Budgets, Levies, & Debt

Property tax cap first, pension shift second

Bob McQuillan Note:
August 14, 2012

All summer we have heard the talk of pension reform in the state of Illinois. The solution for one of the largest pensions: shift the burden to the local homeowners through their property taxes. Arguments can be made for and against this change but the one key that can't be disputed is that local property taxes can not continue to increase. If this change is made and the pensions are exempt from the tax cap, like debt service repayment, our property tax increases will be unbearable. The only solution is to place a freeze on property taxes and require referendums for any increase in any property tax. If the local taxpayers are going to be paying teacher pensions, we must have a say in how they are structured.

The following article is copied from the Chicago Tribune, August 12, 2012

By Bruno Behrend
August 12, 2012

Illinois public policy has become such a Gordian knot that even good policy yields potentially horrible outcomes. With the state budget straining to meet payments — even after a huge tax increase — Illinois will soon be unable to meet its rapidly expanding pension bill.

This is why some legislators in Springfield are pushing to shift teacher pension costs back to local school districts. This is good public policy that reverses one of the worst policies ever enacted in Illinois.

Allowing the state to take responsibility for local contract decisions, combined with the state's massive and unwarranted benefit expansions, has resulted in a massive subsidy to property-rich school districts. It has allowed districts to shower their employees with high salaries and benefits, putting the state taxpayer on the hook for sweet pension deals.

The most solvent pension fund in the state, the Illinois Municipal Retirement Fund, is solvent precisely because local government is mandated to pay for benefits as they are conferred. This means that unlike profligate school districts and other agencies with their state pension subsidy, municipalities must pay into the pension system in real time.

So, if it is such a good idea, and if Illinois is too tapped to meet its growing pension payments, why would anyone be against shifting the pension responsibility back to local entities? It's quite simple. Your property taxes, already the highest-grossing tax in the state, will blow through the ceiling.

This can be proved by a simple resolution making the rounds in your local school districts. One such resolution, passed in Lemont, has a long-winded set of lamentations. Each one begins with a "Whereas" and ends with a "nothing is our fault." It ends with a paragraph that should send shivers up the spine of every Illinois property owner.

Section 2(c) states that "if legislation shifting responsibility for paying for any portion of the state's share … is enacted," that any such spending on the part of the local district should be "specifically exempt" from the "limitations of PTELL." Let me decipher that for you. Any extra spending on pensions will not be under Illinois' already watered-down state property tax cap, the Property Tax Extension Limitation Law.

If this resolution should make it into any law that shifts pension responsibility back to local control, property taxes will spike. This is why so many legislators from suburban and rural districts are against shifting the pensions. What is a legislator to do?

The answer is quite simple. Tie any shift of pension responsibility to expanding and strengthening Illinois' tax cap law. Make the cap apply to all counties, remove all exemptions for debt and new construction, and place every dime of local spending under the cap (inflation rate or 5 percent, whichever is less). If the local district wants more money for new spending, let them go to the citizens to ask for it in an even-year November election.

The property tax is currently the single largest tax in the state, collecting an estimated $24 billion this year. This is almost double the $13 billion or so hauled in by Illinois' individual income tax. Cook County Democrats, Chicago Mayor Rahm Emanuel and Cook County Treasurer Maria Pappas included, are already warning of skyrocketing property tax bills before any discussion of a pension shift.

Every $100 of extra cost puts your home out of reach of more potential buyers. Therefore, shifting pension responsibility without a freeze on property taxes will destroy Illinois property values for a generation. The answer is simple. Freeze property taxes first, shift the pensions second and squeeze the fat and excessive debt out of local government. It's simple, elegant and fair.