Wirepoints calculates that retirement costs will consume 26 percent of the 2022 budget. The state is set to contribute $9.4 billion in General Funds to pensions, pay $777 million in pension bond costs, and pay an estimated $1 billion in retiree health costs.
In total, that’s $11.2 billion of the $42.3 billion budget consumed by retirement expenditures.
On top of the payments from the General Fund, another $1.2 billion in pension payments will come from other budget funds, meaning the state’s total retirement costs will be an estimated $12.4 billion in 2022.
Wirepoints’ analysis uses national state-by-statemigration data compiled by the Internal Revenue Service. The IRS reviews tax returns annually to track when and where people move. It also aggregates the ages, income brackets and adjusted gross incomes of filers.
That data shows Illinois continued to be a national outlier in 2019 when it comes to losing people and the money they earn:
Illinois lost 81,770 net tax filers and their dependents in 2019. Illinois’ losses were the third worst in the country, with only California and New York losing more residents, 165,355 and 152,703, respectively.
On a per capita basis, Illinois also ranked 3rd-worst for out-migration, with net losses of 0.64 percent of its population. Only Alaska and New York fared worse, with losses of 1.02 percent and 0.78 percent of their populations, respectively.
Workers’ retirement security has declined in an alarming number of Illinois cities. In 2003, just 21 of 175 cities analyzed had less than 60 cents on hand for every dollar they needed to fund future benefits of their city workers. By 2019, 99 of the 175 cities were below 60 percent funded. A 60 percent funding level is often seen as a point of no return from which pension funds can’t recover.
City taxpayers have increasingly paid more to pensions over the past 16 years, and yet the pension shortfalls they are on the hook for are far larger today. Pension contributions of the 175 cities have nearly quadrupled to $960 million in 2019 from $250 million in 2003, and yet local pension shortfalls still tripled to $11.8 billion, up from $3.4 billion in 2003.
Pension costs as a share of city budgets have doubled, crowding out spending on core government services. City pension contributions as a share of general budgets have doubled to 17 percent in 2019 from 8 percent in 2003.
Most local pension funds have turned upside down – they now have more retirees drawing benefits than active workers contributing. In 2003, only 15 cities had more pensioners drawing benefits than active workers making contributions into the fund. In 2019, that number rose to 112 cities.
Like so many local government leaders throughout Illinois, Wheaton city officials are desperate to do something about the city’s uncontrollable police and firefighter pension costs. The unfunded liabilities of the city’s public safety pension funds have jumped to $56 million over the past 15 years, and that’s despite major increases in taxpayer contributions into the funds.
Wheaton officials’ solution to the problem? Borrow more money. They’re considering a scheme using Pension Obligation Bonds, or POBs, that would let them gamble with taxpayer money in an attempt to improve pension finances. It’s simply a bad idea, especially in Illinois, where fiscal mismanagement and corruption are rampant.
Several Illinois cities have recently borrowed tens of millions via POBs, including the cities of McHenry and Freeport, and so has the Addison Fire Protection District, which took on $34 million in new debt. They’re all betting they can earn more in the financial markets than the interest costs of the loan they took out.
Official Wheaton board minutes reveal the city is also considering borrowing millions via POBs. Bankers from Baird and Marquette Associates have presented the idea, with Baird showing examples of Wheaton borrowing $56 million, equal to the city’s entire public safety pension shortfall.
There’s little doubt that Illinois politicians are salivating over the $13.7 billion windfall they’re about to spend. Those billions are Illinois’ share of the $350 billion in aid dedicated to state and local governments, a key part of President Biden’s $1.9 trillion stimulus package passed earlier this year. The state of Illinois itself will get $7.75 billion and the remaining $6 billion will go directly to counties and cities.
The numbers are big. Take the city of Berwyn, Illinois, which is set to receive $32 million in stimulus dollars, according to a data release from the Illinois Municipal League. The city’s take is equal to a whopping 81 percent of its 2019 general budget. Peoria expects $46 million, or nearly half of its $100 million budget. And the city of Chicago will get nearly $2 billion, worth 60 percent of its general budget, based on financial data from the Illinois Comptroller.
Even the state, which nearly broke even in revenues in 2020 compared to 2019, will get more than $7.75 billion, nearly a fifth of its budget.
Embedded below are a set of searchable databases that provide the estimated allocation of the $360 billion in direct government aid to states, counties and cities under the $1.9 trillion American Rescue Plan. The remaining stimulus includes funding for schools and other programs, for which detailed data is not yet available.
The $360 billion is split as follows: State governments are set to receive $230 billion in direct and capital project grants, county governments will receive $65 billion, and municipal governments will receive the other $65 billion.
Author(s): Ted Dabrowski, Mark Glennon, John Klingner
It’s Senate Bill 2531. The bill is sponsored by Sen. Win Stoller (R-Germantown Hills) and it has picked up additional sponsors from both parties. It would allow a small business to elect to be taxed at the entity level, instead of letting the income pass through to their personal return. The owner would then claim an offsetting credit on their state return. It passed the Senate Revenue Committee with a vote of 9-0 and now goes to the Senate floor for further consideration.
We hope and expect the bill will become law. While we support the $10,000 federal SALT cap, it’s entirely appropriate for Illinois to facilitate exceptions recognized by the IRS, just as other states are doing. At least fourteen other states have passed or are in the process of passing similar legislation. The legislation could help up to 400,000 Illinois small business owners save thousands of dollars annually on their federal tax filings, according to Stoller.
The SALT cap increased “taxes on hardworking families,” says the letter. That’s “untenable given the dire economic conditions caused by the pandemic.” It goes on to say, “In short, middle-class Americans are struggling under this federal tax burden, while corporations – which are still able to fully deduct SALT as business expenses – are profiting because of the same law. The negative impacts of the SALT cap on middle class families are particularly egregious when you consider that in the states most affected by this cap, the federal government already takes more in federal taxes than the states receive in federal support, effectively subsidizing federal payments to other states.”
Tax analysts on the right and the left have documented why that’s completely false. The cap on SALT deductions was a windfall for the middle class and hammered high income taxpayers. The conservative Tax Foundation explained why here, and the liberal Institute on Taxation and Economic Policy, ITEP, wrote this in an article opposing elimination of the cap:
ITEP estimated that this would cost more than $90 billion in a single year. We found that 62 percent of the benefits would go to the richest 1 percent and 86 percent would go to the richest 5 percent. There is no state where this is a primarily middle-class issue. In every state and the District of Columbia, more than half of the benefits would go to the richest 5 percent of taxpayers. In all but six states, more than half of the benefits would go to the richest 1 percent.
Chicago households are on the hook for a combined $63,000 in Chicago-only debt, based on Moody’s calculations. It’s why the city and the school district have been junk rated for years.
Pritzker’s COLA increase runs against what most of Illinois’ political elite already know – COLA cuts are necessary and inevitable at all levels of government. As Greg Hinz said in his review of Wirepoints’ Pension Solutions, “…that juicy perk over time has amounted to megabillions that state government just doesn’t have.”
The COLA hike will cause more financial headaches for Chicago. Mayor Lori Lightfoot says the COLA increase will cost the city an additional $18 to $30 million a year in pension costs. In all, the perk will force taxpayers to pay an additional $850 million over time.
The recently signed American Rescue Plan designated about $7.5 billion of new money directly for the state’s government. Tens of billions of more federal dollars indirectly help the Illinois budget by assisting higher education, K-12 schools and municipalities. Direct aid to people and businesses also kept tax revenue flowing at far higher rates than initially projected.
In fact, federal money from the American Rescue Plan alone dwarfs the revenue lost to the state because of COVID and the lockdowns by a stunning 1665%, according to a Tax Foundation estimate.
It should be noted, however, that federal cash has been showered on the entire nation, where it needs it and not. The State of Wisconsin, for example, is getting $3.2 billion in direct money from the American Rescue Plan even though the state has a budget surplus. We are still waiting for a comprehensive analysis of all recent federal aid to determine whether Illinois got more than its fair share. Surprisingly, nobody seems to have offered one yet that includes all units of government and private sector assistance.
Don’t think that might ease your state and local tax burden. The downpour of cash on cities and states, most of which don’t need it, is all tied to a provision in ARP that bans tax cuts. It’s a mandate for statism – big government – whether states with small government philosophies like it or not.
“Thou shalt be statists and big spenders” – that’s what ARP might as well say as a direct federal mandate.
Most of ARP commentary about cities and states has wrongly focused only on the $350 billion that’s will go directly to them. That’s a small part and entirely misses the bigger picture.
Two separate 50-state comparisons of state and local tax burdens released this week confirm Illinoisans pay some of the nation’s highest taxes.
WalletHub, the personal finance company, calculated that Illinoisans pay the highest effective tax rates in the country. A more comprehensive study by the Tax Foundation, a non-partisan think-tank, says Illinoisans pay the nation’s 10th-highest tax burden.
Either way, their findings validate what Illinoisans instinctively know: they’re overtaxed.