Why Illinois Is In Trouble - 63,000 Public Employees With $100,000+ Salaries

[mu-rara]

Nope.  Not the retirees fault.  The taxpayers didn't live up to their obligations earlier.  They should do so now.

nm

[Dr. Blackheart]

No, I bought the house 34 years ago and made a big profit when I sold. The point was that in one of the most desired school districts in Illinois my house was still 25% below its peak price almost 10 years after the crash. How many desired neighborhoods in how many states can say that? If the answer isn't zero it's close to zero.

Capital gains are good, Lenny. Where to?

[Lennys Tap]

Capital gains are good, Lenny. Where to?

Wife and I bought a small villa in a golfing community in Naples, Fl. C'mon down, Doc - I'll treat you to a round of golf with a "beer summit" to follow. First 10 Scoopers to visit get the same deal.

[Tugg Speedman]

Nope.  Not the retiree's fault.  The taxpayers didn't live up to their obligations earlier.  They should do so now.

The problem is simple ... the taxpayers have left, the state has become too expensive (via a combination of to expenses like taxes and crappy states assets and services, like lousy roads).  So those that stay have to pay ever higher tax rates and they too leave and the cycle continues.

In 1970 amended its constitution to include Article XIII, Section 5 reads:
http://www.ilga.gov/commission/lrb/con13.htm

Pension and Retirement Rights: Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired

The courts have struck down both the State's and City's pension reform (passed in 2013 and 2104 respectively) because of this passage in the Constitution.  This is why they can never change.

In 1970 Chicago's population was 3.4 million.  Today it is 2.6 million and falling faster than any large city in the country.  If Chicago had 800,000 more taxpayers, this would not be a problem.  The City and State are changing, they are getting smaller, but the pensions can never get smaller.  That is the root of the problem, chasing people out of the "too expensive" state.  Making it more expensive is the exact wrong thing to do.

So, the retirees bet on the wrong horse.  The question is when they are no longer get paid.

So the retirees have two choices ... take about 85% now (and have to struggle on $85k a year for life in FL instead of $100k year) and help the state get by without punishing tax increases. or let the state fall into such a bad state of desperation that taxpayers rise up and give less than 50% and part of a "movement."

[Tugg Speedman]

Well, when you say home values are falling, and the most recent data shows they're rising better than the national average, then they do actually mean something.
If you had claimed home values were lagging over the past eight years, you'd be correct. But you said they were falling.

I never said falling, I believe you're referring to Lenny.  But I will take it on anyway.

As the next chart shows, since the end of the great recession (June 2009), Chicago area housing is so bad that it cannot keep pace with inflation.  So the average Chicago homeowner is losing "real" value.  And this is the era of no inflation and Chicago homes are such a crap investment they cannot keep pace with the lowest inflation rate in generations.

Zero is never the benchmark in investments.  It is always a benchmark like the S&P 500 or inflation.  Are you doing better than the benchmark?  Chicago Housing is not when compared to the benchmark of inflation.  Hence is it "falling."

[Pakuni]

No, I bought the house 34 years ago and made a big profit when I sold. The point was that in one of the most desired school districts in Illinois my house was still 25% below its peak price almost 10 years after the crash. How many desired neighborhoods in how many states can say that? If the answer isn't zero it's close to zero.

Seems like you had really bad luck.
In 2006, the median home price in the Chicago market was $245,000. In 2016, it was $222,500. So, down slightly less than 10 percent from 2006. (This all according to Illinois Association of Realtors data).

A 25 percent hit is rough. But your case appears to be an exception rather than the rule.

[Pakuni]

I never said falling, I believe you're referring to Lenny.  But I will take it on anyway.

As the next chart shows, since the end of the great recession (June 2009), Chicago area housing is so bad that it cannot keep pace with inflation.  So the average Chicago homeowner is losing "real" value.  And this is the era of no inflation and Chicago homes are such a crap investment they cannot keep pace with the lowest inflation rate in generations.

Interesting chart, but I need more information to know if it really supports what you're saying about the Chicago market.
For example, how does this compare with other similar locales (i.e. Midwestern metropolitan markets)? Let's see the same charts for Milwaukee, Detroit, Indianapolis, Minneapolis, St. Louis, etc. Let's see the same chart for national home sales.

Side note: I've checked a few already and, not surprisingly, they look similar.
Here's Milwaukee:
https://fred.stlouisfed.org/series/ATNHPIUS33340Q#0

Here's Indy:
https://fred.stlouisfed.org/series/ATNHPIUS26900Q

Here, just for giggles, is Phoenix:
https://fred.stlouisfed.org/series/PHXRNSA#0

As you can see, Chicago is hardly unique.

Also, I think it's worth noting that the disparity between home sale prices and CPI in Chicago - and in the other markets I've looked at - is the result of a big decline in housing sales between 2010-12. In the 5+ years since, home values have easily outpaced the CPI, including last year, in which values rose nearly three times the rate of inflation.
So, that seems to run contrary to your argument that home values are plummeting as a result of Illinois' fiscal crisis. As the crisis has worsened over the last 3-4 years, the housing market has markedly improved.

[Benny B]

That's how it works.  Taxpayers have to live with the decisions of previous generations, positive or negative.

Actually, they don't.

It's a zero-sum game.  Someone has to get screwed in the next 15-20 years, and it's not going to be either of the generations in power (Gen-X and Millennials)  So the question ultimately comes down to this: will Gen-X and the Millennials perpetuate the mess by taking the burden heaped upon them and passing it along to their kids, or will they make the difficult choice to fix the problem by kicking it back to the boomers who created the mess.

[warriorchick]

I never said falling, I believe you're referring to Lenny.  But I will take it on anyway.

As the next chart shows, since the end of the great recession (June 2009), Chicago area housing is so bad that it cannot keep pace with inflation.  So the average Chicago homeowner is losing "real" value.  And this is the era of no inflation and Chicago homes are such a crap investment they cannot keep pace with the lowest inflation rate in generations.

Zero is never the benchmark in investments.  It is always a benchmark like the S&P 500 or inflation.  Are you doing better than the benchmark?  Chicago Housing is not when compared to the benchmark of inflation.  Hence is it "falling."

Pretty sure my house isn't worth what we paid for it when you adjust for inflation. And we have made a ton of improvements on top of everything else.

[Pakuni]

Actually, they don't.

It's a zero-sum game.  Someone has to get screwed in the next 15-20 years, and it's not going to be either of the generations in power (Gen-X and Millennials)  So the question ultimately comes down to this: will Gen-X and the Millennials perpetuate the mess by taking the burden heaped upon them and passing it along to their kids, or will they make the difficult choice to fix the problem by kicking it back to the boomers who created the mess.

Except there is no lawfully or politically feasible - much less reasonable - means of "kicking it back to the boomers."
Contrary to some wet dreams out there, you're not getting 60 percent of the legislature and 60 percent of the voters to pass a constitutional amendment slashing the benefits of a bunch of retired teachers, cops and firefighters. The legislature struggled to get a simple majority on a far less onerous (from retirees' perspective) bill in 2013, but they're somehow getting a super-majority to cut benefits in half?
Nope.

Also a wet dream ... getting pensioners to "agree" to give back a portion of their pensions. Even if a majority wanted to, there's no legal mechanism for them to do so.  Are they supposed to send money back to the treasury?

[tower912]

In Michigan, a law was passed to tax pensions at the same rate as other income a few years ago.   Civilization survived.     Also, I have always contributed to my pension plan.    The city I work contributed very little for 15 years.     Two contracts ago, the so called 'pension holiday' for the city was discontinued.    There are steps that can be taken, but they require trust, good faith efforts, horse trading, and will.    On all sides.   

[Benny B]

Except there is no lawfully or politically feasible - much less reasonable - means of "kicking it back to the boomers."
Contrary to some wet dreams out there, you're not getting 60 percent of the legislature and 60 percent of the voters to pass a constitutional amendment slashing the benefits of a bunch of retired teachers, cops and firefighters. The legislature struggled to get a simple majority on a far less onerous (from retirees' perspective) bill in 2013, but they're somehow getting a super-majority to cut benefits in half?
Nope.

Also a wet dream ... getting pensioners to "agree" to give back a portion of their pensions. Even if a majority wanted to, there's no legal mechanism for them to do so.  Are they supposed to send money back to the treasury?

Slashing pensions isn't going to solve the problem.  It's not just the teachers, cops and firefighters who screwed things up.  It was also the accountants, lawyers, doctors, machinists, welders, housekeepers, fry cooks, babysitters, mechanics, nurses, etc.... basically, anyone who didn't bother to question whether the post-WWII gravy train of prosperity would go on forever, which - as it turns out - was pretty much everyone.

In other words, instead of going after public employees, you have to make cuts across the board.  This is where single-payer health care could really help out... with everyone on the same program, you can establish an upper limit on life-extending medical care, e.g. certain treatments, pharmas, services, etc. are no longer available once you hit a certain age.  Health care costs would go down drastically if we were more willing to put tax dollars into education and infrastructure rather than spending billions just so our 92 year old grandmas can live to 92-1/2.

[tower912]

Slashing pensions isn't going to solve the problem.  It's not just the teachers, cops and firefighters who screwed things up.  It was also the accountants, lawyers, doctors, machinists, welders, housekeepers, fry cooks, babysitters, mechanics, nurses, etc.... basically, anyone who didn't bother to question whether the post-WWII gravy train of prosperity would go on forever, which - as it turns out - was pretty much everyone.

In other words, instead of going after public employees, you have to make cuts across the board.  This is where single-payer health care could really help out... with everyone on the same program, you can establish an upper limit on life-extending medical care, e.g. certain treatments, pharmas, services, etc. are no longer available once you hit a certain age.  Health care costs would go down drastically if we were more willing to put tax dollars into education and infrastructure rather than spending billions just so our 92 year old grandmas can live to 92-1/2.

That is a very audacious statement that I agree with completely.     I spend more time than I like to think about running to nursing homes.   Huge money pit. 

[Lennys Tap]

Slashing pensions isn't going to solve the problem.  It's not just the teachers, cops and firefighters who screwed things up.  It was also the accountants, lawyers, doctors, machinists, welders, housekeepers, fry cooks, babysitters, mechanics, nurses, etc.... basically, anyone who didn't bother to question whether the post-WWII gravy train of prosperity would go on forever, which - as it turns out - was pretty much everyone.

In other words, instead of going after public employees, you have to make cuts across the board.  This is where single-payer health care could really help out... with everyone on the same program, you can establish an upper limit on life-extending medical care, e.g. certain treatments, pharmas, services, etc. are no longer available once you hit a certain age.  Health care costs would go down drastically if we were more willing to put tax dollars into education and infrastructure rather than spending billions just so our 92 year old grandmas can live to 92-1/2.

No doubt death panels would prove effective in cutting the deficit. Or we could institute and encourage "Ethical Suicide Parlors" like the ones introduced by Vonnegut in "Welcome to the Monkey House".

By the way, I'm not disagreeing with you - the amount of money spent to keep people technically "alive" in this country is preposterous. But people (myself included) may still have reservations about some government bureaucrat or arbitrary number (age) determining whether Grandma's life is worth living. Tricky stuff.

[rocket surgeon]

Wife and I bought a small villa in a golfing community in Naples, Fl. C'mon down, Doc - I'll treat you to a round of golf with a "beer summit" to follow. First 10 Scoopers to visit get the same deal.

beautiful!  naples lakes?  in laws have a place there-beautiful!  good on ya!

[jesmu84]

Slashing pensions isn't going to solve the problem.  It's not just the teachers, cops and firefighters who screwed things up.  It was also the accountants, lawyers, doctors, machinists, welders, housekeepers, fry cooks, babysitters, mechanics, nurses, etc.... basically, anyone who didn't bother to question whether the post-WWII gravy train of prosperity would go on forever, which - as it turns out - was pretty much everyone.

In other words, instead of going after public employees, you have to make cuts across the board.  This is where single-payer health care could really help out... with everyone on the same program, you can establish an upper limit on life-extending medical care, e.g. certain treatments, pharmas, services, etc. are no longer available once you hit a certain age.  Health care costs would go down drastically if we were more willing to put tax dollars into education and infrastructure rather than spending billions just so our 92 year old grandmas can live to 92-1/2.

Baby boomers really *ucked the rest of us.

[Lennys Tap]

beautiful!  naples lakes?  in laws have a place there-beautiful!  good on ya!

Actually Bear's Paw. C'mon down, Rocket!

[Tugg Speedman]

Interesting chart, but I need more information to know if it really supports what you're saying about the Chicago market.
For example, how does this compare with other similar locales (i.e. Midwestern metropolitan markets)? Let's see the same charts for Milwaukee, Detroit, Indianapolis, Minneapolis, St. Louis, etc. Let's see the same chart for national home sales.

Side note: I've checked a few already and, not surprisingly, they look similar.
Here's Milwaukee:
https://fred.stlouisfed.org/series/ATNHPIUS33340Q#0

Here's Indy:
https://fred.stlouisfed.org/series/ATNHPIUS26900Q

Here, just for giggles, is Phoenix:
https://fred.stlouisfed.org/series/PHXRNSA#0

As you can see, Chicago is hardly unique.

Also, I think it's worth noting that the disparity between home sale prices and CPI in Chicago - and in the other markets I've looked at - is the result of a big decline in housing sales between 2010-12. In the 5+ years since, home values have easily outpaced the CPI, including last year, in which values rose nearly three times the rate of inflation.
So, that seems to run contrary to your argument that home values are plummeting as a result of Illinois' fiscal crisis. As the crisis has worsened over the last 3-4 years, the housing market has markedly improved.

You mixed two measures.  Milwaukee and Indy are not home prices, they are the number of home sold.  AZ is a home price like Chicago.

Again the problem is simple ... Illinois/Chicago loses taxpayers and cannot adjust pension benefits lower (like WI, IN and MI have done).  Chicago is stuck with a pension system designed to be supported by a population of 3.4 million when its population is 2.6 million and falling.

Again pensions can never change and they are now one-third of the budget.  The great over-the-top deal structured in 1970 still exists today.  Sure it would make sense to offer NEW employees a different (lower) deal.  But they cannot.  They get the same deal that the city cannot afford and it absolutely screws the middle-class ($50k to $75k year) by hosing them with costs and taxes so Chicago retirees get unlimited healthcare and $80k to $100k a year for life.

It cannot last and it will implode one day.  Not this year or next year, but it will implode.

[dgies9156]

No, I bought the house 34 years ago and made a big profit when I sold. The point was that in one of the most desired school districts in Illinois my house was still 25% below its peak price almost 10 years after the crash. How many desired neighborhoods in how many states can say that? If the answer isn't zero it's close to zero.

Key problem -- I live in a desirable suburb of Chicago with a world class school district. My property taxes are $14,000 plus a year. I just saw my income tax jump by more than a third and my sales tax is 7% as long as I don't buy anything in Crook County. Toni Preckwinkle wants to tax soft drinks at 1 cent per ounce, affectionately called the Toni Tax. She wants to get people to stop drinking soda but if by chance tax revenue rises, oh geez, who would have thought that would happen? Dios mio!

The same home in Nashville would have a tax of about $3,200 per year. Tennessee has no income tax and no Toni Tax on soft drinks. The sales tax is comparable to Crook County.  Tennessee has a booming economy and Nashville is one of the nation's fastest growing cities.

I have a second home in Florida for which I do not homestead. As a consequence, my property taxes are a whopping $5,000 per year. My sales tax is about 5 percent and if I declare residency in Florida, I would pay no income tax. There is no Toni Tax here either! Florida has a booming economy with population growing at almost double digit rates.

You wonder why Illinois is losing population and why housing values decline?

[dgies9156]

Pretty sure my house isn't worth what we paid for it when you adjust for inflation. And we have made a ton of improvements on top of everything else.

Do we own the same house LOL!!!!!

[Tugg Speedman]

Except there is no lawfully or politically feasible - much less reasonable - means of "kicking it back to the boomers."
Contrary to some wet dreams out there, you're not getting 60 percent of the legislature and 60 percent of the voters to pass a constitutional amendment slashing the benefits of a bunch of retired teachers, cops and firefighters. The legislature struggled to get a simple majority on a far less onerous (from retirees' perspective) bill in 2013, but they're somehow getting a super-majority to cut benefits in half?
Nope.

Also a wet dream ... getting pensioners to "agree" to give back a portion of their pensions. Even if a majority wanted to, there's no legal mechanism for them to do so.  Are they supposed to send money back to the treasury?

Illinois state law stipulates that bond holders get paid first from a debt service trust fund that the state pays into the first of each month. This is why bondholders continue to buy the state’s debt – they get paid first.

The state has not paid $15 billion in bills.  This is a default by most legal definitions and the state has been in default for years.  But it is NOT in default to BONDHOLDERS so they happily pony up more and more money, $36 billion to date.

Those who are not getting paid will go to court and force the state to prioritize them.  This is already happening.

June 30
http://www.chicagotribune.com/news/local/politics/ct-illinois-budget-medicaid-decision-met-20170630-story.html
A federal judge on Friday ordered Illinois to start paying $293 million in state money toward Medicaid bills every month and an additional $1 billion over the course of the next year, worsening a cash-flow problem caused by two years of budget-free spending by state government. U.S. District Judge Joan Lefkow’s ruling came after lawyers representing Medicaid patients and attorneys for the state were unable to agree on a plan to deal with bills and pay down a $3 billion backlog owed to health care providers.


Illinois has stiffed Medicaid providers for years.  They own them almost $3 billion and they are leaving the state because they are not getting paid anymore.  Soon the poor will run out of options for Medicaid.

So the judge ruled that Medicaid must also "get paid first" like bond holders.  Soon the courts will rule that others that are owned the remaining $12 billion who have not been paid must also get "paid first," along with pension and current payroll who also want to be "paid first."

The state will not have enough to pay everyone first, and the law will no longer allow the state to prioritize who gets paid because these type of court rulings are specifically saying they can no longer do this.  So, no one gets paid and everything crashes.

They will also squeeze out the bondholders and they will stop buying Illinois debt issues.

The system will fail and when it does, it will be ugly.

[Dr. Blackheart]

Wife and I bought a small villa in a golfing community in Naples, Fl. C'mon down, Doc - I'll treat you to a round of golf with a "beer summit" to follow. First 10 Scoopers to visit get the same deal.

I don't golf, but I drink my handicap in beers. So, that offer sounds good but right now I am a quarter of a world away.

Ever eat at Em-Ons Thai Cafe?  Good stuff.

[WarriorFan]

It's only fair that the people who contributed to the problem - whether elected or those who elected them in the past - get stiffed now and get less pension.  It was their bad decisions that caused this mess.  It would also be a good lesson for anyone who thinks money from government is free and everlasting... unfortunately it's not. 

If Illinois really wants to fix this, they'd drop all business tax to <2%, drop state income tax, pay 100% pensions only for pensioners who spend over 250 days a year in Illinois and 50% for those who spend their money elsewhere, bring in some big businesses, and get the growth that's required to get out of the problem. 

[rocket surgeon]

Actually Bear's Paw. C'mon down, Rocket!

aww, thanks, but my spare weeks get spent in surprise, Az.  love the dry, thinner air.  seem to get more out of my balls(golf too )down here-like hitting a homer in denver.  i'm about 10 minutes from the dome and walking distance to some spring training facilities.  you can't miss with a nichlaus facility

[Tugg Speedman]

It's only fair that the people who contributed to the problem - whether elected or those who elected them in the past - get stiffed now and get less pension.  It was their bad decisions that caused this mess.  It would also be a good lesson for anyone who thinks money from the government is free and everlasting... unfortunately it's not. 

If Illinois really wants to fix this, they'd drop all business tax to <2%, drop state income tax, pay 100% pensions only for pensioners who spend over 250 days a year in Illinois and 50% for those who spend their money elsewhere, bring in some big businesses, and get the growth that's required to get out of the problem.

Some of this, like the residency requirements to get 100% were actually in the pension reform passed in 2013 by the state.  But the courts ruled that was unconstitutional because article 8 says you can never change these rules. 

I show article 8 in a post above and the court was correct in its interpretation.

The current system cannot be sustained and will blow up.  This happens in one of three ways.

1. Tax the hell out of the state. Taxpayers leave, dependent people cannot.  The state becomes a giant Detroit. The state is well on its way in this regard as it is losing population (read taxpayers) faster than any other state in the country.  25% of its population is on Medicaid already.

2. Courts rule the state has to pay everyone it owes money too.  That is $15 billion now and growing.  It can no longer prioritize payments like it currently does. The state cannot pay everyone so no one gets paid.  The courts decided who gets partial payments.  In other words, the courts take over running the state.  This is bankruptcy without using the word.  It is messy and ugly.

3. Taxpayers had enough and elect a Walker type and a legislator that agrees with him.  He slashes and burns all the spending and pensions and cut taxes.  He does this via constitutional amendments, that pass.  Unstable lefties crap on the floor of the state capital, Chicago Democrats flee to Milwaukee to orchestrate a resistance movement, public unions strike and the cops stop policing and the trash does not get picked up.  A recall attempt is tried.  It's ugly, messy and eventually works.  But it restores sanity and reasonable/normal levels of spending and taxes.

My bet is on #3.  Again that will not be easy.