The nation is more than a decade past the Great Recession, and most places are seeing a strong economic recovery and improved living standards.
Not in Chicago, and not in Illinois.
August statistics from the National Association of Realtors noted the city and state’s real estate market has severely underperformed, a trend forecasted to continue in the third quarter of this year. While the Midwest and the nation as a whole saw a very minor dip in home sales and surging Midwest home prices, Chicago missed the wave. Home sales in the Windy City experienced a 13.3% plunge, and the typical home sale price is barely climbing at all.
Chicago homeowners nervously sit on properties that are still worth 30% less, adjusted for inflation, than when the economy collapsed in December 2007. Adding insult to injury, property taxes on those devalued properties are up 20%. And there are fewer potential buyers, with the city and state losing population in each of the past four and five years, respectively.
During the past 20 years, the typical homeowner in Chicago’s Cook County saw his property tax bills grow faster than he can afford — at least five times faster than his income. Many Chicagoans can rattle off the annual shocks at opening property taxes bills thousands of dollars higher than a few years before.
Depressed housing prices should at least mean that property taxes go down, too. But that would be in the regular world and not in the rare atmosphere that Illinois has created for itself by sacrificing public services, the state’s economic stability, and residents’ personal finances, all in the service of a public pension monster that cannot be sated.
Less than half of every new Illinois property tax dollar in the past 20 years has gone towards core services to improve communities. In Cook County, where Chicago is located, 77 cents of every new dollar for police and fire has gone to pensions instead of protective services. Pensions remain in crisis despite those rising property taxes and a slew of other new taxes at both the state and city levels.
If things seem bad now, just imagine what will happen when the next recession hits. All signs point in the wrong direction. Chicago is the bellwether for a looming national crisis, as its real estate is suffering worst out of the nation’s 10 largest cities relative to before the Great Recession.
Illinois’ statewide public pensions are short anywhere from $134 billion to $250 billion, depending on whose projection you trust. Chicago’s city pensions are $29 billion in the hole.
Add in falling interest rates and the resultant extra risk-taking in pensions’ investment portfolios, and you can see how an economic downturn could swiftly turn the funds insolvent. Retirees could see their benefits slashed, as happened in Rhode Island despite taxpayers having to shoulder larger and larger tax increases.
That’s why Illinois needs real, substantive, and innovative reforms through a constitutional amendment.
By allowing for changes in future unearned benefits, the state could preserve existing retirement benefits and avoid devastating tax hikes and bankruptcy. It would specifically address the current 3% retiree raises and replace it with a true cost-of-living adjustment that is actually tied to inflation. In addition, the amendment would allow for changes such as increasing the minimum retirement ages and capping pensionable salaries to limit six-figure pension payments that accrue to millions over time.
Chicago Mayor Lori Lightfoot has shown she’s reform-minded, but so far, she is looking for ways to tax the city out of its pension problems. The reforms that Illinois and Chicago need are not in their ability to tax, but in their ability to control pension costs.
As long as government continues to rely on unfairly raising taxes that hurt many Illinoisans and only benefit a few, retirees and homeowners will be punished for choosing Illinois. And increasingly, they just won’t.
Orphe Divounguy is the chief economist for the Illinois Policy Institute, a nonpartisan research organization based in Chicago and Springfield, Illinois.
