Chicago Is $108 Billion In The Red – Approximately $66,000 Per Family

OOK COUNTY TREASURER 06/21/2011

$108 Billion Total Debt amounts to $63,525 per household in Chicago and $32,901 for suburban households.

 

Stunning Municipality Debt Brought to Light

Chicago, June 21, 2011– Cook County taxpayers are on the hook for a staggering amount of local debt, according to figures presented by Cook County Treasurer Maria Pappas today. Cook County’s numerous local governments face mounting debts totaling more than $108 billion. And, for the first time, specific figures have been collected for municipal unfunded pensions obligations totaling in excess of $25 billion, almost a quarter of debt countywide. The total figures translate into an average debt-per-household in the city of Chicago of $63,525, and $32,901 in the suburbs.

At a gathering of more than 50 business, civic and community leaders at the Civic Federation, Pappas disclosed the alarming figures collected through the County’s Debt Disclosure Ordinance (DDO).

“We knew that debt and unfunded pension obligations were serious problems at the state and federal level and assumed that a similar pattern would follow at the local level. But, quite frankly, I was stunned by the depth of the crisis for local governments,” said Pappas.

“This goes well beyond big cities, where you expect financial challenges. These fiscal problems permeate townships, villages, school districts, park districts, fire protection districts and more, and the taxpayers are on the hook.”

Specifically, the total $108 billion in debt comes from the county’s various taxing districts:

AGENCY TYPE QUANTITY TOTAL DEBT
Municipality 119 $61,052,985,289
Education 160 $20,510,421,394
County 2 $18,173,343,462
Sanitary 13 $4,398,506,156
Park 88 $3,216,716,581
Fire 30 $302,945,577
Township 29 $277,525,109
Library 49 $226,049,670
Special 8 $154,183,703
Grand Total 498 $108,312,676,941

 

Cook County Debt Disclosure Ordinance

“For years I’ve had people stop me, call me and write me with one simple question: ‘why are my taxes going up?’” said Pappas. “After years of hearing the question, I went to the Cook County Board of Commissioners and asked it for this ordinance.”

In 2009, Treasurer Pappas proposed and the Cook County Board enacted the Debt Disclosure Ordinance requiring all 553 primary governmental agencies in Cook County to report their yearly budget and their debt. After reviewing that information, Pappas went back to the County Board in January and asked for an amendment requiring these governmental units to report, for the first time, their pension liabilities and their unfunded pension liabilities.

“We wanted to know how much money we owe our retirees, and how much of that money we don’t have,” Pappas said.

This is the first time data on unfunded pension obligations have been collected for local governmental entities—and the results were startling:  Cook County municipalities and taxing districts reported total pension liabilities of over $50 billion, but the unfunded pension liabilities total $25 billion, an amount that represents nearly a quarter of the total countywide debt. Unfunded pension liabilities are the pensions promised to retirees for which an agency doesn’t have the money.

The Pew Center and the U.S. Government Accountability Office report on government retiree benefits asserts that, to be considered healthy, pension plans should be funded at 80 percent or higher. Using this benchmark, only about one-quarter of the taxing districts in Cook County are adequately funded at 80 percent or higher. And 75 percent are considered underfunded at less than 80 percent.

“It’s like, if I were the Surgeon General, I’d say that 75 percent of our governments are morbidly obese,” said Pappas. “I don’t think there’s any one cure for the debt problem, just like I don’t think there’s one cure for obesity.”

 

Finding Solutions

To solve the problem, each governmental entity needs to be looked at separately by citizens and elected officials. While there has been a great deal of debate about solutions at the federal and state levels, Pappas is focused on local government. Rather than offer any single cure-all, she called on agencies to look at their internal operations from the top down and identify ways to save money and reduce debt.

And she called on other counties around the state and the nation to use the Debt Disclosure Ordinance model to better gauge their own financial conditions and provide that information to their citizens.

“This is not just about federal and state governments. Homeowners need to understand when they vote for a local bond deal what the financial burden is for their children. This is about educating them,” said Pappas.

The Treasurer’s Office analyzed the top 50 residential property tax amounts in each municipality from 1996 to 2009 and saw an increase on average of 121 percent. This means residential property owners are bearing enormous increases and wallets are stretched.

The Treasurer called for the state legislature to require all real estate brokers to disclose to prospective homeowners the “credit card debt” – how much local government owes – affecting any home before they purchase the property.

Pappas also said she would go to the Cook County Board again to refine the ordinance based on the figures she released today to deal with the following:

  1. Requiring the 55 agencies that did not report their figures to upload their reports.
  2. Requiring each agency to report the rate of return on which its figures were based – a five percent or eight percent rate of return.
  3. Requiring agencies to report other post-employment benefits (OPEB), such as retiree health insurance.

The average person likely looks at pension liabilities and thinks only of annuity payments to retirees. However, health insurance premiums and other post-employment benefits, or OPEB, are an increasing issue in applicable plans. Unlike regular pension funds whose obligations are offset by employer and employee contributions, OPEB have no funding source and no assets to back them up. The revised ordinance would require that all agencies provide their total OPEB figure and the population within each agency’s boundary in order to get a better idea of the direct impact to the residents saddled with this debt.

Without the information for these three points, there is a possibility that the $108 billion debt could actually be worse.

Pappas pointed to efforts her office has taken in addressing these issues. She recommended that other agencies consider her two-pronged approach to reform as a starting point.

”Eighty percent of all government expenses are personnel related. We reduced our headcount by 54 percent since 1998 through attrition, reduction in staff,” said Pappas. “We have also invested in automation and technology to increase efficiency. This simple, common-sense approach has saved taxpayers millions of dollars.”

Pappas made the announcement before a special meeting of Civic Federation board, which applauded the first-of-its-kind analysis.

“The Civic Federation commends Treasurer Pappas for collecting this information,” said Laurence Msall, president of the Civic Federation. “We think it is a strong contribution to the debate on the number of governments in Illinois, as well as our local governments’ debt levels and pension obligations. We look forward to updates and to using this information in future research.”

 

Additional Resources:

 

Note: The Cook County Treasurer’s Office sent multiple letters via multiple channels to inform agencies regarding the information required by the Debt Disclosure Ordinance and the deadline to upload. The office sent additional correspondence to every agency urging agencies to double-check its figures to verify that the financial information provided is consistent with the most recent annual financial report.

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