CHICAGO — Local governments in Cook County, Ill., have raised property taxes nearly 50% during the last 10 years, mostly to keep pace with growing pension and employment benefits, and are moving along an “unsustainable” path that could eventually force some into bankruptcy, a Chicago-based public policy group warns in a new report.
Property tax collections by the county’s local governments rose to $11.69 billion in 2010 from $7.89 billion in 2000, according to the report released by the Heartland Institute, a fiscal analyst and free-market think tank, with the support of the Illinois Policy Institute.
That’s a 48% increase, double the 22.5% rate of inflation over the same period, the group said. The figure includes property tax collections by municipalities, school districts, fire districts, parks, townships and other taxing bodies.
The report offers the first detailed analysis of local government property-tax trends anywhere in the nation, according to Cook County Treasurer Maria Pappas.
“We don’t usually look at suburbs,” Pappas said at a press conference Monday morning outside her office in downtown Chicago, releasing the analysis. “The majority of the increases have been in the suburbs, which have seen a greater increase than the often-covered city of Chicago.”
The report follows a 2011 report released by Pappas that details the debt burden of the county’s local governments. The treasurer said she plans to release an updated debt report in a few weeks that includes health care obligations.
Pappas and other county officials said the property tax report underscores the need for pension reform and government consolidation.
Heartland officials, who advocate broadly for lower taxes and against government regulations, said continued rising taxes hinder economic development and will lead to the loss of jobs and population to other states with lower taxes.
“We believe these trends are unsustainable and will lead to either huge tax increases or municipal bankruptcies unless structural reforms are made,” said John Nothdurft, Heartland’s director of government relations. “The property tax burden will skyrocket in the next decade despite stagnant home prices because of growing pension and benefit obligations.”
Bond referendums are a big part of the problem, according to Pappas.
Non-home-rule governments in Illinois face property tax caps and need voter referendums to raise taxes. She noted that bond issues are one of the only ways for local governments to raise new money.
“One of the only ways the suburbs have to increase taxes is through a bond issue,” Pappas said. “The voters don’t necessarily understand what they are voting on.”
Various suburbs have asked for 34 bond issues since 2008. Of those requests, 15 have failed and 19 have passed, according to the treasurer’s office. “People are starting to figure out that they should say no” to bond referendums, Pappas said.
Cook County has a total of 552 local government districts. The report shows that suburban municipalities have increased their property tax revenue 75% over the last 10 years, while districts located inside the city of Chicago raised it 44%.
Chicago itself raised property taxes 81% over the last 10 years, boosting its receipts to $1.45 billion in 2010 from $805 million in 2000. School districts increased taxes by 58%, the report said.
Fire protection districts rose by the most, 84%, over the last decade, followed by municipalities, which raised their levies by 75%, collecting a total of $1.3 billion in 2010 compared to $756 million in 2000.
But rising property taxes may not be a key measure of fiscal health for local governments, said Shawn O’Leary, vice president and senior research analyst at Nuveen Asset Management.
“Context is the word of the day for me on this report,” he said. “The first question that analysts ask is, what is the capacity to pay, and this report gives little attention to that.”
To look more closely at that question, O’Leary examined total income per capita across the county from 2000 to 2010. The review shows that the percentage of dollars levied from total income rose to 7.67% in 2010 from 6.31% in 2000.
“That’s an increase, but hardly a calamitous one,” O’Leary said.
“Certainly we acknowledge that there are communities, and even some in Cook County, that are facing some real tough fiscal choices, but this report is a broad-brush approach that doesn’t place the phenomenon in its appropriate context,” he said.
Local officials and analysts agree that rising pension costs are a big part of the problem. Like Illinois Gov. Pat Quinn and Chicago Mayor Rahm Emanuel, Cook County Board President Toni Preckwinkle has named pension reform as one of her top priorities. She issued a statement Monday in support of the report.
“Employee pension obligations are one of the largest cost drivers for local governments, so this is an urgent priority that requires swift action,” Preckwinkle said.
Pappas’ 2011 report on the county’s debt reported that the county’s municipalities and taxing districts collectively owe $108.3 billion of debt and pension liabilities, including $25 billion in unfunded pension liabilities. The report reflects figures compiled throughout 2010 after the treasurer proposed, and the county board passed, the Debt Disclosure Ordinance.
Pappas later asked the governments to provide their pension liabilities, their unfundedpension liablities, and most recently their other post-employment benefit liability data. She said Monday that she plans to release an updated report reflecting local government OPEB debt within the next few weeks.
It’s the expected steep rise in pension contribution liabilities, and not necessarily the bonded debt, that is the problem for many local governments, said Richard Ciccarone, chief research officer at McDonnell Investment Management.
“It’s a combination of debt and liabilities versus growth in revenues, and how far can you go toward approaching an unsustainable situation,” he said. “No one wants to be faced with an issue where it’s core services versus debt service and pension contributions.”
Chicago’s total tax revenue per capita is already at $1,100 as of 2010, compared to the national median of around $675, he noted. “Am I concerned? Absolutely,” he said. “These are trends that need to be addressed.”