Author Topic: State/City/County Employee Benefits TimeBomb  (Read 886 times)

GilesMM

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State/City/County Employee Benefits TimeBomb
« on: January 31, 2024, 07:00:41 AM »
I just got the tax bill for a rental unit we have in Chicago, where property taxes are already outrageous (over 2% of assessed value).  The bill notes that the taxes support $70 billion in city services (and education, parks) and $34 billion in pension and healthcare but that another $30 billion in P&H is unfunded liability! 

nereo

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Re: State/City/County Employee Benefits TimeBomb
« Reply #1 on: January 31, 2024, 10:09:22 AM »
I’m confused… you are stating that the tax rate is outrageous but also that it is insufficient…?
What should it be?

Morning Glory

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Re: State/City/County Employee Benefits TimeBomb
« Reply #2 on: January 31, 2024, 10:19:11 AM »
Shh.. I've got 3 parents who depend on state and local pensions from Illinois for most of their income (dad and stepdad from state and mom from small and shrinking municipality). The state plan is one they paid into instead of social security so there's no backup if it fails. It's something I'd really rather not think about.

BTW IL is also has one of the top ten most regressive tax structures in the US.

innkeeper77

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Re: State/City/County Employee Benefits TimeBomb
« Reply #3 on: January 31, 2024, 10:23:51 AM »
I’m confused… you are stating that the tax rate is outrageous but also that it is insufficient…?
What should it be?

I grew up in the Chicago suburbs, and looked up my childhood home. (3 bed 2.5 bath- fairly middle of the road reasonable) - The annual tax bill is almost $10k, almost 12% of the median household income of Illinois, in property tax alone. Yes that is for a single family home, but even small units have a high portion of rent going right to taxes inflating their costs.

The issue may be housing costs, but if those went down, so would the tax revenue. Without a massive change in the income available in these areas, massive amounts of money from household budgets goes straight to these taxes, hiking up rent prices significantly even with lower RE prices.

I personally vote for higher taxes and think I should be taxed more where I currently live- but people in Illinois are being absolutely squeezed and I would say the taxes ARE too high there, and don't have much room to grow if they want to deal with unfunded liabilities. Hoping for economic growth to take care of that seems like wishful thinking. 

reeshau

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Re: State/City/County Employee Benefits TimeBomb
« Reply #4 on: January 31, 2024, 10:24:34 AM »
IL has the second-lowest funding ratio among the Ststes.  What's surprising to me about this list is that 7, plus DC, are 100% funded, or more.

https://equable.org/unfunded-liabilities-for-state-pension-plans-2022/

Morning Glory

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Re: State/City/County Employee Benefits TimeBomb
« Reply #5 on: January 31, 2024, 10:35:28 AM »
I posted about this in another thread but it seems to fit better here:

https://itep.org/whopays-map-7th-edition/

Jon Bon

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Re: State/City/County Employee Benefits TimeBomb
« Reply #6 on: January 31, 2024, 01:51:21 PM »
I’m confused… you are stating that the tax rate is outrageous but also that it is insufficient…?
What should it be?

Its both!

Those states made way to many promises to public employees. And/or everyone lives too long.

My grandfather drew a teaching pension for 10 years longer then he was a teacher, that's not even in the same ballpark as sustainable.


Sibley

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Re: State/City/County Employee Benefits TimeBomb
« Reply #7 on: February 19, 2024, 03:57:52 PM »
Welcome to knowing about something that has been knowable for at least 20 years. This is not new, it just doesn't usually make front page news. Pretty much everywhere is impacted to some extent. Pensions and OPEB liabilities are complex, many, many places over promised when times were good. It's very hard to change existing plans, and it takes real political will to do so. Particularly since cutting pension benefits (if you even can) tends to be very unpopular.

Part of it is that for a long time, government work really didn't pay very well. The draw was the benefits and the pension. That has changed to some extent but still is often the case.

Its pretty common that there's multiple plans based on when the participant was hired. In those cases, usually the older participants have a better deal, which also means they'll die sooner. This of course is already priced in. However, if something happens which changes death rates in such a way that reduces the liability, it likely wouldn't be already priced in.

Disease is likely the biggest thing that would move the needle. Covid killed a lot of people, and from what I've seen it seems like it also caused longer term damage. That may not kill you now, but if your lungs were slightly damaged from covid that's going to make you more susceptible to respiratory issues later on. I suspect we'll see earlier deaths than we would have without covid. If we have a lot of people who die 10 years earlier than is currently anticipated, that's going to have a measurable impact on pensions. The big question is, how is this going to play out in real life, with funding levels and investment returns.

I expect that there will be pensions that go under. I expect that there will be participants who get told "accept lesser benefits or get nothing, take it or leave it". And I expect there will be a lot of court battles, mudslinging in the press, and general angst.

GilesMM

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Re: State/City/County Employee Benefits TimeBomb
« Reply #8 on: February 19, 2024, 06:37:00 PM »
I posted about this in another thread but it seems to fit better here:

https://itep.org/whopays-map-7th-edition/


Makes it easy to see why all the wealthier retirees like living in WA, NV, TX and FL as the poor pick up most of the tax bill and the wealthy get a (nearly) free ride vs a state like CA (from which we frequently hear the affluent are fleeing).