Madison - St. Clair Record

Thursday, October 17, 2019

Analysis: Local tax bills would likely double if pension debt were satisfied

By Ann Maher | Jun 22, 2016

How big is government in Madison County?

Two hundred twenty local governments spent a collective $1.047 billion last year, or 21 percent of the county’s equalized assessed valuation (EAV), what the assessor says all real estate in the county is worth.


By that measure, in addition to making a mortgage payment to their bank, property owners are effectively re-buying their homes every five years, paying back one fifth of its value annually to local government in property taxes.

But that’s not the whole picture.

Those 220 governments have amassed another $1.16 billion in debt, according to an analysis of public records. That’s $10,648 of debt per Madison County household.

The problem is most acute in Granite City, a town with 12,423 households and more than $165 million in debt. That’s $13,281 per household in a community where the average home value is $82,000, according to Zillow.

Debt is growing steadily each year, as public officials agree to union contracts that guarantee increases in salaries for local public sector workers. When salaries rise, pension obligations, which are tied to pay rates, do as well.

How does it work?

In 2006, the average Granite City firefighter had a salary of $56,000 and the city’s Firefighters Pension Fund faced a deficit of $19 million.

Ten years later, that same firefighter earned $70,000-- an increase of 24 percent-- and the Firefighters Pension Fund deficit was $40.5 million, up 113 percent.

The deficit represents money borrowed for what is, in effect, future compensation promised to Granite City firefighters by government officials. That compensation wasn’t reflected in the firefighters salaries - including the true value of the promised pension, which would more than double them - nor was it communicated to property taxpayers, who would have had to pay double to fund this higher compensation.

To be sure, more than half of Granite City’s debt total - $90 million - is money quietly promised to public employees upon retirement, but not funded.

Business analyst Mark Glennon of Chicago has studied the impact onerous taxation has had on Illinois communities.

In particular, he has looked at Chicago’s south suburbs, which he says are in a “death spiral.”

“Don’t repeat their history,” he wrote in article entitled “Suicidal Property Tax Rates and the Collapse of Chicago’s South Suburbs” published in November.

Glennon is managing director of Ninth Street Advisors in Chicago.

“The best that come from their plight is the warning they’ve given.”

Glennon asserts that property values in the south suburbs ‘“have been ravaged.”

He points to the suburb of Flossmoor as an example where homeowners are trapped with home values sunken below mortgages.

“It’s among the prettiest and was long among the most prosperous towns in the state, filled with beautiful older homes and huge oak trees,” he wrote. “Its high school, Homewood-Flossmoor, was traditionally among the best in Illinois. Today, Flossmoor is where many of those stories originate of owners trapped in their homes. Their values have sunk below mortgage balances and potential buyers balk at effective tax rates around 5%, often far higher. Many owners are stuck there. It’s seen as the last island of stability in the area, but it’s submerging.”

Illinois Policy Institute analyst Ted Dabrowski also has described the harm of public debt as "destroying lives and property values."

"Property tax is the one thing that politicians get them (the people) on," he said in a previous interview. "It's not like sales tax where you can choose whether or not to buy something.

"They attack where you live, because you are stuck."

He pointed to public sector salaries for teachers, firefighters and police that may not be in line with what a community can support, which puts downward pressure on property values.

Dabrowski said there's "something wrong with a system when someone comes in from outside of the district and earns a $90,000 salary, and over time they earn a $3 million pension."

When asked what happens to the real estate market when property tax bills continue to rise, year after year, Dabrowski said, "Nobody is going to pay the property tax, so they buy the house at half the price."

Dabrowski also said another danger to communities is when people start disappearing.

That trend has been analyzed by the Illinois Policy Institute, and it concludes that the state is losing one person to another state every five minutes.

"The tax base goes...and you are done," he said.

Want to get notified whenever we write about Illinois Policy Institute ?

Sign-up Next time we write about Illinois Policy Institute, we'll email you a link to the story. You may edit your settings or unsubscribe at any time.

Organizations in this Story

Illinois Policy Institute

More News