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Summary and audio linked here.
Chicago’s political leadership is floating a pension buyout program as evidence it is seriously addressing the city’s thirty-six-billion-dollar unfunded pension liability, but Mark Glennon, founder of the Illinois policy research organization Wirepoints, said that the proposal moves debt from one column to another rather than reducing it, and that the broader fiscal picture facing the city continues to deteriorate across every measurable dimension. Audio here.
Expect no retraction or apology. This what they do.
The state’s existing buyout program for its own pensions is the precedent for Chicago, which should be a warning: Look out for similar exaggerated claims and shoddy analysis.
Full interview and summary linked here.
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Chicago can’t go bankrupt. As Mark Glennon notes, there is no state statutory authority for the City to file. But there’s a second more important reason: bankruptcy is for entities that can’t raise sufficient revenue to pay their obligations. Chicago is a home rule city. It has the legal authority to raise property taxes “unlimited as to rate or amount” for operating purposes, for general obligation bonds, and for pensions. It CHOOSES not to. Can you imagine the City going to court? Here’s the likely conversation: City: “Your honor, we wanna go bankrupt.” Judge: “Do you lack the ability to… Read more »
That’s false about ability to raise taxes. This is the second time you’ve claimed that and it’s nonsense. As part of eligibility and whether a city is insolvent, a bankruptcy court considers ability to raise taxes but that includes whether tax increases would be detrimental or counterproductive in the long run. Mere legal authority to raise taxes has no bearing on eligibility.
You are correct that a judge would consider whether the tax rate is so detrimental as to warrant bankruptcy. I’ve pulled a sample of houses that recently sold and calculated the tax rate on each. The tax rate ranges from 0.9% of market value to about 1.2% and averages a little over 1.0%. This is far below the average in the suburbs or downstate. Please explain how the City would be able to contend that a higher property tax rate is so detrimental that the City should be permitted to go bankrupt.
A court would look at that as just part of the totality of evidence on whether the city could meet its long term obligations. That would include issues like total tax burden, fleeing employers and taxpayers, deteriorating services, crime, growing pension liabilities, the commercial office doom loop and more. I believe the correct conclusion would be that the long run impairment to revenue resulting from a tax increase would exceed the near term value of the additional revenue. Disagree with that if you want, but that would be the issue for the court, and it’s certainly not true as you… Read more »
Mark, I have great respect for your experience, but I don’t think the average property tax rate for Chicago homeowners is over 2.0%. I did my own study. My sample was based on recent sales, which, I think, provides the best information on actual market value. However, here are two other studies: https://www.tax-rates.org/illinois/cook_county_property_tax The median property tax in Cook County, Illinois is $3,681 per year for a home worth the median value of $265,800. Cook County collects, on average, 1.38% of a property’s assessed fair market value as property tax. https://www.civicfed.org/node/4141 Chicago’s 2022 effective tax rate on median valued residential… Read more »
You’re right re Chicago rates. (I would go with the CivFed estimate but the other one does not look right). And, yes, bankruptcies courts have leaned toward protecting pensioners over other creditors (though they can be impaired, as happened in Detroit).
Based on a friend of mine who sold his home and empty lot in Lincoln Square a long while back a new home was put on the empty lot a few years back is valued around $770K and taxes are $15.5K. My friends former home is valued at $490K and taxes are $9,850.00 so it is around 2% or value which is a bargain considering the taxes a number of years back in Rockford were 5.25% of value or $52,500 per million of value now just under 4% due to higher values across the board.
“A consensual out-of-court restructuring of Chicago’s pension obligations and general obligation debt is the most practical strategy.”
You have a better chance of getting hit by a meteorite than the above ever happening.
So that said it means higher and higher taxes for years to come.
It’s a pity that this column may be behind a paywall for some. It largely conforms to what I’ve said about Chicago bankruptcy.