Author Topic: Gov Debt Causing Increase in Property And Other Taxes and Decline in RE Values  (Read 2133 times)

prof61820

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I know we have a very bad government debt situation in Illinois, but is anyone else out there worried about their State's and local government's debt related to underfunded retiree pensions and healthcare costs?  Here's a quote from one of the articles (see below for more): "To put this into perspective, consider again that police and fire pension funds require a $600 million contribution next year while the entire Chicago property tax levy for 2014 was only $824 million." 

My SI and I are so concerned about a spike in property and other taxes and cuts to education, public safety and other services in Illinois that we are thinking about selling our home and renting as a hedge against a large drop in real estate prices (as in Detroit) and buying back in after the collapse (so long as schools are okay for our kids).  We may even have to, gasp, move to another State. 

1.  I'd be interested in hearing if you think we are worrying to much or if others feel like this a real problem?  What States don't have this problem?

2.  I'd also be interested in learning about ways to invest that we could hedge against (a) real estate price declines or (b) municipal default (for instance, is any shorting bond insurers)?

Property tax a ticking time bomb
Tue, 05/27/2014 - 7:00am
Madeleine Doubek

Chicago residents who are worried about a $250 million property tax hike because of the pension bill Gov. Pat Quinn is weighing don’t know the half of it. Or maybe three-quarters of it.

It’s time Chicagoans confront the fact that there’s a nuclear property tax time bomb already set and ticking away here. There’s the potential for another $600 million property tax increase coming in December to fix police and fire pensions. And then maybe another $696 million needed next year for Chicago Public School pensions.

Back to police and fire. Public Act 096-1495, passed in 2010, reads, in part, “The city council … shall annually levy a tax upon all the taxable property of the municipality at the rate on the dollar which will produce an amount which … will equal a sum sufficient to meet the annual requirements of the police pension fund.”

Yipes. That’s the law for Chicago. The rest of Illinois needs to wake up and confront this, too. Hundreds of police and fire pension funds all around the state are as badly underfunded or worse. Even if they weren’t, Illinoisans need to understand that if Chicago collapses, Illinois sinks with it. Chicago is the powerhouse of the prairie state, period.

That 2010 law that sweetened pension benefits for Chicago police and fire was approved by Springfield politicians before Rahm Emanuel was mayor. Emanuel has insisted he won’t be levying all those property taxes on Chicagoans, but the $250 million compromise for the municipal and laborers pension funds awaits Quinn’s action and there’s no sign of movement on the other two funds with five days left in the spring legislative session. This mess will be pushed right up against the ticking clock after the November election and before the December levy time.

The legislature approves bills adding to pension costs, but has done little to give Emanuel and other mayors the power or resources to fund them. To put this into perspective, consider again that police and fire pension funds require a $600 million contribution next year while the entire Chicago property tax levy for 2014 was only $824 million. The municipal and laborers funds and the police and fire funds, combined, could cost more than last year’s entire levy, notes nonpartisan Civic Federation President Laurence Msall.

“The mayor is very much handcuffed,” Msall said. “The problems facing Chicago’s police and fire pension fund are not significantly different than those facing Evanston, Elgin, Aurora, the city of Springfield, Illinois. …You have communities in Illinois that are devoting more than 100 percent of their property tax levy to their police and fire pension funds and it’s not enough to keep up.”

Where does that leave taxpayers? On a huge hook. “The impact of allowing our municipalities, or our major economic center, Chicago, to have to gut its city services or almost double property taxes just to meet a state statutory requirement of funding is very short-sighted.”

Only 1 percent of Chicagoans supported raising property taxes to deal with its $20 billion total pension crisis, according to a recent poll conducted for Early & Often, the Chicago Sun-Times political portal.

What’s a taxpayer to do? Act. Start pressuring Springfield politicians to work with the mayor and unions. What’s needed are more reasonable alternatives that will preserve livable retirement income for the first responders, while not taxing everyone to kingdom come.

The nuclear tax bomb is ticking. No one will be spared.

Madeleine Doubek is chief operating officer of Reboot Illinois.

http://politics.suntimes.com/article/chicago/property-tax-ticking-time-bomb/fri-05232014-955pm

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Moody’s says Illinois Supreme Court ruling is ‘credit negative’ for state

By Doug Finke
State Capitol Bureau
Posted Jul. 11, 2014 @ 6:59 pm

    Last week’s Illinois Supreme Court ruling on retiree health insurance is a credit negative for the state, Moody’s Investors Service said Friday.

    The reason, Moody’s said, is the decision could foreshadow how the court will rule on the broader pension reform law the state hopes will save billions of dollars in pension costs over the coming years.

    “The majority of justices expressed views that run counter to the rationale used in recent pension reform legislation for certain city and state plans,” Moody’s said. “We therefore perceive increased risk that the Illinois Supreme Court will rule the pension reform legislation unconstitutional which would jeopardize $32.7 billion of pension liability reduction.”

    The court ruled last week that state-subsidized health insurance for retirees is a protected pension benefit and that the state cannot impose premiums on retirees who were promised premium-free insurance. Moody’s said the ruling shows the court has “an expansive view” of the state constitution’s pension protection clause, which says pension benefits cannot be diminished or impaired.

    The pension reforms approved last year curtail annual raises in pension benefits, increase the retirement age and otherwise change benefits for current and retired workers. Attorneys for the state have argued Illinois’ precarious finances give the governor and legislature latitude to change those benefits despite the constitution.

    “The court could still be persuaded by arguments outside the scope of the current ruling, such as the idea that extreme pension funding pressure prevents the state or a local government from providing for public health and safety, a responsibility higher than adhering to pension promises,” Moody’s said. “The ultimate outcome on the state’s pension reforms will remain uncertain until the court rules on their legality directly.”

    Several lawsuits challenging the constitutionality of the pension reform law are currently pending in Sangamon County Circuit Court. The next status hearing on those cases is scheduled for July 22.

    No ruling at the circuit court level is expected before next year.


Read more: http://www.sj-r.com/article/20140711/News/140719801#ixzz37NNyWXpR
« Last Edit: July 13, 2014, 01:41:10 PM by prof61820 »

electriceagle

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If enough big states get deep enough in the poo, the Federal government will print more money and bail them out.

You're better off hedging against inflation by buying a couple of very diversified index funds from Vanguard than trying to predict the size and shape (and timing!) of the poo that your state will get stuck in.

foobar

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I know we have a very bad government debt situation in Illinois, but is anyone else out there worried about their State's and local government's debt related to underfunded retiree pensions and healthcare costs?  Here's a quote from one of the articles (see below for more): "To put this into perspective, consider again that police and fire pension funds require a $600 million contribution next year while the entire Chicago property tax levy for 2014 was only $824 million." 

My SI and I are so concerned about a spike in property and other taxes and cuts to education, public safety and other services in Illinois that we are thinking about selling our home and renting as a hedge against a large drop in real estate prices (as in Detroit) and buying back in after the collapse (so long as schools are okay for our kids).  We may even have to, gasp, move to another State. 


Are you willing to rent for lets say 10-20 years? It can take a long time for issues like this to come to a head. I would also expect at some point to see those pensions crammed down. There are a lot more voters not getting those pensions than the ones that do. Probably enough to amend the state constitution if needed.


waltworks

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Um, if you rent, your landlord is going to raise your rent to compensate for increased property taxes, dude.

-W

LuckyMe

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I think it would be premature to sell your house right now on the mere possibility of higher taxes in the near future.  While taxpayers will likely take a hit, I doubt we will see the doomsday scenario of doubled property taxes.  It would be catastrophic for many homeowners who wouldn't be able to afford their homes anymore.  Illinois already has the 2nd highest property taxes in the nation behind NJ.  I expect to see some federal assistance/bailout money coming to Illinois to alleviate the debt crisis.

Renting may not be hedge against rising property taxes either.  As waltworks said, your landlord will pass on to you any increase in his property tax.  People will flock to rentals as homeownership becomes unaffordable causing rents to go still higher.

I currently live in a Chicago suburb just on the outskirts of the city.  I'm renting right now and plan to buy about 4-5 years down the road in the same area mainly due the excellent school district here.  The property taxes where I am are already pretty insane - my annual rent is only slightly more than taxes on a modest home.  So I'm content to continue renting for now and see how things shape up in a few years.
« Last Edit: July 15, 2014, 09:24:03 AM by LuckyMe »