Recently the Federal Reserve Bank of Chicago unveiled a “solution” to the Illinois pension crisis, and according to those in attendance at the pension event the announcement drew an “audible gasp”! The speaker from the Chicago Fed proposed levying a special property assessment on ALL property owners across the state, which would amount to about 1% of actual property value each year for about 30 years.
Of course, this assessment falls on top of already ridiculous levels of property tax being paid by Illinois residents. In fact, Illinois ranks #1 (not a good thing) in median property tax as a percentage of property value, and I thought that New Jersey was the worst! Don’t I feel just a little bit better. Ah, not really!
Incredibly, property taxes in many Illinois communities already exceed 3%-5% of home values. Given the impact that this would have on low-income residents a thought has been raised about making this new tax progressive, but if that were to happen the cost to others would be absurd.
The Chicago Fed recognizes that there will be a negative impact on current residents but they don’t seem to care one iota, stating “current homeowners would not be able to avoid the new tax by selling their homes and moving because home prices should reflect the new tax burden quickly.” With regard to anyone moving into Illinois they said, “while they would have to pay higher property taxes, that would be offset by not having to pay as much for their new homes. But, the higher property taxes would be factored in every year for 30 years.
A homeowner buying a $500,000 house could expect that this legislation would levy an additional tax bill of $150,000 (next 30 years) on top of their normal 2.67% ($13,350/year) on their property value each year. The Illinois homeowner will pay $550,500 in taxes during the next 30 years, presuming no change in the 2.67% or the value of one’s home. Property values will likely fall, but the declining revenue will likely lead to a higher percentage levied on each home. What a deal!
Furthermore, this proposed tax would only address the five state pension systems, and not the other 650+ pension plans in Illinois, just think about the impact of this action on those residents living in municipalities close to Chicago, whose plans are already terribly underfunded? According to the article, the Chicago Fed was asked at last month’s seminar how the other pension plans would be funded but “they, without explanation, said they didn’t bother to cover that.”
Illinois is already suffering mass migration from the state. According to a USA News article from earlier this year, Illinois is again #1 in this category:
- New Jersey
- New York
Given the impact that these public fund pension systems are having on state and municipal budgets, one would think that a different strategy would be employed to manage this promised benefit. If not now, then when? Doing the same old, same old is just silly. Levying more taxes is not the answer and neither is trying to generate a greater return, which only increases volatility, but doesn’t guarantee success.