Where it really matters, Chicago’s unfunded pension liability per household is a whopping $900,000 – WP Original

Posted September 27, 2013 2:02 pm by with 0 comments

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September 27, 2013

If you follow the pension crisis you’re probably especially alarmed by the per-person estimates of unfunded pension liabilities.  What’s overlooked, however, is that most Chicagoans can’t contribute meaningfully to paying down that debt, so the true numbers for those who would have to pay are far, far higher. Per capita income in Chicago is only $28,000, or about $48,000 per household. Almost half of Chicagoans are in or near official poverty. Will they be asked to pay up? Could they if they were asked?  No, so let’s look at per capita obligations where they really apply —  for those who are better off and have some ability to pay.

A thorough, recent study added up all local unfunded pension and retiree healthcare obligations Chicago taxpayers are responsible for (including Cook County, public schools, the CTA and other local taxing units). They total $61 billion, which does not include bonds and other debt. That’s $23,000 per person or $59,000 per household. First, let’s add in each Chicagoan’s share of the liability for unfunded state pensions and retiree healthcare, which takes the apparent total obligation per Chicagoan to $38,000 or $99,000 per household.

Now, just who can really pay that? Progressives say just the top 10%. Public employee unions, Bill Daley when he was running for governor, and other progressive income tax proponents have been careful to insist that 90% of taxpayers should not have their taxes raised and could even get a cut under their proposal.  If it’s true that 90% shouldn’t have their income taxes raised, the rationale applies to other taxes as well. Conservatives mostly say nobody should pay higher taxes, but let’s assume the progressive assumption wins and only the top 10% get the bill.

That means those top ten percenters pay for the others, taking their per capita obligation to $342,000 or about $900,000 per household. That’s an impossible number they won’t pay. Once they figure out how bad the numbers are they will flee in ever larger numbers or organize a true tax revolt.

Sure, maybe we will end up up sticking lower income groups with some higher taxes, too — maybe higher property taxes, sales taxes, or fees of some kind, all of which will be regressive. And, yes, progressives are probably fibbing when they say they wouldn’t increase taxes on the 90%. Plug some of those changes into the numbers and you can spread the burden around somewhat, but the point still will hold: Most Chicagoans simply don’t have the doe to help pay pension obligations and the numbers are too large for everybody else to cover.

As we’ve said repeatedly before, our problems are far worse than commonly understood. Drastic changes including massive pension reform are essential and inevitable. The sooner we do it the better for everybody.

 

Mark Glennon

 

NOTES ON A FEW NUMBERS

Pension obligations are based on properly calculated numbers, as we have often written about here, not officially reported numbers. Specifically, they reflect Moody’s alternative calculation method using lower discount rates and elimination of deceptive “smoothing” adjustments. For example, the total unfunded liability for state pensions and healthcare obligations calculated in this manner is $200 billion, not the officially reported $100 billion.  Other estimates are as high as $300 billion.

All numbers are for unfunded pension and related healthcare obligations, and exclude bonds and long term debt.

 

 

 

 

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