions of the city of Chicago. Chicago Fire pension fund Chicago Police pension fund LABF = Chicago Laborers’ And Retirement Board Employees’ Annuity And Benefit Fund. MEABF = Chicago Municipal Employees’, Officers’, And Officials’ Annuity And Benefit Fund. Chicago Parks = Chicago Park District pension fund. CTA = Chicago Transit Authority pension fund. CTPF = Chicago Teacher Pension Fund. MWRDRF = Metropolitan Water Reclamation District Retirement Fund Cook County pension fund Cook County forest preserve pension fund Downstate Fire = Fire Department (which… Read more »
Mike
The Illinois Department of Insurance Public Pension Division in their 2013 Public Pension Report covering 2011 – 2012 states that there are 675 pension funds, and that included neither the CTA pension fund nor the RTA pension fund for whatever unstated reason, so adding those two the result is 677 pension funds. As mentioned above COGFA listed 651 police and fire pension funds for the same period, and adding the other Illinois public sector pension funds would equal 668 pension funds. In summary: DOI – 677 pension funds. COGFA – 668 pension funds. The DOI did not list each police and fire pension fund so without further… Read more »

not one politician besides Rauner has said a thing about decreasing spending.

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