Jim Dey | Look out: Solving pension woes will flatten taxpayers

Jim Dey | Look out: Solving pension woes will flatten taxpayers

Property-tax payers, particularly those in the Champaign school district, are smarting from the bills they received earlier this year.

So it's no surprise that Gov. Bruce Rauner's budget proposal to shift teacher pension costs from the state to local school districts isn't being well received in the Legislature, where the following exchange took place before the Senate Appropriations Committee.

"Would you at least acknowledge that it's likely that most districts would see a property tax increase as a way to pay those increased costs?" state Sen. Scott Bennett of Champaign asked Rauner's budget director, Hans Zigmund.

"No," Zigmund replied.

That's a hard answer to swallow. But even more interesting than Zigmund's negative response is that Rauner, a Republican, stole the cost-shift idea from Democratic House Speaker Michael Madigan.

The all-powerful speaker proposed the idea a couple years ago, but even he wasn't all-powerful enough to attract much support for the idea. Opponents, especially Republicans, complained that transferring responsibility for teacher pensions from the state to local school districts would lead to — you guessed it — property tax increases.

There's a perfectly reasonable, Illinois-style explanation for the shifting partisan positions on the cost-shift plan — that was then, and this is now. There's an election to be won.

But the state pension problem isn't going away. Illinois has serious financial woes, but the biggest is that its public pensions — teachers, state and university employees — are underfunded by roughly $130 billion, although some analysts says it's much more. That, unfortunately, does not include the problems reflected by massive underfunding of municipal public pensions.

To put it another way, Illinois' financial picture is not just bad, but horrific. Addressing them — something our legislators have shown no stomach to address — will be rough.

Here's how former Gov. Jim Edgar — he's the guy who was reluctant to spend money the state didn't have — put it the other day during a panel discussion on the issue.

"There are no silver bullets to these problems. There isn't going to be a one-year solution. Whatever the solutions are going to be, they are going to be very unpleasant to everybody. There's going to be more taxes, cuts in programs and, probably the hardest thing, we're going to have to stay on that dive for many years."

Well, how bad? What's he talking about?

A proposal discussed at a pension forum jointly held by the Federal Reserve Bank of Chicago and Civic Federation demonstrates how ugly potential solutions might be if state officials are serious about addressing the underfunded pensions.

Now, don't panic. The Fed's proposal is so draconian as to be politically tone-deaf.

But the fact that financial experts consider it a potential solution indicates the depth of the problem our governors and legislators first created and then have tried to ignore.

Their presentation — "The Case for a Statewide Residential Property Tax" — asserts that "Illinois residents are going to have to pay higher taxes" on top of already high taxes and asks, "What's the best way to pay for it."

The analysts' solution is levying a 1 percent residential property tax that "expires when its funded pension liability is paid off" — 30-plus years.

"This means that homeowners with homes worth $250,000 would pay an additional $2,500 per years in property taxes, those with homes worth $500,000 would pay an additional $5,000, those with homes worth $1 million would pay an additional $10,000," the study's authors state.

They contend revenue generated "would be dedicated solely to pay for the state's unfunded pension liability."

The study's authors acknowledge that homeowners would not be happy because "standard economic theory predicts that home values would go down in response to new property taxes."

"... but it would be a good result for the Illinois economy. That's because the new taxes wouldn't affect people thinking of moving to Illinois. While they would have to pay higher property taxes, that would be offset by not having to pay as much for their new homes," they state.

At the same time, the new tax would trap current homeowners in Illinois "because home prices should reflect the tax burden quickly."

Even the authors of the study acknowledge that it is a "painful" option, that the "quite high" tax increase would cause "some households" to "struggle to it."

But big problems — addressing state pension underfunding — require ugly solutions. No wonder the mendacious* goofs in Springfield — they used to just be goofs but their escalating level of goofiness requires an additional descriptor — can't bear to talk publicly about the problem, let alone try to fix it.

*Word of the Day: Mendacious means not truthful, lying or false.

Jim Dey, a member of The News-Gazette staff, can be reached by email at jdey@news-gazette.com or by phone at 217-351-5369.