According to Truth in Accounting’s July 2021 review, Chicago has once again received a failing grade on its overall financial health, which worsened throughout the pandemic despite federal aid.
To cover all of the city’s expenses, each Chicago taxpayer would need to write a check for $43,700, according to the estimate for fiscal year 2020. From the previous fiscal year, this burden increased by $2,600 per taxpayer.
Because of federal funding, the city’s funds from grants and donations more than doubled to $1.17 billion in the 2020 fiscal year, up from $497 million in the previous fiscal year, according to the financial watchdog’s report.
However, the advantages were wiped out by pension and health-care liabilities for retirees. The debt held by pension funds climbed by more than $1.15 billion. The debt for retiree health care has more than doubled, from $829 million to over $2 billion.
According to Truth In Accounting, the city’s health-care obligations have increased dramatically as a result of a court judgment requiring the city to continue certain retiree health-care benefits indefinitely. Previously, they were due to expire in 2022.
This analysis comes after a survey by Truth In Accounting in January 2021 found Chicago second-to-last in financial health among the nation’s 75 most populated cities. It just came in second to New York.
If Chicago wants to avoid being dubbed one of the worst cities in the country, it must take action “It will need to implement massive financial reforms, beginning with pensions, to avoid becoming “sinkhole towns.”
The city’s onerous tax burden, along with $470 million in CARES Act money, barely covered the city’s liabilities, according to the July report. Overall, Chicago has $9.9 billion in potential assets but a $48.5 billion debt burden.
According to the analysis, Chicago would have to lay off all city workers, firefighters, and police officers for eight years just to catch up on pension payments.
Although this is obviously unrealistic, there is a sensible solution. Chicago’s pension crisis could be solved by amending the Illinois Constitution to allow for increases in the cost of future, unearned payouts.
Many of America’s greatest cities suffered financial losses as a result of the COVID-19 outbreak. However, the report pointed out that Chicago’s main problem was its long-standing battle with pensions and retiree health-care commitments “For years, the city has not been adequately funded.”
Chicago’s pension dilemma has become so serious that the city now owes more in pension debt than 44 states in the United States. It’s getting worse: during Mayor Lori Lightfoot’s first term, compulsory pension contributions will increase by $1 billion.
Controlling future pension expenses by tying them to inflation instead of 3 percent yearly compounding raises will benefit Chicago, other Illinois communities, and the state as a whole. However, without an amendment, that change is unattainable since the Illinois Supreme Court ruled in 2015 that such modifications were forbidden by the constitution. This decision occurred after state politicians attempted to reform the pension system in 2013.
After leaving office, former Chicago Mayor Rahm Emanuel approved such an amendment. Lightfoot has been contradictory on the topic, making public pronouncements condemning Chicago’s pension crisis yet refusing to support a reform amendment.
Lightfoot needs to make it clear that pension reform is the way out of Chicago’s quagmire.
How much debt is the state of Illinois in?
In its latest Financial State of the States report, fiscal watchdog Truth in Accounting crunched the figures for Illinois and rated the state an F. According to the report, Illinois only had little over $36 billion in assets available to fulfill obligations totaling more than $272 billion, leaving the state with a $236 billion shortfall.
Each Illinois taxpayer currently owes $57,000 toward the growing debt, nearly quadruple the amount owed just a decade ago in 2009. That means that every Illinois taxpayer would have to contribute that much money to Springfield on top of what he or she now pays just to keep the state from defaulting on its obligations. Despite receiving billions in federal relief money owing to the coronavirus outbreak, Illinois saw a $5,000 rise in its fiscal year 2019 report.
The load double in the last twelve years, according to Truth in Accounting’s Research Director Bill Bergman, is troubling. “At the start of that period, Illinois was in the midst of the biggest economic and financial catastrophe since the Great Depression, and despite the huge rebound in financial markets since 2009, Illinois has only become worse.” That’s terrifying.”
The federal government provided the state with more than $8 billion in flexible fiscal relief, as well as billions more to address pandemic-related bills, but the state’s financial situation worsened during the previous year. The state’s total debt increased by $10 billion, owing primarily to rising pension payments, which remain the main source of the state’s budgetary woes. Even this record level of federal spending will not be enough to make the state’s finances normalize. Despite the billions in aid money, Illinois lawmakers enacted another out-of-balance budget for fiscal year 2022, marking the 21st time since 2001 that they have done so.
Illinois isn’t the only state with massive debts and heavy tax loads. Only 11 states, according to the research, have a taxpayer surplus rather than a burden. Only struggling New Jersey and Connecticut taxpayers, however, had larger debt burdens than Illinois residents. Illinois’ debt per taxpayer burden is more than 3.5 times that of the other states with deficits, which is around $15,500.
Illinois’ pension debt continues to climb, which is unfortunate. It reached a record high of $317 billion in June 2020, according to Moody’s Investors Service. The remainder of the state is suffering as a result of the tremendous debt. Illinois has one of the nation’s highest state and local tax loads, squeezing taxpayers with rising levies that go toward paying off pension debts rather than funding critical programs and services. Illinois also has the second-highest property taxes in the country, leaving homeowners scrambling to pay ever-increasing tax bills as core government services are curtailed.
Illinois was recently voted the least tax-friendly state for middle-class households by Kiplinger (a financial magazine). The state’s income, sales, and property taxes are cited in the research as factors in the state’s reputation as a hostile environment for middle-class families. The fact that Illinois’ neighbors Iowa, Wisconsin, and Michigan all made the top ten list is maybe the only silver lining. Seven of the states on Kiplinger’s list are also in the bottom half of the Financial State of the States report, which comes as no surprise.
Illinois lawmakers should put a constitutional amendment on the ballot for pension reform. Illinois has an issue with growing and unsustainable pension payments, which are overwhelming the state and jeopardizing current and future generations’ economic security. Pension reform is the only option for the state to ensure a brighter future for all Illinois residents.
Is the city of Chicago broke?
Chicago, Illinois Chicago is a Sinkhole City with insufficient assets to pay its debts. Chicago only has $9.9 billion in assets to pay down $48.6 billion in obligations. Chicago has a $38.7 billion financial hole because it does not have the money to fulfill its expenses.
Is Chicago financially stable?
CHICAGO— Mayor Lori E. Lightfoot stated today that Standard & Poor’s (S&P) Global Ratings has raised the City of Chicago’s ‘BBB+’ long-term rating to “stable” from “negative.” This news follows Fitch’s upgrading of the City’s outlook to stable last week, as well as Kroll and Moody’s upgrades earlier this summer.
“Mayor Lightfoot remarked, “The 2022 Budget reflects the remarkable work that the City’s finance and budget team has done over the years to help our city achieve structural balance.” “Over the last three years, we’ve discovered over $1 billion in structural solutions thanks to their efforts. We will reach the top of our pension ramp, which means that for the first time in our city’s history, all four pension funds will be paid according to actuarial calculations. We aim to achieve structural balance by 2023 as a result of these efforts, as well as the passage of the 2022 Budget, which speaks well for our flourishing post-pandemic recovery.”
S&P recognized the city’s ability to deal with the pandemic’s short-term constraints without a major deterioration in its financial condition in their report.
“During the Lightfoot administration, the city’s increased fiscal discipline removed practices like annual scoop-and-toss refundings and identified new revenue streams to finance operations.”
According to the rating agency, the city has devised a “a “credible route to structural balance” that involves phasing out large one-time revenue streams after 2022, discovering new revenue sources, and mounting a $1 billion rise in pension contributions over the last three years
S&P also offers its thoughts on the Chicago Recovery Plan and the first significant payment of an investment plan aimed at transforming the city.
“Given the City’s improved financial position, using stimulus funds to improve programs and opportunities for citizens should result in a net increase in the tax base. This huge investment in social capital, both in terms of nominal quantity and in terms of how the city prioritized a large-scale effort to address legacy social concerns as a major component of its economic recovery plan, is what we believe.”
According to the Fitch study, which last week upgraded the city’s outlook to stable, “In recent years, Chicago’s budget management has significantly improved during times of economic recovery. In order to achieve structural equilibrium, management has made substantial progress.”
The Civic Federation notes its support for key elements of the FY2022 budget, including funding all four pension funds based on actuarial calculations, finalizing various collective bargaining agreements, relative restraint on tax increases, reduced use of reserves, cancellation of scoop and toss, and the community engagement process.
“The City of Chicago is in far better financial shape than it was a year ago…
In accordance with excellent fiscal practices, the City’s budget sensibly aligns one-time earnings, such as federal revenue replacement money and debt refinancing savings, to one-time expenditures.”
“The recent acknowledgements from outside financial stakeholders corroborate what we’ve been attempting to achieve with our 2022 Budget, that the City has struck the correct mix of financial responsibility and investment in Chicago,” said Susie Park, the City’s Budget Director.
“Despite $1.5 billion in lost earnings during the pandemic, the City has achieved numerous key financial milestones over the last three years.
By implementing actual reform-based measures and efficiencies, we are paying down our debts, living within our means, and becoming better stewards of taxpayer resources.
“Through the Chicago Recovery Plan, all of these actions provide the City with the financial capacity to invest in Chicago in a revolutionary and permanent way,” said Jennie Huang Bennett, Chief Financial Officer.
Which US state is the most financially stable?
The Bill of Rights, not the United States Constitution, enumerated Americans’ fundamental rights. The 10th Amendment of the Constitution granted the states an indeterminate set of rights: “The powers not delegated to the United States by the Constitution, nor forbidden by it to the States, are reserved to the States accordingly, or to the people.” The effectiveness of government-sponsored initiatives and projects, as well as the quality of life of the state’s citizens, are dependent on the fiscal stability of the state government. In recent times, states’ rights and powers have been asserted in a wide range of services for their inhabitants, including the provision of public education. As some have reached economic status equivalent to foreign powers, good state administration and fiscal health have become increasingly crucial. California’s economy, for example, is comparable to France’s.
Alaska is the most fiscally stable state in the country. South Dakota, Tennessee, Idaho, and Utah make out the top five states. Half of the top ten states for fiscal stability are also among the top ten states for overall quality of life.
How much is Chicago pension debt?
According to the 2020 Certified Annual Financial Report, Chicago owes $32.9 billion to its four employee pension funds, which include police officers, firefighters, municipal employees, and laborers. According to the research, this represents a nearly 3.5 percent increase over 2019.
The city’s pension debt expanded at a slower pace between 2019 and 2020 than it did the prior year, when it grew by 5.6 percent.
Jennie Huang Bennett, the company’s chief financial officer, stated that increase was expected “Because the city is now compelled to contribute to its pension funds based on actuarial predictions, this was “completely anticipated.” This rule, which will be fully implemented in 2020, has contributed to the city’s structural deficit ballooning.
This statute mandates that the city’s pensions be funded at 90% by 2045, guaranteeing that money are available to pay benefits to employees as they retire.
According to Chicago’s Annual Comprehensive Financial Report for 2020, even as that statute takes effect, the city’s pension funds are considerably underfunded. The Municipal Employees Retirement Fund was the only one to experience a minor decrease in funding between 2019 and 2020, while the other three funds saw their financial situation improve slightly.
The firefighters’ fund has the lowest financed level of the four, at 19 percent, while the workers’ fund has the greatest funded level, at 44 percent, according to the research.
A 10% rise in investments boosted the city’s pension coffers, allowing it to keep up with planned wage and benefit increases for employees, according to Huang Bennett.
In May, Mayor Lori Lightfoot warned investors at a city-hosted conference that pension debt is the “greatest concern” confronting Chicago’s finances, and she promised to “demand a reckoning” in Springfield.
However, since then, Lightfoot has made no mention of the city’s pension deficit, nor has he made any specific plans to overhaul the state’s pension system, which can only be altered by amending the Illinois Constitution.
Lightfoot referred to the annual cost-of-living increases incorporated into the city’s pension payments as “cost-of-living hikes” in August 2019 “organized labor slammed him as “unsustainable” and he faced a barrage of criticism.
According to the city’s expenditure plan, the city would pay $1.8 billion from its $4 billion general operations fund to its four pension plans in 2021, an increase of $91 million over 2020.
According to the city’s budget predictions, Chicago will have to pay $2.25 billion toward these funds by 2022. In August, new forecasts are likely to be released.
The city of Chicago’s annual financial report wraps up fiscal year 2020 and documents the massive budget crater caused by the COVID-19 pandemic, which completely shut down the city’s economy from mid-March to early June, forcing many businesses to close again amid a second surge that peaked in mid-November. Until mid-June, a third, less severe spike maintained limitations in place to protect the virus from spreading.
According to city statistics, Chicago’s unemployment rate peaked at 18 percent. According to the study, the city received $405.5 million less than planned into its general budget, which is used to pay for most public services. According to the research, the epidemic caused a $886 million budget imbalance in the city.
In 2020, the epidemic struck havoc at both Chicago airports, causing travel to come to a halt. According to the research, revenue at O’Hare International Airport fell by almost 28%, while income at Midway International Airport fell by 17.5 percent.
Huang Bennett said the city completed the year with $197 million in cash on hand, which was $12 million more than planned, thanks to $1.4 billion in federal funds.
In addition, Huang Bennett said the city paid down $211 million in debt in 2020, which was a small portion of the city’s overall debt burden.
Why Illinois taxes are so high?
In 2021, Illinois was second in the US for highest property tax rates, trailing only New Jersey.
On a $217,500 median-valued home in Illinois, homeowners pay an average of $4,942 in property taxes, which is precisely double the national average. According to WalletHub’s state rankings for 2021, that’s a tax of 2.27 percent of the home’s worth each year.
“The first property tax statement I read was sticker shock,” said Jerry R. McDonald, a retiree who came to Springfield in 2012 after marrying his long-time Illinois resident wife, Nancy. “The price difference was around two and a half times what I was spending in central Kentucky.” It was quite unsettling.”
Illinois has placed second in the WalletHub study for the fourth year in a row. Illinois property taxes were $237 more in the current survey than in the 2020 study.
Illinois is bordered by states with lower property taxes, which is one of the main reasons for the state’s continuous population decline. The state recently had its worst year of population loss since WWII. According to WalletHub’s data, moving to Indiana would save an Illinois resident $3,089 in property taxes on that $217,500 home. $915 in Wisconsin, $2,831 in Missouri, $1,535 in Iowa, $3,076 in Kentucky, and $1,599 in Michigan would be saved.
McDonald claims that his Springfield taxes have risen too much since 2012.
“Our property taxes have risen by around 15%, to give you an idea.” The state’s finances are in a state of disarray… The state is being drained by the pension fund’s backlog, and the solution… is long-term and complicated.”
While the national median home value is $217,500, Illinois’ median home value is $194,500. Despite the lower median house value, Illinois has the highest average property taxes in the country: $4,419 per year. When each state’s taxes on its own median-value house were ranked, Illinois finished in sixth.
While homeowners are feeling the pinch, the 36 percent of households in the United States that rent are also affected, according to Stephanie Leiser, a lecturer in public policy at the University of Michigan’s Ford School. She claims that if you rent, your monthly payment covers a percentage of the landlord’s property taxes.
Property taxes are a problem statewide, but Cook County residents have been particularly affected recently. The first installment of property taxes was due on March 2, following a report released in October that showed Cook County property taxes increased at almost three times the rate of inflation between 2000 and 2020.
The high tax rates are due to pension debt. $42.5 million of the approximately $94 million current property tax increase for the city of Chicago will be utilized to make up for pension funding deficiencies. The city’s eight pension funds have amassed about $45 billion in debt, which is more than 44 states in the United States. Local governments in Illinois have a $63 billion pension obligation, which causes property taxes to climb each year.
Lori Lightfoot, the mayor of Chicago, has called for change and highlighted the severity of the pension crisis, but she has not offered a detailed proposal. Former Chicago Mayor Rahm Emanuel endorsed a constitutional amendment to address the city and state’s pension difficulties near the end of his term.
In 2013, state lawmakers and the governor expressed bipartisan support for public pension reform, but the Illinois Supreme Court ruled in 2015 that the only way to achieve it for Illinois state and municipal governments is through a constitutional amendment. Pension reform that allows for cost control in the future can ensure a comfortable retirement for public employees while also protecting spending on essential services.
Pension reform, on the other hand, can prevent additional residents from fleeing Illinois due to high property taxes.
Where do Chicago taxes go?
Public education in Chicago is supported by 54 percent of voters. 30% goes to municipal government, public libraries, and mass transit projects; 7% goes to various Cook County government entities; and 9% goes to miscellaneous taxes, which includes money for the Chicago Park District and the Metropolitan Water Reclamation District.
Are Chicago property taxes going up?
The proposed city budget will boost property taxes by up to $180 for the average Chicago family.
Property taxes in Chicago have increased by 90% since 2010, but pensions consume a bigger portion of the city budget.
CHICAGO, Illinois (September 21, 2021) — During her 2022 budget announcement, Chicago Mayor Lori Lightfoot announced a $76.5 million property tax increase.
Residents in the north will see a $156 increase, bringing their annual property tax bills to $5,480; residents in the central will see a $180 increase, bringing their annual property tax bills to $6,317; and homeowners in the south will see a $72 increase, bringing their annual property tax bills to $2,522. Other Chicago government units, such as Chicago Public Schools, may also boost their budgets.
Despite increased property taxes, the city is unable to adequately fund services that Chicago residents desire, require, or expect. According to the Institute, spending on pensions has climbed by 239 percent over the last decade, while spending on city services has only increased by 18 percent. When adjusted for inflation, debt repayment has increased by 27%, while total city budget spending has increased by 30%.
In actual terms, property tax bills in Chicago have increased by 90% since 2010.
The city owes $29 billion in pension debt to its four pension plans, which are just about 25% funded on average. This year’s pension contributions will total roughly $2.3 billion, up $460 million over last year’s budget. Chicago taxpayers also contribute to four other pension plans with a combined debt of $17 billion. Each of the eight pension funds has less than 60% of the funds required to pay retiree pensions.
- The property tax hike in Chicago covers $22.9 million in automatic increases after Lightfoot pushed for inflation indexing, $25 million for the next phase of Lightfoot’s $3.7 billion capital plan in 2022, and $28.6 million from new property.
- Under the American Rescue Plan Act, the city received $1.9 billion in federal money, which will be used to pay down debt and borrowing linked to COVID-19 by covering revenue losses and service costs over a three-year period. The cash can be used to subsidize tax cuts under federal law.
- The city of Chicago has a pension debt of approximately $47 billion. This is more total pension debt than 44 states in the United States have.
- Pension payments in Chicago increased by $460 million this year, contributing to the city’s fiscal shortfall. In fiscal year 2022, pension spending will be approximately $1 billion higher than in Mayor Rahm Emanuel’s previous budget. While Lightfoot claims that the accounts are now entirely actuarial funded, the legislative rules still fall short of best practices by requiring 90 percent financing by 2045 rather than 100 percent.
- A $500 universal basic income pilot program for 5,000 households is also included in Lightfoot’s budget proposal for 2022.
“Mayor Lightfoot’s commitment to increased spending in mental health and homelessness programs is commendable in a city still recovering from COVID-19’s economic and public health effects. However, with unemployment still high and many people struggling to keep up with rising living costs, raising taxes now is a bad idea.
“Chicago’s poor financial health and unsustainable pension burden push higher property taxes while limiting resources available for investment in needed services,” says the budget. Furthermore, the pension security of Chicago retirees is jeopardized because most city funds cannot be saved without structural transformation, which can only be accomplished by a state constitutional amendment.
“Until Mayor Lightfoot accepts the conclusion reached by her predecessor, Mayor Rahm Emanual, and makes a concerted effort in Springfield to allow citizens to vote on pension reform, Chicago’s lawmakers and taxpayers will be shackled by rising property taxes, reduced services, shaky retirement security, and ever-increasing fees.”
New York
With a total debt of nearly $203.77 billion, New York is the most indebted state in the US. New York’s total assets are estimated to be around $106.61 billion, with a debt-to-asset ratio of 273.8 percent. Overspending on Medicaid is the primary cause of New York’s massive debt. In recent years, New York has attempted to close budget gaps by slashing education funding and health-care spending.
New Jersey
New Jersey has the country’s second-highest debt level. The state’s total liabilities are $222.27 billion, which is $198.67 billion more than its assets. The debt-to-income ratio in New Jersey is 441.7 percent. The state’s underfunded pension and benefits scheme for public employees is the main source of debt. Because of the state’s debt and the increased demand to support other priorities such as infrastructure and education, New Jersey politicians are considering tax increases.
Illinois
Illinois has the third-highest debt in the country, with $248.67 in total liabilities. Illinois has an unfunded liabilities of $187.7 billion on its $53.05 billion in assets. This results in a debt-to-income ratio of 468.7%, the highest in the United States. To pay it off, everyone of Illinois’ 12.7 million residents would have to pay $14,780. In Illinois, as in New Jersey, the largest issue contributing to the debt is billions of dollars in pension and health-care benefits for retired government workers.
Massachusetts
Massachusetts is the state with the fourth-highest debt in the country. Massachusetts has a debt of $68.43 billion, with total liabilities of $104.53 billion and total assets of $34.214 billion. The amount of long-term liabilities is 305.5 percent of total assets. Infrastructure and pensions are the two major sources of debt in Massachusetts.
California
California has the fifth-highest debt of any state, with $362.87 billion in total liabilities. California’s total assets are $301.1 billion, resulting in a $55.96 billion net debt and a debt ratio of 120.5 percent. Retirement liabilities, budgetary borrowing, and bond debt are the three types of debt and liabilities that California has. California’s debt totals over $1 trillion when federal, state, and local debts are added together. According to the analysis, the debt would cost each Californian $33,000, or $74,000 per taxpayer.
