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Monday, October 21, 2019

Illinois' financial decay hits home

Their View

By Ted Dabrowski, Wirepoints | Sep 10, 2019

Illinois’ financial decay isn't just happening at the top, it has likely spread to your community, too. Households from Peoria to Harvey and from Alton to Rockford are seeing property values fall, city populations shrink, tax burdens jump and incomes stagnate.

Much of that decline is due to the state’s one-size-fits-all pension laws and overly generous benefits, which have left many cities suffocating under impossible pension debts.

Without an amendment to the Illinois Constitution’s pension protection clause – and subsequent pension reforms – expect many cities' crises to get even worse.

The map below shows just how wide and deep the local pension crisis is. Of the 630 downstate police and fire pension funds that reported data to the Illinois Department of Insurance in 2017, 358 had funded ratios lower than 60 percent. And nearly 100 funds had funded ratios below 40 percent.

What’s worse, the downstate pension decline has occurred during one of the nation’s longest-ever stock market bull runs. If Illinois public safety pensions are doing this poorly in a great market, imagine their struggles during an eventual downturn.

False, and true, solutions

Illinois cities – from Kankakee to Danville to Alton – need pension fixes before costs bankrupt them. And while state politicians have effectively quashed any chance for reforms now, that shouldn’t stop your city officials from demanding real changes.

Real changes don’t mean pension fund consolidations or tax hikes. Consolidation may reduce administrative costs and increase investment returns, but it’ll do nothing to reduce the pension shortfalls. Not only that, but there’s the risk lawmakers will try to bail out cities by taking over or socializing all downstate pension debt.

You should also beware the talk of a “statewide” solution for the pension crisis. For politicians, a statewide “solution” isn’t about passing reforms, it’s about taxing everyone in Illinois. Chicago Fed economists have already suggested enacting a statewide 1 percent property tax – on top of the nation’s highest rates Illinoisans already pay – to help fix the crisis. More taxes will only hurt home values – your nest egg – even more.

The only solution that can protect both taxpayers and retirees is structural pension reform and bankruptcy for cities that aren’t yet too far gone. For others, like Harvey, Illinois, it’s probably too late.

Municipal leaders across Illinois need to demand the following if they want their cities to survive Illinois’ collective crisis:

  1. An amendment to the constitution's pension protection clause so pensions can be reformed and workers' retirement security saved;
  2. The ability to convert pensions to defined contribution plans for workers going forward; 
  3. A freeze on retirees' cost-of-living adjustments (while protecting small pensioners) until pension plans return to health, and;
  4. Public sector collective bargaining reforms so officials can hold the line on new labor contracts. 
And if they don't get all of the above, they should demand from Springfield the ability to invoke municipal bankruptcy. Otherwise, cities will remain trapped in a downward spiral – unable to reform and unable to reorganize.

Nobody wins in that scenario.

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