Rockford sees public pensions eat up nearly 40% of municipal property taxes
Public pensions are rising and taking a larger share of property taxes, hurting public services. Yet the average Rockford household owes more than $ 35,000 in state and local retirement debt.
Illinois’ worst retirement debt has become a well-known problem. More than $ 144 billion in retirement debt for the five statewide retirement systems breaks down to nearly $ 30,000 in debt for each household, which must be paid by further tax hikes or further cuts in basic government services.
Less well-known is the nearly $ 75 billion pension debt held by local governments in Illinois, which is the number one reason for Illinois’ second-largest property taxes in the country. Combined with the state’s pension debt, politicians who mismanaged the pension system have dug a hole of $ 219 billion.
In Rockford, the average household owes $ 35,175 in state and local retirement debt, of which about $ 5,400 of this debt comes from local systems for police, firefighters and city workers. The retirement debt per household in Rockford is equivalent to almost 80% of the $ 44,252 Median annual household income in Rockford.
The city of Rockford has a local pension debt of more than $ 320 million, according to data available for fiscal 2019. This debt includes $ 168.3 million for fire pensions, $ 142.8 million for police pensions and $ 9.7 million for municipal employees.
Pension experts consider a capitalization ratio of less than 60% to be “”deeply troubled. “A 40% funding ratio can be a ‘point of no return’, meaning an inability to make required contributions or maintain adequate funding levels – without painful cuts or serious structural reforms. The Firefighters Fund de Rockford is only 46% funded, while the police pension fund has saved only 52 cents for every dollar in future pledges.
Pension plan contributions cost Rockford nearly $ 22.7 million in fiscal 2019, almost 40% of the $ 59 million in property taxes collected.
The local pension crisis is driving property tax hikes as mayors and other local leaders struggle to cope with the growing financial burden. Local leaders have struggled with pension systems created by state law and have virtually no option to cut costs or improve sustainability on their own. Property taxes equate to approximately $ 2,680 on a Rockford home valued around the region’s average $ 91,600, according to information from the county assessor. That’s 2.9% of the home’s value goes to property taxes each year.
In order for Rockford to avoid running out of money in five years, the city would need to eliminate 40 sworn police officers, shut down an entire fire station, freeze all city employee salaries at 2019 rates, and even sell its fuel supply system. water, consultants of National Resource Network in 2018 advised if the city were to continue to absorb the rising costs of pensions. These are just a few of the cuts needed to avoid a tax disaster.
In many cities like Rockford, taxpayers are being asked to pay more for less. Rising annual pension costs are crowding out local government spending on the services residents want and need.
In recent years, cities in Illinois have already been forced to lay off current workers, raise taxes, or both to meet the cost of these retirement systems. For example:
- Jerome, Geneseo and Norridge increased property taxes to pay for retirement costs in 2018.
- Harvey, in a southern Chicago suburb, in 2018 laid off a quarter of its police officers, more than half of its other police personnel and 40% of its firefighters after the state intercepted money destined for the city under a pension law intended to force cities to pay the required pension contributions.
- In 2019, the pension interception law was also triggered in North Chicago and East St. Louis. The resulting increase in retirement costs to city budgets led to cuts of $ 1.3 million in north Chicago, including layoffs for three firefighters and nine firefighters in East St. Louis.
- Peoria, which cut 38 first responder jobs and 27 municipal jobs in 2018, has already been forced to cut 45 more jobs in 2020 after COVID-19 exacerbated the city’s budget problems related to pensions.
The combination of higher taxes and deteriorating services is one of the main reasons Illinois residents have increasingly fled to other states. The 2020 census marked the first time in 200 years that Illinois had lost population between decennial census counts, which was due to the migration of residents of Illinois to other states.
The state and local government pension crisis in Illinois is the most serious public policy challenge facing the state. It contributes to almost every other tax and economic problem, including high property taxes, cuts in government services, economic stagnation and the exodus from Illinois.
The only viable solution to Illinois’ pension crisis begins with a constitutional amendment to allow cuts in future benefit growth for current workers and retirees. The current retirement clause, which prevents altering not only vested benefits but also the future rate of benefit growth for work not yet performed, is a pair of fiscal handcuffs for mayors with few options in addition to raising taxes and cutting services.
A “harmless” pension reform plan developed by the Illinois Policy Institute for state systems can save an estimated $ 2.4 billion for the state budget in the first year and more than $ 50 billion up to. ‘in 2045. The plan would also completely eliminate the state’s pension debt during this period. time, rather than the 90% reduction that state leaders are hoping for. It does all of this while preserving every dollar in pension benefits promised to public workers for the work already done.
Similar reforms to local pension systems could offer significant tax relief to overburdened landlords, free up resources for day-to-day service expenses, or fund a combination of the two. In Peoria, such relief is badly needed.
Real pension reform, starting with a constitutional amendment, is the only way to stop the exodus from Illinois by finally giving taxpayers value for money.