Author Topic: Chicago Real Estate: Nimble or Foolish?  (Read 9437 times)

prof61820

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Chicago Real Estate: Nimble or Foolish?
« on: July 14, 2014, 11:20:48 AM »
Illinois/Chicago has a very bad government debt situation (see below). 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 SO and I are so concerned about a spike in property and other taxes and cuts to education, public safety and other services in Chicago that we are thinking about selling our home in the City 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 the suburbs (where property taxes could also spike for the same reasons).  This is troubling us because we have a very affordable 15 year mortgage at a 3% interest rate (which we could pay off completely in 1-2 years), we live in a great neighborhood with an amazing public school that our kids like and we prefer living in the city over the suburbs.

1.  What would you do in our situation?  I'm afraid I'm becoming a little like a deer in the headlights...I'd be interested in hearing if you think we are worrying too much or if you feel like this a real problem?  What States don't have this problem?  Is their anyone out there that dealt with this issue in Detroit or elsewhere?

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 anyone 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 26, 2014, 08:12:13 AM by prof61820 »

Numbers Man

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Re: Nimble or Foolish?
« Reply #1 on: July 14, 2014, 12:07:13 PM »
I guess a key number I'm trying to understand is what is the current property tax on a typical house in your area and what would it project to be if all of those tax levies were enacted. I used to live in DuPage county and always had Cook county tax envy since the taxes seemed way lower than DuPage county. I solved my tax problem by moving to Arizona a few years ago.

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Re: Nimble or Foolish?
« Reply #2 on: July 14, 2014, 12:15:53 PM »
Detroit imploded because of the economy and the auto industry, not the property taxes.  There are plenty of high income and wealthy folks that live in Chicago that will force the politicos to the bargaining table.  In Detroit, those folks already lived in the suburbs. 

In your shoes, I would quit reading political pieces masquerading as news and go about my business.  Any collapse in Chicago would occur after decades of Detroit-style deterioration, which isn't likely because the economy is so different.

prof61820

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Re: Nimble or Foolish?
« Reply #3 on: July 14, 2014, 12:21:30 PM »
I guess a key number I'm trying to understand is what is the current property tax on a typical house in your area and what would it project to be if all of those tax levies were enacted. I used to live in DuPage county and always had Cook county tax envy since the taxes seemed way lower than DuPage county. I solved my tax problem by moving to Arizona a few years ago.

You are very correct.  Cook County and especially Chicago property taxes, are very, very low in relation to the rest of the state.  Except for some elite schools that are very difficult to get your children into, the City's school system is also very, very poor (especially the high schools) compared to the suburbs and the rest of the State.  To further complicate matters, property taxes are considered the 3rd Rail of Chicago politics.  For example, Chicago's cell phone 911 fee is set to go to $5 per month - the highest in the nation by far - to avoid a pre-Mayoral election property tax hike.  My view is that the low property tax rates (see below) and pension underfunding has caused Chicago (and Illinois) real estate values to become artificially high.  When the revenues needed to pay down these debts are levied (all on one generation of taxpayers), property values will crash as they did in Detroit.

From a dollar perspective, pundits are estimating that property taxes would have to double or maybe triple to pay off all of the outstanding pension and healthcare debt.  We pay about $8000 a year for a home valued at around $500,000 now so our taxes would go to b/w $16,000 and $24,000 annually to pay the debt.  In return, we would likely get cuts to education, increased class sizes, no guaranty - like in the suburbs - of a quality education for our kids through high school, cuts to parks and libraries and public safety.  We might stay, but I'm not sure if my neighbors would...

Here's a link to property tax rates in Illinois: http://www.rebootillinois.com/2014/03/13/uncategorized/brendanbond/list-residential-property-tax-rates-illinois-county/2303/
« Last Edit: July 14, 2014, 12:42:38 PM by prof61820 »

prof61820

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Re: Nimble or Foolish?
« Reply #4 on: July 14, 2014, 12:29:09 PM »
Detroit imploded because of the economy and the auto industry, not the property taxes.  There are plenty of high income and wealthy folks that live in Chicago that will force the politicos to the bargaining table.  In Detroit, those folks already lived in the suburbs. 

In your shoes, I would quit reading political pieces masquerading as news and go about my business.  Any collapse in Chicago would occur after decades of Detroit-style deterioration, which isn't likely because the economy is so different.

That was my view until the Illinois Supreme Court ruled on Kanerva v. Weems on July 3rd (see below).  The retiree healthcare liability is arguably larger than the pension debt for the state and local governments.  I've been following Detroit and believe it or not, when they declared bankruptcy their pensions were adequately funded because of high property taxes.  However, these high property taxes hurt property values significantly and prevented gentrification once property values hit a point that would have attracted investment in other areas. 

I do think you're correct to note that Chicago's economy is stronger and more diverse and Detroit also lost a lot of it's tax base to the suburbs because of white flight rather than property tax increases.  In addition, Gen Y may save our collective butts.  Chicago (and not the suburbs) seems to be the city of choice for midwestern hipsters...but with their student loan debt can they afford my swanky neighborhood or will they gentrify others?

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 14, 2014, 12:45:22 PM by prof61820 »

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Re: Nimble or Foolish?
« Reply #5 on: July 14, 2014, 12:46:15 PM »
Different people are at the negotiating table and behind the folks at the table in Chicago.  Liability will be reduced and/or shifted.  Yes, your taxes may go up, but the powers in Chicago will not allow the city to be strangled by taxes.   

Chicago is not a hollowed out shell like Detroit.  Nobody really cared what happened to the City of Detroit when the SHTF.  The city had been written off decades earlier.

If I had a dollar for every time Moody's said something was credit negative....and I would be really rich if I had a dollar for every time they should have said something was credit negative and didn't.

Stop reading the newspaper and look around you.  Are businesses starting to move out?  Are all the houses in the $2M plus neighborhoods on the market?  No?  Then sit tight.

prof61820

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Re: Nimble or Foolish?
« Reply #6 on: July 14, 2014, 01:10:08 PM »
This runs contrary to your advice about staying away from the news, however, I think it's relevant to the discussion.  Mayor Emanuel (who I believe will try to limit property tax increases) is down big in the polls (although no one has actually declared) right now against the head of the Chicago Teachers Union who has recently floated her name for Mayor and Toni Preckwinkle the Cook County Board President. 

Rahm is likely to win re-election, however, a racially charged Mayoral election in which Rahm loses could cause businesses and homeowners to flee.

Exclusive poll: Karen Lewis could give Rahm run for his money/http://politics.suntimes.com/article/chicago/exclusive-poll-karen-lewis-could-give-rahm-run-his-money/mon-07142014-334pm
Mon, 07/14/2014 - 3:34pm
Natasha Korecki
@natashakorecki | Email

For the past couple of weeks, Karen Lewis has been saying she is “seriously” considering running for mayor.

It turns out voters are taking the fiery Chicago Teachers Union president’s potential candidacy seriously as well.

And Mayor Rahm Emanuel probably should, too.

At least that’s what a surprising new Early & Often Poll suggests.

If the mayoral election were held today, the lightning rod union leader who was the architect behind a 2012 teachers’ strike would beat Emanuel by 9 percentage points in a head-to-head contest, the survey found.

Lewis was leading Emanuel 45 percent to 36 percent with 18 percent of the likely voters undecided.

And Emanuel could face an even steeper hill if he faces Cook County Board President Toni Preckwinkle, long considered his most formidable challenger.

A head-to-head contest found Preckwinkle in a romp vs. Emanuel by a stunning 24 points.

Preckwinkle dominated with 55 percent of those surveyed. Emanuel notched just under 31 percent.

“Laughable” is what Emanuel’s camp called the results of the automated telephone poll, conducted for the Sun-Times’ political portal by We Ask America.

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Re: Nimble or Foolish?
« Reply #7 on: July 14, 2014, 01:23:17 PM »
Very little of this matters.  What matters is what the large businesses and the people that run them do.  The political discussions would not be as pleasant if an intransigent union leader is elected mayor, but there is no way the property tax payers in Chicago are going to pick up the entire bill for whatever solution is reached.  It will get worked out another way.

The "leaders" of Detroit got away with pretty much anything they wanted because there was no one left that cared or was influential enough to change the outcome.  Sit up and take notice if all the banks and large corporations start relocating out of Chicago and all the executive housing is up for sale.  That's a sign that Chicago is heading down the path of Detroit.

In the meantime, worry about the things inside your sphere of influence.

Numbers Man

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Re: Nimble or Foolish?
« Reply #8 on: July 14, 2014, 02:07:42 PM »
Unfortunately the voters have been asleep at the wheel and let this situation get out of control. There's no way that a funding problem of this magnitude can be solved overnight. Can taxes go from $8k to $10k? Probably to $10k, but any amount much higher would cause unrest and many political lifers to lose their jobs. This is something that's going to have to be worked out over a couple of generations. Such as cutting benefits to the newbies and stretching the retirement age. Sort of sounds like social security, lol. Of course the higher real estate taxes doesn't make Chicago more attractive, but where will the 2.7 million population move to? There is still a large and diverse job base. I guess it just makes home ownership a little less attractive and might make equity build up a little more challenging.

RetireAbroadAt35

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Re: Nimble or Foolish?
« Reply #9 on: July 14, 2014, 02:27:00 PM »
That "article"  looks more like a blog than journalism to me.  It's inflammatory and language makes me suspicious.  I wouldn't put much stock in that sort of thing, generally speaking.

prof61820

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Re: Nimble or Foolish?
« Reply #10 on: July 15, 2014, 06:33:24 AM »
Unfortunately the voters have been asleep at the wheel and let this situation get out of control. There's no way that a funding problem of this magnitude can be solved overnight. Can taxes go from $8k to $10k? Probably to $10k, but any amount much higher would cause unrest and many political lifers to lose their jobs. This is something that's going to have to be worked out over a couple of generations. Such as cutting benefits to the newbies and stretching the retirement age. Sort of sounds like social security, lol. Of course the higher real estate taxes doesn't make Chicago more attractive, but where will the 2.7 million population move to? There is still a large and diverse job base. I guess it just makes home ownership a little less attractive and might make equity build up a little more challenging.

I think it's going to go a lot higher than $10K with cuts to education, public safety and other services thrown in (our libraries are no longer open on Sundays).  The cuts may have more of an impact on folks' decision - especially if they have kids - on whether to stay in the city or move to the suburbs.  All of this won't begin happening until after the Spring 2015 City elections so we have some time.  I think the first "ramp" will take us up to $10K - the debt is that bad. 

I neglected to mention another fact - the property values in our neighborhood are now booming and homes are selling for silly season prices now so we could get out with a 20-30% profit (we bought on the low end about 4 years ago).  However, in a perfect world, I would love to pay off our mortgage (it's a 15 year mortgage at freakin' 3% and we pay $25K in principal off annually) and take the cash stash we have and buy a rental property in an up and coming neighborhood.  This all seems too risky now given the unknown property and other tax liabilities that exist to pay public sector retirement debt.

I'm not worried about our family living and working in this environment for the next 3-4 years - we have the money and will approach this from a "position of strength."  I am concerned about or neighbors who are not in the same position or the new arrivals who seem oblivious to the very real possibility of large property tax increases and cuts to the great neighborhood school.

Here's some more news on the problem - it's hard to ignore because it's so fugly:

http://www.chicagobusiness.com/article/20140704/BLOGS02/140709915

http://www.suntimes.com/news/brown/28462666-452/supreme-court-throws-wet-rag-on-pension-plan.html#.U8WqNLHrzSg

http://www.chicagotribune.com/news/opinion/editorials/ct-illinois-pension-health-decision-edit-0704-20140704,0,6855161.story

http://www.wirepoints.com/a-preposterous-ruinous-pension-decision-takes-illinois-to-the-edge-wirepoints-original/

http://www.suntimes.com/news/brown/28462666-452/supreme-court-throws-wet-rag-on-pension-plan.html

http://www.suntimes.com/news/martin/28567656-452/pension-reform-or-not-disaster-ahead.html#.U8V0_EDb7Gg

http://www.forbes.com/sites/jeffreybrown/2014/07/03/illinois-supreme-court-delivers-huge-fiscal-blow-to-taxpayers/

http://politics.suntimes.com/article/chicago/fine-surprise-city-may-owe-millions-refunds/fri-06272014-158pm

http://politics.suntimes.com/article/chicago/phone-tax-wont-keep-20b-pension-bill-hold-long/fri-06132014-905pm

http://politics.suntimes.com/article/chicago/exclusive-financial-time-bomb-chicago/tue-06172014-731pm

http://www.chicagotribune.com/news/politics/clout/chi-emanuel-says-scaledback-pensions-not-actually-a-cut-20140401,0,5555742.story

http://politics.suntimes.com/article/chicago/moody%E2%80%99s-downgrades-chicago%E2%80%99s-bond-rating-again/tue-03042014-657pm

http://www.detroitnews.com/apps/pbcs.dll/article?AID=/20130221/METRO01/302210398

http://www.chicagobusiness.com/article/20140123/OPINION/140129881/this-pension-debt-story-isnt-going-to-end-well#

http://www.chicagobusiness.com/article/20140118/ISSUE01/301189978/looming-pension-payment-could-drive-city-taxes-to-highest-in-u-s
« Last Edit: July 15, 2014, 04:33:13 PM by prof61820 »

prof61820

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Re: Nimble or Foolish?
« Reply #11 on: July 15, 2014, 06:49:39 AM »
Very little of this matters.  What matters is what the large businesses and the people that run them do.  The political discussions would not be as pleasant if an intransigent union leader is elected mayor, but there is no way the property tax payers in Chicago are going to pick up the entire bill for whatever solution is reached.  It will get worked out another way.

The "leaders" of Detroit got away with pretty much anything they wanted because there was no one left that cared or was influential enough to change the outcome.  Sit up and take notice if all the banks and large corporations start relocating out of Chicago and all the executive housing is up for sale.  That's a sign that Chicago is heading down the path of Detroit.

In the meantime, worry about the things inside your sphere of influence.

I think you're right about the businesses (although increased property taxes can be deducted and passed on to consumers) - at least the ones that own a large amount of property.  As far as executives go, (a) many already live in the suburbs so they don't have to worry as much about the erosion of public schools (if they use them) and increased class sizes and (b) those that live in the city are likely FI - or beyond - and don't use the public schools or other amenities (parks, libraries, public transportation) as part of their FI plan.  High level executives, especially, if they are already FI can also weather a property tax spike better than non-FI folks.  As a result, I just don't see the very well-to do folks worrying about this issue from a personal perspective.  I think a property tax spike is much more of an upper middle class and middle class problem for MMM types and worse, for those not in a position of financial strength.  Throw in cuts to schools and I'm not sure who sticks around from the middle class to pay more and get less.  Once this middle class exodus starts (A) quality of life in the city drops for all and (b) revenues drop requiring additional taxes on the rich and poor who stayed in the city.

prof61820

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Re: Nimble or Foolish?
« Reply #12 on: July 15, 2014, 07:18:58 AM »
Different people are at the negotiating table and behind the folks at the table in Chicago.  Liability will be reduced and/or shifted.  Yes, your taxes may go up, but the powers in Chicago will not allow the city to be strangled by taxes.   

I'm not sure what the "powers" in Chicago can do legally or politically?  They can, however, vote with their feet and move.  The Illinois Supreme Court just ruled that health care promises for retirees cannot be cut.  They are very likely to rule this way for pension liabilities.  I'm not sure if this decision can even be appealed to the US Supreme Court...and it only takes one retiree to challenge a cut (not the union) so it's pretty easy for individuals to challenge cuts agreed to and negotiated by the unions.  So far, the public sector unions - that are stronger than in Michigan - have primarily taken an FU, raise taxes approach.  And why shouldn't they?  The benefits were promised but not funded by prior generations.  Moreover, it's good union politics to take this stand, force the legislation rather than compromise and then fight (and win) in court.  The state and municipalities may engage in massive privatization efforts to cut current and future costs.   That said, who would work as a cop in Chicago for a 401K and no financial support for their family if they die in the line of duty?  This privatization would all need to get done in a deeply blue state.

In my opinion, it's a major charlie foxtrot and tax increases and cuts will very likely happen (along with a healthy dose political chaos) until a bankruptcy is initiated.

http://www.suntimes.com/28421458-761/north-riverside-considers-privatizing-firefighting-services.html#.U8Uo47HrzSg

http://mobile.rblandmark.com/News/Articles/6-27-2014/North-Riverside-firefighters:-We%27ll-fight-privatization-bid/
« Last Edit: July 15, 2014, 08:57:01 AM by prof61820 »

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Re: Nimble or Foolish?
« Reply #13 on: July 15, 2014, 10:24:04 AM »
I admit, I don't know anything about Chicago public finances.

You have a SO, a good and affordable house in a great location and kids who are doing well at school.  You may be in the category "my life is great but shouldn't I be worrying about something?" and have picked on Chicago public finances as the object of your worry.

You are talking about hedging the investment in your house and timing the market on it.  Hedging and timing are for investment professionals only, many of them make big losses as well as big gains (and a fair amount of pretty shady deals).   As well as taking big risks on limited knowledge, you would be disrupting a pretty good family life (I guarantee, your kids will not understand why you feel compelled to do so).  You have a nearly paid-off family house in a great location, and that puts you in a better position than almost everyone else.  Carry on living in it, and forget about trying to game the market.

If you are really that concerned, rather than your complicated sell/rent/suburbs options you could move a long, long way from Chicago.  But do so knowing that you will probably find some other external worry when you get wherever it is you are going.

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Re: Nimble or Foolish?
« Reply #14 on: July 15, 2014, 01:53:39 PM »
Detroit's undoing wasn't taxes alone (though it certainly didn't help) but an extremely poorly managed government (even worse than Chicago's) an exodus of jobs to the suburbs, other states, and overseas, and the flight of the middle class (not just White, middle class of all races have fled and continue to flee Detroit). Chicago only suffers from 1.5 (counting poorly managed as a half) of those 4. Chicago's population has been pretty stable since 1990, Detroit's lost more than 30% of it's population in the same time frame. Chicago's situation isn't as perilous.

Not that you shouldn't sell and rent instead, I don't know if that's the right move. But I don't think you have to worry about Chicago being "the next Detroit."


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Re: Nimble or Foolish?
« Reply #15 on: July 15, 2014, 01:55:27 PM »
As the economy/housing market improve, tax collections will rise. In the interim the city can sell a few bonds as needed and offer less generous packages to new hires or whatever. The can will get kicked down the road and everything (probably with a few hiccups) will be fine. You are a rich person living in an expensive house in an economically diverse/dynamic city in one of the wealthiest countries in the world. You'll be fine.

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prof61820

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #16 on: July 26, 2014, 08:30:55 AM »
Here's an update:

1.  Met with a realtor and home values in our neighborhood exceed 2006 prices.  Silly season has returned to my Chicago neighborhood!  Most homes - priced above 2006 prices - are selling in 2-3 weeks.  A smaller home very close to our house is listed at $650K and a slightly larger one down the street sold for $690K.  We bought our home for $500K in 2009 and owe about $360 on it.  If we sell now, we should be able to clear $200K and have about $500K to either put into the stock market while we rent in a good school district (most likely suburban but we may be able to stay in the city if our kids get into a magnet school, buy a smaller home in a great suburban school district for cash or invest in real estate and buy another home with a mortgage (I am a veteran so we wouldn't need any money down). 

2.  We checked on high priced homes - as was suggested above.   Anecdotally, there are a lot of $1 million plus homes listed on the market in both Chicago and the suburbs.  Some folks have said that this is more than usual.  This could be because the market is heating up and more folks are selling or because folks are selling and moving.  Heard from a local legislator that some of his constituents are worried about how they can afford to retire in Chicago's suburbs because property taxes are too high now.

3.  More bad news that leads me to conclude that a City of Chicago property tax spike will occur starting in late spring 2015 (after the General Election this November and City elections in February 2015).  Suburban property taxes will go up in 2015 if the local municipality or town has funded their pensions below 90% (see below - and a likely scenario for most communities in Illinois) and worse, if school pension costs are shifted to local school districts (see below).

Illinois Supreme Court Decision on Healthcare Greatly Decreases Chances for Pension Reform: http://www.chicagotribune.com/news/opinion/commentary/ct-mcqueary-perspec-0725-20140725,0,3347980.story

http://www.news-gazette.com/opinion/columns/2014-07-15/jim-dey-court-ruling-puts-illinois-dilemmas-door.html

S&P Downgrade: http://www.chicagobusiness.com/article/20140723/NEWS02/140729902/sp-threatens-downgrade-over-illinois-budget-trouble?utm_source=NEWS02&utm_medium=rss&utm_campaign=chicagobusiness

Chicago School Budget held to together with one time gimmick to avoid problems before the election: http://www.chicagobusiness.com/article/20140723/BLOGS02/140729930/watchdog-group-shreds-chicago-public-schools-gimmick-based-budget

Severely Underfunded Police and Fire Pensions in Suburbs and City: http://www.rebootillinois.com/2014/04/29/editors-picks/tom-weisner/aurora-mayor-guest-view/7497/

Suburban and downstate teacher pension costs likelier to be shifted to local communities (and paid by property taxes): http://www.huffingtonpost.com/2013/01/04/illinois-pension-reform_n_2411799.html



« Last Edit: July 26, 2014, 11:40:14 AM by prof61820 »

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #18 on: July 26, 2014, 10:03:16 AM »
The legislator is mouthing whatever will show his "concern" and support his position.  A bunch of articles beating the drum on pension reform are not evidence a change will happen.  Public pensions were OVER funded in the dot com boom.  The actuarial math changes as the assumptions change.  This will all get sorted out over the next few years.  Likely there will be a combination of benefit reductions, higher payroll contributions by the employees, changes in the assumptions and some tax contribution.  No one is going to pay a $24,000 property tax bill on a $500,000 house.  Any legislative person at the city, county or state level responsible for the increase would be out of a job at the next election if those bills went in the mail.  If you sell based on this nonsense, in my opinion, it would be really stupid.  Emotional and stupid.   Sell if you want to move or reap the profit.  Those are legitimate reasons to sell.

prof61820

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #19 on: July 26, 2014, 10:41:17 AM »
A.  A bunch of articles beating the drum on pension reform are not evidence a change will happen.  Public pensions were OVER funded in the dot com boom.  The actuarial math changes as the assumptions change.  This will all get sorted out over the next few years.  Likely there will be a combination of benefit reductions, higher payroll contributions by the employees, changes in the assumptions and some tax contribution.  No one is going to pay a $24,000 property tax bill on a $500,000 house. 

B.  Any legislative person at the city, county or state level responsible for the increase would be out of a job at the next election if those bills went in the mail. 

C.  If you sell based on this nonsense, in my opinion, it would be really stupid.  Emotional and stupid.   Sell if you want to move or reap the profit.  Those are legitimate reasons to sell.

I'm actually not opposed to higher taxes.  What concerns us is the combination of a tax spike and cuts to schools, parks and public safety (quality of life).  Since we are looking at this from a position of strength, we would likely be able to withstand a tax hike and send our kids to private school to ensure a quality education.  This would impact our FIRE plans negatively, however.  We are also uncertain how our neighbors will react when they are hit with the same tax spike and cuts...our bet is that most will move.  We remember that our current neighborhood was a lot tougher and the local school was not nearly as good only 20 years ago.  You would have to be a fool to think that that could never happen again.  Chicago is a City of very fluid neighborhoods.

Public pensions are severely underfunded in Illinois - there is no denying this fact.  I felt that pensions and retiree healthcare debt could be cut  until July 3rd when the Illinois supreme Court ruled that retiree healthcare could not be diminished or impaired pursuant to the Illinois pension Clause of the state constitution.  This is  fact.  This decision cannot be appealed to the US Supreme Court and states cannot declare bankruptcy.  It is very reasonable to assume that the Illinois Supreme Court will rule that pensions cannot be diminished or impaired as well.  Unions will not negotiate until the Court rules the other way.  That said, it's impossible to negotiate now because even if the unions sign off on a compromise, one member who disagrees with the bargain could file a lawsuit arguing that his/her pension was diminished or impaired (and there are plenty of pending lawsuits now on Illinois pension reform legislation).  Bargaining on pensions and healthcare will be next to impossible and unilateral cuts by the legislature and local governments most likely will be found unconstitutional.  Keep in mind, the Illinois Supreme Court (and the entire Illinois judiciary) draws a hefty pension and pays nothing for healthcare in retirement.  The likely scenario now is that the state will try to tax and cut its way out of the situation.  Some of the cuts will include cuts to the share of funds from sales tax revenues that it gives to local government and the pension payments it makes for suburban and downstate teachers (chicago pays its own pensions).  if this cut happens, local governments and suburban and downstate school districts will need to (a) raise taxes or (b) pursue bankruptcy.  Since BK requires permission from the state legislature short term tax hikes are much more likely than declaring BK.  North Riverside is currently try privatize its fire department to avoid tax hikes on the public safety side (see above). 

B.  Yes, you are right.  That's why politicians down play the problem every chance they get.  As in Detroit, there won't be a problem until there is one because folks would prefer to discuss anything besides tax hikes in order to catch up on debt payments that they have voted on to skip in the past.

C.  This is a real problem and yes, not only am I trying to make money (and it looks like I will) but I am also trying to avoid (1) getting stuck in Chicago where cuts to schools and other services coupled with a spike in property taxes will drop my property values and possibly lock me in to living in the City and sending my children to substandard schools (our mustachian plan requires good public schools), (2) finding a town where even if I'm underwater, the schools will remain good throughout the time my children attend, and (3) in a perfect world, actually figure out a way to beat the herd here and profit from declining real estate values (caused by property tax hikes and cuts to schools) to help with my FIRE plan.
« Last Edit: July 26, 2014, 11:44:58 AM by prof61820 »

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #20 on: July 26, 2014, 10:50:24 AM »
You clearly do not want to listen to anyone else's point of view.  You were convinced of your position before you ever posted.  You have whipped yourself up in a frenzy over this and you are going to take action based on that.  Good luck to you.

waltworks

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #21 on: July 26, 2014, 11:05:22 AM »
I hope he took a look at the helpful video I posted for him. Why just sell your house when you can *really* panic?

-W

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #22 on: July 26, 2014, 11:19:47 AM »
You clearly do not want to listen to anyone else's point of view.  You were convinced of your position before you ever posted.  You have whipped yourself up in a frenzy over this and you are going to take action based on that.  Good luck to you.

No, not true.  I wish that I was feeling different about this, trust me, and that I could be convinced.  I love my living situation and I do not want to move, at all.  However, knowing what I know, I feel like I need to look at this in an objective way.  It took a long time for my wife and I to move beyond the denial and anger feelings and get to the "what do we do about it" phase.  A lot of folks are still in the anger and denial stages.  The Illinois supreme Court has ruled that retiree healthcare CANNOT be cut.  Everyone in Illinois ignores this ruling at their peril.  This only happened at the beginning of July.   I'm looking for facts to counter my premises, not a "don't worry, be happy response" or "don't ever trust the media/politicians/other because they are always wrong"  off the cuff response.  These answers do not help me make a fact based decision but they do reinforce my belief that I am in a position of superior information and so I better use that info to preserve my assets (and likely make $200K by selling now before everyone wakes up), accumulate cash, ensure our kids stay in a good school program and, in a perfect world make some money off of this situation when panic selling starts... 

Is there anyone from Detroit or California out there that has dealt with a situation in the context of a FIRE plan where state and local public debt and property tax (or other tax) spikes has caused significant property value decline?  Did proposition 13 in California result from this problem?  What else can be done to prevent property tax spikes if you cannot cut pensions?
« Last Edit: July 26, 2014, 08:21:56 PM by prof61820 »

prof61820

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #23 on: July 26, 2014, 11:21:01 AM »
I hope he took a look at the helpful video I posted for him. Why just sell your house when you can *really* panic?

-W

Thanks Walt - but do you have any facts to support your video?  What's the basis for your view that Chicago real estate prices will not decline?

waltworks

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #24 on: July 26, 2014, 11:37:51 AM »
You didn't watch it, did you...

That's ok, I'll post a transcript:
Kent Brockman: Professor, without knowing precisely what the danger is, would you say it's time for our viewers to crack each other's heads open and feast on the goo inside?
Professor: Yes I would, Kent.

-W

I hope he took a look at the helpful video I posted for him. Why just sell your house when you can *really* panic?

-W

Thanks Walt - but do you have any facts to support your video?  What's the basis for your view that Chicago real estate prices will not decline?

prof61820

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #25 on: July 26, 2014, 11:42:35 AM »
You didn't watch it, did you...

That's ok, I'll post a transcript:
Kent Brockman: Professor, without knowing precisely what the danger is, would you say it's time for our viewers to crack each other's heads open and feast on the goo inside?
Professor: Yes I would, Kent.

-W

I hope he took a look at the helpful video I posted for him. Why just sell your house when you can *really* panic?

-W

Thanks Walt - but do you have any facts to support your video?  What's the basis for your view that Chicago real estate prices will not decline?

Okay, so we both like the Simspon's.  What's your point?  Do you think Chicago real estate prices can't come down?  If so, why?
« Last Edit: July 26, 2014, 12:19:28 PM by prof61820 »

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #26 on: July 26, 2014, 11:48:32 AM »
If you want to "short" the Chicago real estate market, go ahead.  Like all markets, prices go up and down depending on market and external conditions.  Maybe you will get lucky.  However, you are NOT in a position of superior information.  Everyone else has the same access to what you call information as you do.  They just came to different conclusions.

prof61820

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #27 on: July 26, 2014, 12:02:56 PM »
If you want to "short" the Chicago real estate market, go ahead.  Like all markets, prices go up and down depending on market and external conditions.  Maybe you will get lucky.  However, you are NOT in a position of superior information.  Everyone else has the same access to what you call information as you do.  They just came to different conclusions.

I'm willing to put my money where the mouth is on this one - there are just too many problems to just sit back and ignore the situation.  How do you "short" a real estate market or municipal bonds?  I am seriously looking for advice on how to do this.  The problem will be the worst in Chicago (because they have played the most games with funding pensions and retiree healthcare) but the suburbs will be impacted as well so defining the market will be difficult.  I know folks buying land and property in Indiana and Wisconsin now - just across the border.  Certain suburbs and neighborhoods where the most wealthy live will also likely rise in value (I also think there will be a flight to quality, i.e. suburbs and neighborhoods that will retain good schools/no crime/good amenities) so maybe I should go "long" in one of these areas?  I am currently benefiting from a "flight to quality" now because I live in a north side (i.e. white) yuppy neighborhood where the perception is that we have a Top 20 neighborhood school (that rivals suburban education).  I am not very confident that the Chicago Public Schools will maintain this perceived quality when they are asked to make drastic cuts to education after the 2015 City elections or how much keeping white middle class families in the City (via top notch education) will be a political priority for Chicago leaders (who seem more focused currently on the rich and the poor). 

I am - very calmly and seriously - just looking for real estate investing advice on how to position myself in the event of another declining market and understand the downside of making a move now (I don't see one at the moment because we will land well in the suburbs or the city).  This is about growing the stash, educating the kids as well as possible, avoiding risk and the stress of worrying about dealing with a middle class flight out of Chicago and also advancing the FIRE plan.  I'm open to both "short" and "long" strategies and also any facts that I might be missing on how this public debt will be paid for without lowering property values.
« Last Edit: July 26, 2014, 12:25:42 PM by prof61820 »

waltworks

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #28 on: July 26, 2014, 12:16:23 PM »
Dude, it's pretty simple. If you really believe this, you don't need any of our advice. You can just sell your house and move somewhere else. What's that you say? Chicago is a great place and you love to live there? Well, gee, maybe real estate prices won't crash then, since it's a great place and people love to live there.

You aren't looking for advice here, because the course of action you should take is really obvious: sell and move. Or sell, rent, and then buy again after prices crash. Sounds like you're too much of a wuss to actually do it, though, so instead you come here and waste our time.

-W

prof61820

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #29 on: July 26, 2014, 12:21:32 PM »
Dude, it's pretty simple. If you really believe this, you don't need any of our advice. You can just sell your house and move somewhere else. What's that you say? Chicago is a great place and you love to live there? Well, gee, maybe real estate prices won't crash then, since it's a great place and people love to live there.

You aren't looking for advice here, because the course of action you should take is really obvious: sell and move. Or sell, rent, and then buy again after prices crash. Sounds like you're too much of a wuss to actually do it, though, so instead you come here and waste our time.

-W

Walt - if you feel like I'm wasting your time,  Sorry.   Have you ever thought about not posting?

waltworks

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #30 on: July 26, 2014, 12:25:26 PM »
Naw, I actually enjoy making fun of people who want us all to freak out. MMM forum folks might not be your best target audience. You can probably find some folks over at ZH that would love to discuss unfunded liabilities type stuff, though.

Let us know what you decide to do, then come back in a few years and let us know how it went. I think you have your answer from the folks on the forum: don't worry about it. Now the question is if you actually care about our opinions.

-W
« Last Edit: July 26, 2014, 12:28:26 PM by waltworks »

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #31 on: July 26, 2014, 12:36:47 PM »
Sell, rent and buy back in after the debt blows up. 

Seriously, what you want us to do is to buy into your assumptions and come up with a plan.  If I thought your assumptions had any basis in reality, I would sell today and look for a job in another part of the country, because I would not want to be in Chicago or the State of Illinois after the nuclear debt war.  I think your assumptions are wrong, to the point of being ridiculous.  Anyone with any experience with local and state government and knows how these issues are worked out would think the same.  There will be lots of hand-wringing and crocodile tears, but a combination of solutions will be found.  In your shoes, I would conclude I had no superior knowledge and go about my business, with some attention to the real estate market as the drama plays out.

Prop 13 was passed because a lot of people were very angry at the annual increases in taxes that occurred as values climbed in the 1970's.  It's an amendment to the State Constitution, so the politicians have been largely frustrated in getting around it.  And it's still around 36 years later.

prof61820

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #32 on: July 26, 2014, 01:07:55 PM »
Sell, rent and buy back in after the debt blows up. 

Seriously, what you want us to do is to buy into your assumptions and come up with a plan.  If I thought your assumptions had any basis in reality, I would sell today and look for a job in another part of the country, because I would not want to be in Chicago or the State of Illinois after the nuclear debt war.  I think your assumptions are wrong, to the point of being ridiculous.  Anyone with any experience with local and state government and knows how these issues are worked out would think the same.  There will be lots of hand-wringing and crocodile tears, but a combination of solutions will be found.  In your shoes, I would conclude I had no superior knowledge and go about my business, with some attention to the real estate market as the drama plays out.

Prop 13 was passed because a lot of people were very angry at the annual increases in taxes that occurred as values climbed in the 1970's.  It's an amendment to the State Constitution, so the politicians have been largely frustrated in getting around it.  And it's still around 36 years later.

I was hoping that my assumptions would at least be refuted with some facts rather than opinion by the big brains on here.  I think most folks living in Illinois would concede that taxes are going to go up and there will be further cuts to education and other government services.  Property taxes are a "white hot" issue in the suburbs and soon will be in the city (unless there is a BK- which is very, very unlikely now).  The primary reason that the state and local governments can't just "work it out" is that Illinois Supreme court just threw a large monkey wrench into wringing concessions out of employees and retirees (you should really read the decision as I have) on retiree healthcare and in all likelihood on pensions themselves.  This is somewhat of a local issue and Illinois is a very blue state so there will be a lot of political support for trying to tax the state out of this unfunded liability problem before making cuts to medicaid and other poverty programs. 

My SO and I would prefer not to move out of state because the loss of income - we do well in Chicago financially and our dual income is not likely to be greatly impacted by a down turn in the real estate market and higher taxes nor replicated easily in a different state.  We have family that lives here (and one on a government pension) so instead of chucking it all (we have thought about but don't see this as our best financial move) we are instead trying to make the best of what we perceive as a very bad situation starting in about 2015.

Can we at least operate from the assumption that taxes in Illinois are going up and cuts to education are inevitable (both the Republican and Democratic candidates for Governor are calling for increases in taxes and no one in their right mind would call for education cuts but Illinois ranks 50 out of 50 for education funding and that isn't going to change any time soon).  What might be debatable is how large these tax increases and cuts will be and whether or not these cuts and tax increases will impact property values?  If you think that that's possible (like we do), then we get into the discussion that I'd to have which is where is the best place - from a FIRE perspective - to live in the short and long term in or near Chicago to hedge against the SHTF?

If you want to read more about it from the political side, I suggest you take a look at this website.  It will give you a little insight into the dysfunction junction Illinois has  become and why many are worried about Illinois' future: http://capitolfax.com/

Here's a nice blurb on Chicago school funding: http://capitolfax.com/2014/07/25/emanuel-blames-state-for-phony-school-budget/
« Last Edit: July 26, 2014, 01:18:54 PM by prof61820 »

waltworks

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #33 on: July 26, 2014, 01:18:39 PM »
Got it, this is a political thing for you. Zerohedge is calling you!

-W

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #34 on: July 26, 2014, 01:26:07 PM »
As I said, a solution will be pieced together.  It will take a number of years to work through.  I have been through the machinations in local government in California and I have seen the sausage being made from inside the factory.  Your taxes may go up some, there may be cuts to education, there will likely be some unpleasant labor negotiations, some retirees will get reduced or suspended COLA's, the trains and subways will be dirtier and in worse repair, and so on.  No one is going to destroy Chicago over this.  Chicago is the financial capital of the Midwest.  It will continue as the financial capital, because the money will make sure it does.

I already told you what I would do in your shoes.  Hedging against the unlikely possibility that ALL the SHTF at once means bailing.  Otherwise, move along, nothing to see here.

"Facts," as you call them, are largely irrelevant.  You could substitute an entirely different set of problems and "facts" and the result would be the same.

prof61820

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #35 on: July 26, 2014, 01:26:39 PM »
Got it, this is a political thing for you. Zerohedge is calling you!

-W

Actually, I have the politics down.  It's more about making good financial decisions off of a bad state and local governmental situation and soon to be bad financial consequences...

prof61820

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #36 on: July 26, 2014, 01:55:25 PM »
As I said, a solution will be pieced together.  It will take a number of years to work through.  I have been through the machinations in local government in California and I have seen the sausage being made from inside the factory.  Your taxes may go up some, there may be cuts to education, there will likely be some unpleasant labor negotiations, some retirees will get reduced or suspended COLA's, the trains and subways will be dirtier and in worse repair, and so on.  No one is going to destroy Chicago over this.  Chicago is the financial capital of the Midwest.  It will continue as the financial capital, because the money will make sure it does.

I already told you what I would do in your shoes.  Hedging against the unlikely possibility that ALL the SHTF at once means bailing.  Otherwise, move along, nothing to see here.

"Facts," as you call them, are largely irrelevant.  You could substitute an entirely different set of problems and "facts" and the result would be the same.

Thanks for trying to address my concerns on a factual basis.  I really do appreciate it.  I have some governmental/legal experience as well.  Here's how I see it, however, from an Illinois perspective.  I appreciate your California perspective (and I know you have your own challenges) but our states are fundamentally different is some regards.  I think you are underestimating the box that Karnerva v. Weems has put state and local governments in vis a vis labor negotiations.

1.  Your taxes may go up some:  Yes, and Illinois does not have Proposition 13 as a buffer against property tax hikes.  Chicago is a 'home rule' unit of local government and can raise property tax rates and levies without any checks.  Cook County - also home rule - also has some pretty big pension and retiree healthcare debt.  Both levy taxes on Chicago property.  Another fun fact, Illinois has more government per capita than any other state in the nation.  I've been waiting for consolidation but so far, nada...

2.  There may be cuts to education: Yes, there will be cuts and there have been cuts to Chicago's school system 3 of the last 4 years.  My neighbors and local businesses kick in extra dollars to fund language classes, band classes, and a soccer field at our local public school.  I'm not sure this is sustainable.  Illinois already ranks 50 out of 50 in the nation when it comes to education spending.  This year's CPS budget (see article) is different because they are using 14 months of tax revenues (to make a $643 million pension payment) for 12 months of spending so it's basically level funding plus paying pensions (after a 4 year "pension holiday").  They won't have this gimmick next year and the 20 years down the road when the $650 million pension bill annually comes due.  The gimmick conveniently corresponds with the city elections in February 2015.  Police and Fire pensions can also not be put off any longer.  The Illinois legislature has passed a law requiring 90% funding levels by 2016.  Chicago - and many other Suburban communities - are no where close to 90% funding so additional revenues will need to be levied to make up for prior underfunding.  Chicago's police and fire pensions are funded at about 20% now - I wish I were making this up but the funding levels are really this low.  And yes, the legislature can help Chicago by granting further pension holidays (which I concede would save property values) but this only increases the chances for an actual default of police, fire and teacher pensions and delays addressing the funding issues and the real SHTF.

3.  There will likely be some unpleasant labor negotiations:  Probably not, the unions have no reason to negotiate because according to the Illinois Supreme Court, the state cannot cut retiree benefits.  This decision cannot be appealed to the US Supreme Court and the State of Illinois cannot declare bankruptcy.  In California, it's much easier for a local government to declare BK so there is a lot more leverage to force union negotiations than in Illinois.  Keep in mind that it's better union politics to ask the Illinois Supreme Court to order tax levies than it is to voluntarily give up member benefits.  I was waiting for Detroit's unions to negotiate and until the BK, they refused to step up to the table for this very reason.  Even if the unions do voluntarily negotiate, the union cannot bind individual retirees (who they don't represent) to their agreement and any individual who doesn't like having less benefits can challenge the agreement in court.  right now, public retirees are batting 1.000% in the Illinois court system.

4.  Some retirees will get reduced or suspended COLA's: No, not possible now in Illinois.

5.  The trains and subways will be dirtier and in worse repair, and so on:  Yes and we'll have dirter parks, more graffiti and less cops and firefighters... and because most, if not all, of the tax increases will be going to pay pensions the perception will be that you are paying a lot more for cuts to services and education.  Ugh.

6.  No one is going to destroy Chicago over this: Of course not, no wanted wanted to harm Detroit either...Chicago will always be around but the tax increases and cuts are inevitable and those that get ahead of this curve will profit and those that don't may be hurt financially.

7.  Chicago is the financial capital of the Midwest.  It will continue as the financial capital:  Agreed and this may ultimately save us...our tax base is much broader than Detroit's but raising taxes and cutting education will cause movement in and out of certain  neighborhoods and suburbs.  There's been a lot of talk about a $.01 tax on financial transactions at the MERC and CBOT.  This tax would raise a lot of revenue but may hurt Chicago's status as a financial capital.
« Last Edit: July 26, 2014, 02:35:22 PM by prof61820 »

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #37 on: July 26, 2014, 03:58:49 PM »
In my opinion, you cannot see the forest for the trees.  There will be winners and losers and some surprises.  It doesn't matter if a judge orders it, you will not pay $24,000 in taxes on a $500,000 property.  When a judge does something that stupid, it gets appealed and tied up for years by very pricey lawyers until another solution has to be found.  If this happens, pull up a chair, because you will be watching a long running soap opera.

Detroit was dead years before the bankruptcy.  There was no one with money that cared what happened to Detroit.  When CBOT and the MERC start talking about moving out of Chicago, let us know.  In the meantime, you will just have to be the voice crying in the (Chicago) wilderness.

clarkfan1979

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #38 on: July 26, 2014, 06:43:12 PM »
I wouldn't sell until the house is paid off. This could include renting it out. If you are going to stay in the Chicago area you are going to bear some of the cost directly or indirectly. Being a renter would make you more nimble with more options.

My father bought a house in the NW suburbs for 145K in the late 80's. He ended up having to move because he couldn't afford the property taxes at 12K/year. They were appraising his house for 600K at the peak of the market. When he couldn't afford the property taxes anymore and decided to sell he only got 450K. He did make a profit, but was also forced out of his house. After I saw this happen, I promised myself to never move back to IL. Good luck. 


GoCubsGo

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #39 on: July 27, 2014, 08:45:52 AM »
I'll give my thoughts as a Realtor living and working in a top ten rated Dupage County suburb.  Taxes are quite a bit higher here than in Cook County.  We also have top 5-10% ranked nationally public high schools and a great parks and recreation system.  I guess I don't mind the high taxes as I've reaped the rewards of well above average appreciation over the past 15 years. The recession also forced local suburbs to tighten their belts which I think was a great thing.  Housing prices didn't get crushed during the recession in my town due to the fact that many people who weren't financially impacted much were snapping up the below average prices. 

Most of my clients are young to middle age couples coming from the city (a very steady pipleline).  Condos prices have come back in a big way in many top Chicago neighborhoods which is allowing people to take a look at moving to the suburbs as many were waiting for prices to bounce back to gain some equity.  The reasons I hear most for moving is the expense of private schools in the city and lack of good public schools.  If that is a big concern, then you are wise to look at the suburbs (if you need a good website for school research let me know).  I'm not sure how much longer Chicago can "kick the can" down the road, but I would think a systemic collapse would take a long time and you will have time to get out as there are always optimists who will buy your place. Even if you rent you will have to deal with the State's looming issues. 

My thoughts are you can't control many of these issues much and reading political blogs are a waste of my time.  I tend to put my head down and work and control what I can.  I have to have hope that the strong corporate base in Chicagoland will ultimately keep the city from destroying itself as they have a huge vested interest.  If you really are afraid of Chicago's debt issues (which are very concerning) then you should try to control what you can control.... your situation, and definitely look at exit strategies.  Trying to figure out as big of an issue as Chicago's macro economic quagmire is a waste of your time unless you can do something to change it.

prof61820

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #40 on: July 28, 2014, 08:22:44 AM »
I'll give my thoughts as a Realtor living and working in a top ten rated Dupage County suburb.  Taxes are quite a bit higher here than in Cook County.  We also have top 5-10% ranked nationally public high schools and a great parks and recreation system.  I guess I don't mind the high taxes as I've reaped the rewards of well above average appreciation over the past 15 years. The recession also forced local suburbs to tighten their belts which I think was a great thing.  Housing prices didn't get crushed during the recession in my town due to the fact that many people who weren't financially impacted much were snapping up the below average prices. 

Most of my clients are young to middle age couples coming from the city (a very steady pipleline).  Condos prices have come back in a big way in many top Chicago neighborhoods which is allowing people to take a look at moving to the suburbs as many were waiting for prices to bounce back to gain some equity.  The reasons I hear most for moving is the expense of private schools in the city and lack of good public schools.  If that is a big concern, then you are wise to look at the suburbs (if you need a good website for school research let me know).  I'm not sure how much longer Chicago can "kick the can" down the road, but I would think a systemic collapse would take a long time and you will have time to get out as there are always optimists who will buy your place. Even if you rent you will have to deal with the State's looming issues. 

My thoughts are you can't control many of these issues much and reading political blogs are a waste of my time.  I tend to put my head down and work and control what I can.  I have to have hope that the strong corporate base in Chicagoland will ultimately keep the city from destroying itself as they have a huge vested interest.  If you really are afraid of Chicago's debt issues (which are very concerning) then you should try to control what you can control.... your situation, and definitely look at exit strategies.  Trying to figure out as big of an issue as Chicago's macro economic quagmire is a waste of your time unless you can do something to change it.

Thanks for your insight - and I do think schools and other amenities are a very important part the equation of where to live. I agree with your insight that in Chicagoland good public schools are key to a FIRE plan AND retention of property value.   Like it or not, Chicagoland parents are verry snobby and catty about school districts.  We don't normally like that but it's somewhat comforting to live in a community that's willing to pay more in taxes to educate their kids.  I think Dupage will benefit from a "flight to quality" when city dwellers with children start to see property tax bills similar to what suburban homeowners are paying.  A lot of folks are going to think to themselves that if "I'm paying Naperville taxes, I better get Naperville schools."  I don't think that will ever be possible in Chicago for various reasons. 

When you say the recession forced local suburbs to "tighten their belts" do you mean that they are starting to get their police and fire pensions back to normal (80-90%) funding levels so there is no hidden debt liabilities in the current suburban property taxes like in Chicago and Cook County?  Here's an interesting link to the State's Commission on Governmental Forecasting and Accountability (CGFA) that has reports on pension liabilities for all of Illinois' communities and the State as well: http://cgfa.ilga.gov/Resource.aspx?id=5.  The latest suburban report was issued in 2013 and only covers  pension debt up to 2010.  The trend in pension funding from 2004 - 2010 was mostly downward for most suburban communities.  I'm hoping that trend has been reversed locally because it certainly will help real estate values if buyers know that the town they are considering buying in does not have any hidden debt that could impact property taxes.

I do have a couple of concerns that make me hesitate buying in the suburbs.  Are you aware of the "cost shift" proposals in the legislature that would require suburban and downstate local school districts - rather than the state - to pay for teacher pension liabilities?  If this passes, property taxes will go higher in the suburbs.  Also, I'm concerned that the state will stop sharing sales tax revenues with local governments to pay its pension debt.  This is an easy "cut" that the state can make to help fund pensions but will just send the financial problem down the river to local governments.  Over the last couple of years, this has become an annual proposal in the legislature but so far has been seen as only a last resort when the SHTF on pensions.  Karnerva v. Weems was the SHTF.

I agree that I can't control property tax spikes caused by governments raising taxes to catch up on on years of underfunding pensions, I can control which area to rent or buy in to minimize the havoc and drop in real estate prices that will ensue when (for Police and Fire) and if (cost shift/loss of sales tax revenue) pension funding property tax hikes occur.

Here's the scenarios we see before us (and DuPage may be in the cards for us - we both like Downers Grove a lot) - buying in the City is out of the question for us now because of the much higher probability of tax spikes, cuts to schools and the fact that Chicago politics may turn very ugly as the various interests fight for much less in City resources as tax revenues are diverted to pay down the pension debt.  I think we'd rather be in a suburb because that's where we think our friends and neighbors will be eventually land when taxes start to climb in the city and the schools stay the same or go downhill.  As an aside, we just started looking at prices in the suburbs and we've noticed that listings tend to start high and then fall dramatically after a period of time when no one buys.  Why is that?  We've been kicking around various theories but it would be nice to hear from a suburban realtor on this issue.  We have been looking more on the north shore than west, fyi.  We don't see falling prices in the suburbs as a bad thing because it's opened up our eyes on what we can afford and I see prices rising when folks with kids make the decision to part ways with city living.

1.  Sell and Rent in Chicago:  This scenario most likely requires our kids getting into Chicago magnet school or us finding a suitable rental in a solid neighborhood school district: Sell, hold and invest $500K nest egg, and rent in the gold coast or north side neighborhood.  This is the safest move for our jobs/careers simply because it's what we know and have done (and done well) for the last 20 years. 

2.  Sell and Rent in a suburb:  This scenario requires us to find a suitable rental in a great suburb with great K-12 schools that we would eventually buy in after we feel that the real estate market is seeing all of the pension liabilities via property and other tax increases (i.e. the bubble has popped). Sell, hold and invest $500K nest egg, and rent in ________.  As an aside, I have noticed that you can now rent a Frank Lloyd Wright home in Oak Park for $4,000.  We can afford it, and it would be an awesome experience (for the grown ups at least) but not so good for FIRE.

3.  Sell and Buy "safe house" in Suburbs.  Buy a house for $500K in cash, start the kids in a great school district, pay our taxes with no mortgage and quit worrying about property values/taxes because we're in it for the long haul.

4.  Sell and Buy "dream house" in Suburbs.  Buy a house for $700-800K with a $500K down payment, start the kids in a great school district, pay our taxes with a smaller mortgage than what we have now and quit worrying about property values because we're in it for the long haul.  There's a tudor in Highland Park, near the train station listed for $750K.  in 2012, the property taxes were $18K annually (and haven't spiked - they were also $18k in 2010).  We can afford it but we might be in for a mustachian bumpy ride and some sleepless nights if we don't lose our mortgage debt in 3-4 years.

5.  Mustachian play:  Sell and buy less than our "safe house" in suburbs and buy 2 rental homes in suburbs.  Buy a house for $250K in cash and two rentals (in good school districts) for $125K each in cash, start the kids in a great school district (can this be done on this budget?), pay our taxes with no mortgage and quit worrying about property values because we're in it for the long haul.  This scenario has both property tax and "flight to quality" risks.
« Last Edit: July 28, 2014, 08:46:47 AM by prof61820 »

prof61820

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #41 on: July 28, 2014, 09:04:48 AM »
This is a good column on the Karnerva v. Weems decision recently run in the Champaign News Gazette (where the U of I is located so there are a large number of public employees as readers).  The article AND the comments are very interesting - especially the one about legalizing pot to generate more revenue.  I guess that gaming expansion and marijuana legalization will get a much closer look than they have in the past....

Keep in mind that if "cost shift" legislation is enacted, the U of I and local government would have to fund the University of Illinois' pension debt.

http://www.news-gazette.com/opinion/columns/2014-07-15/jim-dey-court-ruling-puts-illinois-dilemmas-door.html

Jim Dey: Court ruling puts Illinois at dilemma's door
Tue, 07/15/2014 - 7:00am | Jim Dey

Nearly 40 years ago, then-President Gerald Ford made headlines when he announced the federal government would not bail New York City out of its desperate financial woes.

But one particular front-page headline was credited with costing Ford New York state's electoral votes in his extremely close 1976 race against Democrat Jimmy Carter.

"Ford to City: Drop Dead," wrote the Daily News, one of New York City's tabloids.

Members of the Illinois Supreme Court would certainly disagree, maybe even take umbrage. But a headline summary of its recent decision in a controversial public employee pension case could evoke an equally cadaverous conclusion: "Supreme Court to Illinois: Drop Dead."

Judges, of course, contend they decide cases based on their interpretation of the facts and the law, and let the chips fall where they may. But the bottom line of the high court's 6-1 decision — which held that health insurance for state retirees is a constitutionally protected pension benefit — is that those falling chips really are boulders that could squash everything in their path.

University of Illinois finance professor Jeffrey Brown calls the decision "terrific news" for public employees, but warns that "it may be an irrecoverable fiscal blow to the state."

He sees two unpalatable options available to our elected officials: raising taxes through the roof to meet skyrocketing revenue needs generated by this decision or slashing non-pension expenditures (education, transportation, law enforcement) and using the proceeds to fund pensions.

"Neither of those options are good for the long-term economy (of Illinois)," he said. "That's when you have to worry about getting into a death spiral."

Owing to many years of poor spending decisions, including the Legislature's failure to properly fund the public pensions, Illinois has been in dire financial straits for years. It's taken a whack at raising taxes — a 66 percent state income tax increase in 2011 — and trying to slow the anticipated growth in public pension costs.

In addition to requiring retirees to pay some of their health insurance costs, legislators approved a series of changes in pension rules that included raising the retirement age and modifying the 3 percent annual cost-of-living increases.

But the Supreme Court's decision knocked the health insurance law out cold and foreshadows a similar decision on public pension benefits when the courts rule on the pending challenge to that law.

The court action has prompted legislators to talk, vaguely, about going "back to the drawing board." But if efforts to slow the increases in pension costs to cut the estimated $100 billion pension under-funding problem is off the board, what's the alternative? There's only one — more revenue.

Neither Democratic Gov. Pat Quinn nor Republican gubernatorial candidate Bruce Rauner wants to address that possibility. Both have insisted that the lawsuit involving the pension system presents a different issue than the court's health insurance ruling. But few are buying that claim, asserting that if the court rules that health insurance can be interpreted as a pension benefit that can never be diminished, then certainly actual pension benefits will be given the same interpretation.

The legal issue turns on the interpretation of the so-called "pension clause" in the Illinois Constitution. It reads that membership in a state pension plan is "an enforceable contractual relationship, the benefits of which shall not be diminished or impaired."

But does that mean that while benefits already earned cannot be impaired, future benefits can be modified? The high court appeared to say that benefits can never be modified — even if they won't be earned for another 20 years.

In other words, it's unconstitutional to do anything other than increase benefit arrangement in place on the day an employee is hired. "Find me a system anywhere in the world that doesn't allow you to change the benefits prospectively," said Brown.

Right here in Illinois, would be the Supreme Court's response.

So how will Illinois come up with the cash?

A spokesman for a public employees union suggested raising taxes on millionaires. But there aren't enough millionaires and billionaires to generate sufficient revenue. There are lots of ordinary people who can be hit up, though. Here are some options:

— Illinois doesn't tax retirement income. That would generate $2 billion-plus a year.

— House Speaker Michael Madigan wants to shift the cost of teacher pensions from the state to local property taxpayers. He has promoted that option in the past and can be expected to do so again.

— Illinois doesn't tax services. It can start to do so and place a sales tax on food as well.

— Illinois' state income tax is scheduled to fall from 5 percent to 3.75 percent on Jan. 1. The Legislature can make the temporary 5 percent tax permanent, then extend it from there to generate more revenue.

None of those is an attractive option, but that doesn't appear to matter.

"... we have concluded that the (non-diminishment) provision was aimed at protecting the right to receive the promised retirement benefits, not the adequacy of the funding to pay for them," Justice Charles Freeman wrote for the court.
« Last Edit: July 28, 2014, 09:23:15 AM by prof61820 »

prof61820

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #42 on: July 28, 2014, 09:49:30 AM »
Seriously, what you want us to do is to buy into your assumptions and come up with a plan.  If I thought your assumptions had any basis in reality, I would sell today and look for a job in another part of the country, because I would not want to be in Chicago or the State of Illinois after the nuclear debt war.

I have been thinking about my assumptions and I may have missed something.  New or not-so-new revenue ideas in Illinois may be a lot more feasible now, post-Karnerva v. Weems, to avoid additional tax increases and draconian cuts to spending.  I'm think that significant gaming expansion and marijuana legalization may get a closer look by Illinois' legislature in the very near future.  Having 3-4 casinos in downtown Chicago and legal pot sales would generate of lot of revenue, something big business could get behind to avert a financial disaster.  I am annoyed with myself for not thinking outside the box and not seeing this angle.

waltworks

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #43 on: July 28, 2014, 11:10:13 AM »
Can-kicking FTW.

It would be sort of awesome if stoners bailed out retirees.

-W

prof61820

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #44 on: July 30, 2014, 01:23:41 PM »
The Chicago City Council today approved a 911 phone line fee increase today without dissent (http://www.chicagotribune.com/news/politics/clout/chi-chicago-aldermen-approve-911-fee-hike-20140730,0,1402250.story).

The fee hike will hit nearly all Chicago residents in September and October just months before the February city elections. The idea is that the 911 fee hike will help the city stave off, at least for a year, what elected officials view as the politically fatal third rail of Illinois politics: a property tax increase.

The increase will boost 911 surcharges on wireless phones and landlines by $1.40 -- to $3.90 a line -- starting Sept. 1. It also would increase the tax on prepaid wireless phones by 2 percentage points, to 9 percent, on Oct. 1. The move will raise 911 fees by $16.80 per year -- or $67.20 a year for a family with four phone lines.

The fee hike is expected to raise about $10 million this year and another $40 million next year, Budget Director Alexandra Holt said. That would allow the city to free up $50 million in general revenue now dedicated to the 911 system and emergency preparedness.

That's about the same amount Emanuel had planned to raise from higher property taxes in next year's budget to help cover increased city payments into two retirement funds, as required under city pension changes that Gov. Pat Quinn signed into law in June.

prof61820

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #45 on: July 31, 2014, 09:23:35 AM »
On the Chicago Public Schools: http://www.chicagotribune.com/news/opinion/editorials/ct-cps-crisis-budget-edit-0710-jm-20140710,0,6892372.story

What looked like a bad idea in April no longer looks merely bad. It looks like an all but certain path to financial catastrophe for Chicago's public schools — a catastrophe conveniently postponed until after the 2015 city elections.

There is not, and almost surely won't be, a bridge to salvation in the form of pension relief. An Illinois Supreme Court ruling Thursday on public employees' retiree health care benefits telegraphed that state and local government efforts to curb the rising cost of pension benefits will not succeed. The court evidently believes such efforts run afoul of the Illinois Constitution.

The court came close to declaring that whatever retirement benefits were in place on the first day of a worker's public job can't be reduced. Until he or she dies.

So, CPS: The $717 million pension payment you've projected for fiscal 2016? And the $737 million you've projected for the following year? You're probably on the hook for these massively higher pension payments — in perpetuity. Barring some remarkable surprise, you'll have to find a way to pay those bills. Year after year.

GoCubsGo

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #46 on: July 31, 2014, 10:01:22 AM »
In regards to the belt tightening question, my suburb and most of the suburbs around me that I sell in (western burbs of Elmhurst, Glen Ellyn, Downers Grove, Naperville) had realized early on in the recession that infrastructure projects and school funding needed to continue and not be pushed to the back burner due to the recession (long term view as opposed to panic).  At the same time they had to rigorously review all projects with multiple bids and transparency which in the past may have been less of a concern before the recession. 
School tax initiatives were INCREASED by an overwhelming majority in my town even during the recession (again, taking the long term view).   Our schools are growing at an all time record pace due to the influx of young city couples.  Our fire department is volunteer with a few paid positions, but if they did shift the police pension obligations to the local level then I could definitely see that as an issue but one that the entire state would grapple with.

Most of these town are volunteer run by local business leaders many of whom are successful entrepreneurs, attorneys and consultants for top tier firms who at one time lived in the City.  This allows for a more nimble approach and avoids the big machine bureaucracy seen in Chicago.  You also see these people at kids sporting events and at the coffee shop so there is definite accountability as opposed to entrenched aldermen who basically hold to post for life by taking care of their main voting block.

As an aside, I chose to buy the safe above median but not crazy priced house in a top notch suburb and purchase multiple rental homes in and around my town and it has SIGNIFICANTLY sped up my FIRE timeline. People fight over rentals for ridiculously high prices (most of my rentals are listed for 1 day and I take them down due to the crush of applications) and the major reason why is the schools, parks and great downtown area.  If I were you I would buy a safe house in the $400-$500K range and buy at least one leveraged (take advantage of these once in a lifetime mortgage rates) rental property. 

prof61820

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #47 on: August 06, 2014, 05:48:02 AM »
Good article on Chicago's suburban pension debt issues.

BGA Link: http://www.bettergov.org/suburban_pension_peril/?CategoryId=1
Sun Times http://politics.suntimes.com/article/chicago/dozens-suburban-police-and-fire-pension-funds-drying/tue-08052014-830pm

Dozens of suburban police and fire pension funds drying up
Tue, 08/05/2014 - 8:30pm
Better Government Association

There are 217 police and fire pension funds in suburban Cook County. The taxpayer-supported systems, with collective assets of nearly $5 billion, are intended to provide public safety workers and their families with stable retirement incomes.

But a Better Government Association analysis found that dozens of local police and fire pension funds are in financial peril, putting retirement incomes at risk – as well as the fiscal health of numerous municipalities.

Rescuing the troubled funds may require tax hikes, service cuts or both, say experts. Already, some public safety agencies are looking to privatize or merge with neighboring departments in an effort to cut personnel and ease future pension payouts. Whatever the method, taxpayers can expect to bear a heavier cost burden because of the severe local pension shortfall.

In all, unfunded liabilities for police and fire pension funds throughout suburban Cook County total $3.3 billion, according to a BGA analysis of the most recent municipal pension fund data.

Fifty-eight or roughly a quarter of the systems were less than half-funded, meaning there was fewer than 50 cents for every dollar owed in long-term benefits, according to the analysis. Generally, a minimum 80 percent funding is considered healthy. A state law approved in 2010 requires such pension plans to be 90 percent funded – by 2040.

At the current low funding levels the systems aren’t cushioned against investment losses, and may have to liquidate assets to pay benefits, raising the risk that some systems could run dry. In such a scenario, taxpayers could be responsible for any shortfall. If and how municipalities and pension funds can declare bankruptcy and get out from under financial obligations is unchartered terrain.

“The gravity of the situation goes from grave concern to outright terror,” says Roger Huebner, deputy executive director of the Illinois Municipal League. “Some of the funds are in such bad shape I don’t know how they recover.”

This municipal pension mess comes atop alarming money shortages in pension funds for employees of the State of Illinois, City of Chicago and Cook County. Each of those agencies has been trying to work out a legislative solution.

Without a doubt, the collective unfunded liabilities of those bigger pensions, in excess of $100 billon, are far greater than the combined suburban pension shortfall. However, the fire and police pension woes threaten to have a far greater financial impact on mid-sized and small municipalities because they have fewer viable options to raise revenues or cut costs to plug a pension hole.

 Who’s to blame for the problems on the municipal level – where there’s been little public discussion about solutions – depends on who you ask.

Observers say reasons include chronic underfunding, sluggish investment returns, overly generous benefits and, in some cases, potentially improper pension sweeteners.

Statewide there are 660 police and fire retirement systems outside Chicago. State law requires towns with 5,000 or more residents and which employ at least one full-time police officer or firefighter to create and administer pension systems for those workers. A fire protection district must create a fund if it employs at least one full-time firefighter.

In suburban Cook County there are 121 police and 80 fire pension funds, plus 16 separate fire protection district pension funds. In all, there are 5,900 annuitants; an additional 8,500 police and firefighters could collect a pension down the road.

The BGA reviewed the finances of each system – by analyzing documents, and contacting every pension agency or municipality – and found 204, or 94 percent, were below the 80 percent threshold.

Other revelations include:

    The fire pension funds in Blue Island, Cicero and Melrose Park have just 32 cents for every dollar owed, the lowest among systems with at least $2 million in assets.
    On the police side, Blue Island, Burnham, Summit and Willow Springs ranked among the lowest, each with less than 30 cents for every dollar owed.
    Until recently the Stone Park police fund had just seven cents for every dollar owed. The village issued a $2 million bond in April, in essence borrowing money to pay its pension debts. Its funding ratio now stands at an estimated 23 percent, the fund’s attorney says.
    A search of municipal and state records uncovered examples of alleged pension sweetening in Alsip, Blue Island and at the Pleasantview Fire Protection District. In Alsip, for example, two police officers retired days after receiving “longevity bonuses” of more than $20,000 each. Over their lifetimes those pay bumps could result in total additional pension payments of $1.8 million, according to a BGA analysis.
    From 2010 to 2013, the total annual required contributions for Harvey’s police and fire funds was $10.1 million. State records show the south suburb, however, paid just $140 during that four-year span.

The Illinois Department of Insurance oversees pension funds statewide but historically there was little the agency could do if public safety workers got a last-minute pension boost, or a municipality didn’t meet its obligations. The department could levy a modest civil penalty but such fines were rarely issued.

In short, there’s been little oversight to this point.

“Yeah, obviously I’m concerned,” says former Stone Park Police Officer Robert Keaty, who collects an annual pension of $63,613. “I put in over 30 years. I don’t want to have to worry every month” about his fund’s financial condition.

Soon there could be repercussions, though.

The state law adopted by legislators in 2010 also empowers pension funds to intercept (in gradually increasing increments) sales taxes, grants and other revenues owed to the towns by the state if the required contributions aren’t made. That doesn’t take effect until 2016 but the law’s impact is already being felt, though not necessarily in ways that rank-and-file police and firefighters may appreciate.

North Riverside may privatize its fire department in part because of concerns that the village would go broke if it couldn’t afford its pension obligations and state revenues were intercepted, North Riverside Village Attorney Burt Odelson says.

The BGA found at least three other Cook County suburbs – Chicago Ridge, Forest View and McCook – are exploring or have already picked a cost-saving alternative to a municipal-run fire department. Rising pensions costs and concerns that precious state revenues could be garnished has brought the towns to this point.

Chicago Ridge and Forest View are weighing the benefits of joining a fire protection district, or paying a neighboring town to provide the emergency service, among other options.

McCook, however, has made up its mind to shutter its fire department and hire a private company.

Beginning Aug. 4, employees of New Lenox-based Kurtz Paramedic Service Inc. will fight fires and respond to emergency calls, says McCook Mayor Jeff Tobolski, adding the move will save an estimated $600,000 annually.

Municipal officials who are unwilling to go that route shouldn’t look to state lawmakers for immediate relief, as no major reforms that address the police and fire pension crisis appear to be in the pipeline.

“Legislators understand it has to be done but it’s incredibly contentious and painful,” says state Rep. Elaine Nekritz (D-Northbrook). “No one is chomping at the bit to do that.”

This story was written and reported by the Better Government Association’s Andrew Schroedter and Patrick Rehkamp, with the BGA’s Katie Drews contributing.

MidWestLove

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #48 on: August 06, 2014, 07:53:39 PM »
Interesting conversation, thank you for sharing (another Chicago person here)

GoCubsGo - I would be interested in the website you have mentioned for the schools as I am probably in the same demographics you discussed (mid thirties, young kid and desire to get to better schools in few years). I also agree with you in terms of crazy seller market now, the properties in where I am (bungalow belt within the city) go with multiple bids which means either
-underpriced to begin with
-seller's market
-both


Prof61820 , I looked at the same things you did and asked
- how much of it is Chicago
- how much of it is Illinois in general
specifically I read the auditor report from our Comptroller that states very clearly that our unfunded liabilities are for the state. no punditry necessary.

for us , the piece I can not get is why would be even consider Chicago suburbs vs north west Indiana unless we already have family there. I can get the same or better house in Munster Indiana for 60% of the price of the house in Naperville, newer construction, 1/3 property taxes, and more land , and still be closer to the loop and to the train station than many of its subdivision.  This is especially true if Indiana finishes its southshore train expansion, the value is just so much higher in many places of north west Indiana.





MidWestLove

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Re: Chicago Real Estate: Nimble or Foolish?
« Reply #49 on: August 06, 2014, 08:13:36 PM »
Links referenced

Comptroller report
http://www.ioc.state.il.us/index.cfm/resources/reports/cafr/fy-2013/

search for pension obligations


Pension Obligations

Legislation enacted in 1995 set a long-term funded ratio (assets to actuarial accrued liabilities) target for the State’s five retirement systems at 90% and established a plan for contributions in order for the State to reach this target by fiscal year 2045. For fiscal year 2006 through fiscal year 2007, the relevant State statutes were amended to allow for significantly lower State contribution levels to the retirement systems with levels increasing in fiscal years 2008, 2009, and 2010 before returning to the mandated levels of the 1995 law for fiscal year 2011. Additionally, in fiscal year 2004, 2010, and 2011, general obligation pension bonds were issued in the amounts of $10.0 billion, $3.5 billion and $3.7 billion, respectively. As of June 30, 2013, the five State-funded retirement systems were at a 39.3% funded ratio using a five year “smoothing” valuation of assets with $100.501 billion in unfunded liability.

 Other Postemployment Obligations

For fiscal year 2013, the State performed an actuarial valuation of the health, dental, vision, and life insurance benefits promised to retirees. The valuation reported a $34.488 billion actuarial liability with no assets currently set aside to fund the liability as the State uses a “pay-as-you go” method to make payments for retirees’ benefits. Valuations are performed biennially.


and this is how screwed up is your state financially site
http://www.statedatalab.org/state_data_and_comparisons/detail/illinois