By: Ted Dabrowski*
I was recently invited to speak on a panel in Schaumburg on the topic of pensions. Skyrocketing pension costs are pushing property taxes higher and higher and suburban residents want to know what’s driving those increases. My handout is attached here.
The answer, in large part, is that government worker salaries and benefits have become increasingly unaffordable for the residents that pay for them. For example:
- Nearly 80 percent of full-time Schaumburg workers cost local taxpayers more than $100,000 in total annual compensation, according to the village’s compensation database.
- Top retired school district administrators can expect $3.8 to $6.9 million in pension benefits over the course of their retirements.
- And retired Schaumburg teachers and public safety workers receive, on average, annual pension benefits of $70,000 or more.
To be clear, workers who receive these benefits have done nothing wrong. They’ve benefited from favorable labor laws and lucrative contracts bargained for by their unions. If anyone is at fault, it’s the government officials who made promises they can’t keep and doled out benefits that taxpayers can’t afford.
Those benefits are driving up property taxes for suburban homeowners to some of the highest levels in both the state and in the nation.
Schaumburg lies in Cook County, which on average has the 4th highest highest property tax burden in Illinois. Cook County residents pay on average 7.5 percent of their household incomes to property taxes.
Homeowners just to the north in Lake County have the state’s highest property tax burden at 9.4 percent of income. And to the south, residents in DuPage County pay the state’s 5th highest property taxes, equal to 7.5 percent of their household incomes.
The Schaumburg area contributes to the overall 7,000 local governments in Illinois – the most in the nation.
Those local governments, from the school district to the village itself, have a large number of administrators and staff that earn significant compensation. Nearly 80 percent of full-time Schaumburg workers receive more than $100,000 in total annual compensation, according to the village’s compensation database.
The six-figure annual compensation that many administrators and workers receive not only increase annual expenses for local governments, but directly contribute to the growing costs of pensions.
High salaries, coupled with generous pension rules, have boosted the retirement costs for local communities, in many cases far beyond what taxpayers can afford.
For example, Mohsin Dada is a former assistant superintendent of Schaumburg CCSD 54 who retired in 2011 at the age of 59. According to FOIA data received from TRS, he received a starting annual pension of $237,000 that year and can expect approximately $6.8 million in total benefits over the course of his retirement. Much of that is thanks to the compounded COLA that will increase his pension benefit by 3 percent each year going forward.
And in this case, Dada’s cost to taxpayers doesn’t end with just his teacher pension. According to the Chicago Tribune: “Dada is now a chief financial officer in North Shore School District 112, earning more than $200,000 and contributing to another, non-educator pension system.”
But it’s not just the top administrators of CCSD 54 who will receive millions in pension benefits.
The average recently retired career Schaumburg teacher, retired in 2013 or later with 30 years or more of service, received a starting pension of $88,000 and will get more than $2.8 million over the course of his or her retirement.
In contrast, the average Social Security benefit for retirees in Schaumburg is less than $19,000 annually. And the maximum benefit a retiree at full retirement age can receive nationally totals just $32,200.
Schaumburg’s local pension crisis
Schaumburg’s own local public safety pension crisis has also created a lose-lose situation for village residents.
The retirement security of Schaumburg’s police and firefighters is increasingly at risk: the funded ratio for their pensions is hovering at around just 65 percent. That’s despite the fact that local taxpayers have poured more and more money into an increasingly indebted system.
The combined police and fire pension fund shortfall has nearly doubled since 2005 to more than $123 million, even as taxpayers’ contributions have nearly doubled to more than $8 million a year in that same time period.
A driver of the cost of Schaumburg’s pensions is its annual compensation for active public safety workers. Their salaries have increased far faster than the salaries of private sector workers who pay for them. In the last decade, public sector salaries have grown three times faster than private sector earnings in Schaumburg.
And with there now being more pension beneficiaries than active police and fire workers – there are now 10 pensioners for every 9 actives – the costs to taxpayers will only go up.
Solving the crisis
The property tax crisis in Schaumburg and nearby suburbs will continue to worsen until cities get their costs under control.
To help make that happen, the state must pass collective bargaining reforms that give local governments the power to negotiate better contracts for their taxpayers. It also means getting pension costs under control by having cities move away from pensions and towards 401(k)-style plans.
But while the above solutions will help manage ongoing costs for stable cities like Schaumburg, they’ll do nothing to reduce municipalities’ massive local pension debts. And it’s that debt that’s sinking many Illinois communities.
Amending the Illinois constitution’s pension protection clause so unearned pension benefits can be changed is essential to cutting struggling cities’ pension debts.
But the only effective long-term solution for cities struggling under an impossible load of pension debt is municipal bankruptcy. For many cities, reducing debts and reorganizing liabilities under federal bankruptcy is the best way to make themselves viable for residents again. For cities like Harvey or East St. Louis, it’s the only option. Illinois’ state legislature must authorize municipal bankruptcy for those cities so their residents can get the relief they need.
Without these reforms, expect Illinois’ dysfunction to only worsen.
*Ted Dabrowski is President of Wirepoints.