Nearly two-thirds of Peoria property taxes consumed by pensions

The average Peoria household owns nearly $38,000 in state and local pension debt.

Illinois’ worst-in-the-nation pension debt has become a well-known problem. Over $144 billion in pension debt for the five statewide retirement systems breaks down to nearly $30,000 in debt for each household, which must be paid with further tax hikes or further cuts to core government services.

Less well known is the nearly $75 billion of pension debt held by local governments in Illinois, which is the primary reason for Illinois’ second-highest in the nation property taxes. Combined with the state’s pension debt, politicians who mismanaged the pension system dug a $219 billion hole.

But local pension debt varies widely based on where a taxpayer lives in Illinois. And there is a way to climb out of Illinois’ pension abyss.

In Peoria, the average household owes $37,684 in state and local pension debt, with roughly $7,900 of that debt stemming from local systems for police, firefighters and municipal workers. Pension debt equals 73% of the $51,771 average annual income per household in Peoria.

The city of Peoria has more than $364 million in local pension debt, according to the most recent data provided to the state comptroller for fiscal year 2019. That debt includes $171.8 million for fire pensions, $161.6 million for police pensions and $30.9 million for municipal workers.

Pension experts consider a funding ratio of less than 60% to be “deeply troubled.” A 40% funding ratio may be a “point of no return,” meaning an inability to make required contributions or maintain adequate funding levels – without painful cuts or serious structural reforms. The Peoria firefighters fund is only 48% funded, while the police pension fund has only 50 cents saved for each $1 in future promises.

Pension contributions cost Peoria nearly $24 million in fiscal year 2019. That means pensions ate more than 63% of the $37.9 million collected from property taxpayers.

The local pension crisis drives property tax hikes as mayors and other local leaders struggle to keep up with the growing financial burden. Local leaders have been saddled with pension systems created by state law and have virtually no options to reduce costs or improve sustainability on their own. Property taxes equal roughly $4,550 on a Peoria home valued around the area average $125,700, according to information from the county assessor. That’s 3.62% of the home’s value going to property taxes each year.

Peoria’s pension woes have directly harmed its community in numerous ways. The city’s struggles to pay former police officers, firefighters and municipal employees have led to multiple layoffs. In November 2018, Peoria eliminated 22 firefighter and 16 police positions. Revenue losses from COVID-19 forced the city to cut an additional 45 jobs in June 2020. Despite reducing the public workforce, Peoria taxpayers in 2019 faced a new property tax fee devoted entirely to funding public safety pensions. The fee ranged from $10 to $200.

In Peoria and many other cities, taxpayers are being asked to pay more to get less. Rising annual pension costs are crowding out local government spending on services that residents want and need.

In recent years, Illinois cities have already been forced to either lay off current workers, raise taxes or both to keep up with the cost of these pension systems. For example:

• Jerome, Geneseo, and Norridge raised property taxes to pay for pension costs in 2018.
• The south Chicago suburb of Harvey in 2018 laid off one-quarter of its police officers, more than half of its other police department personnel and 40% of its firefighters after the state intercepted money bound for the city under a pension law intended to force cities to make required pension contributions.
• In 2019, the pension intercept law was also triggered in North Chicago and East St. Louis. The resulting increase in pension costs for the cities’ budgets resulted in $1.3 million worth of cuts in North Chicago, including layoffs for three firefighters, and nine firefighter layoffs in East St. Louis.

The combination of higher taxes and worsening services is a major reason Illinoisans have increasingly fled to other states. The 2020 Census marked the first time in 200 years that Illinois lost population between decennial Census counts, which was driven by migration of Illinois residents to other states.

Illinois’ state and local pension crisis is the most severe public policy challenge facing the state. It contributes to nearly every other fiscal and economic problem, including high property taxes, cuts to government services, economic stagnation and the Illinois exodus.

The only viable solution to Illinois’ pension crisis starts with a constitutional amendment to allow for reductions in future benefit growth for current workers and retirees. The current pension clause, which prevents changes not only to earned benefits but also the future growth rate of benefits for work not yet performed, is a pair of fiscal handcuffs on mayors left with few options besides hiking taxes and cutting services.

A “hold harmless” pension reform plan developed by the Illinois Policy Institute for the state’s systems can save roughly $2.4 billion for the state budget the first year and more than $50 billion through 2045. The plan would also totally eliminate the state’s pension debt during that time, rather than the 90% reduction state leaders hope for. It accomplishes all of that while preserving every dollar of pension benefits promised to public workers for work already performed.

Similar reforms to local pension systems could offer significant property tax relief to overburdened homeowners, free up resources for spending on current services, or finance a combination of the two. In Peoria, such relief is sorely needed.

True pension reform, starting with a constitutional amendment, is the only way to stop the Illinois exodus by finally giving taxpayers value for their money.