If we are to pay legislative benefit hikes to underfunded pensions, that tax bill will go up substantially or municipalities will declare bankruptcy or unions will renegotiate or something has to give.

The biggest pension problems locally are the school district.

While that is currently a state problem, it could become a local problem, if the legislators that hiked the pension benefits via legislation, pass legislation to shift some or all of the pension underfunding to local.

The 2nd biggest pension problems are fire and police.

Fire is sometimes a separate taxing district, sometimes part of the village / town / city as a fire department.

Police is part of the village / town / city as a police department.

The 3rd biggest pension problems are IMRF.

Generally IMRF is much better funded than teachers / administrators, fire, and police.

But, very few IMRF pension “funds” (each municipalities has its own “fund”), are fully funded.

Many are around 90% of so.

The unions and many administrators use the claim that 90% funding is considered fine, even 80% is fine.

Here’s the problem with that faulty logic.

See what happens to your 401K if you fund it perpetually at 80% or 90%.

You get lower returns.

In a public sector defined benefit pension plan, the retiree pension recipient doesn’t get a lower return, instead, the taxpayer pays higher taxes.

Rauner is proposing to freeze benefits already accrued, and move future years worked to 401k.

The unions don’t like that.

Well even if Rauner’s plan gets approved, we have decades of high pensions, as the average 55 year old retiring today has an average lifespan of 30 years or so, not to mention all the less than 35 years worked pensions we have to pay, many extending beyond 30 years.

The bottom line, a core value in Illinois government has been highest possible pensions, made possible by legislative benefit hikes to underfunded pensions, and salary hikes while full pension contributions are not made.

And that practice escalated starting 1971, months after 1 sentence was added to the Illinois State Constitution on December 15, 1970, stating pension and retiree system benefits are contractual, and cannot be diminished or impaired.

Thus pensions were guaranteed, so the legislators and unions and those in the pension plan did not have as a priority funding pensions or even making pension benefits affordable to the taxpayer, because there was a guarantee.

So if there’s a taxpayer guarantee, just hike salaries and benefits as high as possible and see what happens.

Well, what’s going to happen?

And IMRF does not include administrators in the school district.

When you see IMRF following the school district on the property tax bill, that’s “classified” and other employees such as administrators that do not have a “Type 75” administrator certificate; classified employees are employees such as secretaries and aides and basically most employees in a pension plan whom are not teachers and administrators.

Most administrators in a school district have a “Type 75” certificate.

Some do not.

Those administrators that do not have a “Type 75” administrator certificate are, once again, likely in the IMRF pension fund.

I am sixty-six and NO my mortgage is NOT paid off! We had daughters to marry off and refinanced each time. Sad for us, they all but one got divorced! We have no jobs and have a very limited amount of dollars coming in. We certainly can NOT afford any more taxes. The county is driving us out.

So underfunded pensions are trick #1 to keep property taxes low.

Trick #2 is escalating payments on bond debt, both principal and interest.

Trick #2 is to keep bond payments lower now, and unlike a 30 year fixed rate mortgage, make bond payments higher and higher each year for say 20 years.

Then when bond payments get higher in 5 years, hope the interest rate is lower a straight refunding can be done, as has been the case for quite awhile now, or refund as part of a bond referendum, which has also been done.

When interest rates begin to raise above the rate at which the bonds are issued, trick #2 becomes more difficult, necessitating extending the payments out to future years, which is more difficult to justify to any taxpayers actually paying attention.

Trick #3 is to issue non-referendum bonds, to keep taxes lower now, which of course hikes future taxes or would necessitate a cut in service.

Trick #3 can be more easily justified if future bond payments, at some future date such as 10 years down the road, actually do begin decreasing, just put the majority of the payback of the new non-referendum bonds in those years.

Trick #4 is to underfund retiree healthcare.

State law typically does not require any pre-funding of retiree healthcare.

There’s other tricks but that’s 4 big ones.

So when people wonder how can the state keep going with all it’s financial problems, it’s because there are so many tricks available to the State and county and local governments.

Researching bond debt service (principal and interest) payments in upcoming years, and the funding status of pension and retiree healthcare funds, for each taxing district on the property tax bill, one can get a better idea of the financial health of those taxing districts, and some vague idea of how taxes might increase in the future.

It’s a big guessing game.

How much bond debt, pension liabilities, and retiree healthcare liabilities can the local taxing districts, state, and Federal accumulate.

And in the case of the state, unpaid bills.

So just because taxes are constant now is more a reflection that people don’t want taxes to raise, than an indication of the financial health of the taxing district.

Many of the taxing districts are in poor financial health.

The biggest cost in taxing districts is labor.

If taxes are frozen or near frozen, are wages and benefits frozen or near frozen?

Bond payments are typically outside the tax cap, meaning overall taxes can increase more than the lesser of 5% or CPI for any taxing district, but if taxes are frozen or near frozen, obviously the tax cap rule does not apply.

What legislators and Governors and local politicians did with accumulating all this debt and unfunded liabilities, is they added a greater degree of uncertainty to the equity of your house.

The greater debt and unfunded liabilities mean at some point taxes will increase.

If property taxes increase, who is going to buy the house.

Sure you may bet a lower price, but what about future taxes.

We really don’t know about future taxes.

Because we don’t know how this debt and unfunded liability scenario will play out.

It’s a mystery.

So you refinance based on the equity of your house, be it for home improvements or college or whatever, and that equity could decrease.

A lot of people who put little or no money down or took a home equity line of credit, could not and cannot refinance to take advantage of lower interest rates, because the equity in the house was less than the mortgage owed.

So while kicking the can and stimulating growth via debt may have worked in the short term at the federal, state, and local level, in the longer term we have some problems.

The 2007 – 2008 financial meltdown was largely caused by mortgage junk bonds that were packaged with healthier bonds, and there was a lack of transparency about the junk bonds.

Well now we have a different problem but bonds are a large part of that problem.

Local, state, and Federal has issued a lot of bonds which are to be repaid.

The proceeds from the bonds have been spent and now taxpayers are being asked to repay the debt.

Add to that, the unfunded pension and retiree healthcare liabilities which taxpayers are also being asked to repay.

Given that, why is your property tax bill no increasing more?

Every situation is unique, but in many instances, the local politicians have received the message taxpayers don’t want higher property taxes.

So if taxpayers don’t want higher taxes, but if there’s all this debt, what happens.

Just increase taxes say the public sector unions who want their pensions and retiree healthcare and fancy buildings (not all work in fancy buildings, every situation is unique).

A few taxpayers move rather than paying higher property taxes.

The public sector worker says, I don’t care if some taxpayers move, I don’t care if property values declined, I don’t care if property taxes go up, I want my pension and retiree healthcare, 1 sentence added to the state constitution in 1970 guarantees my pension and retiree healthcare.

The taxpayer says, hey, we finally figured out, the legislators and Governors hiked pension and retiree healthcare benefits to pensions and retiree healthcare that was not fully funded; and there were very generous pay hikes, especially end of career pay hikes (there are always exceptions), again, while pensions and retiree healthcare was not only underfunded but there were hikes being given to the underfunded pension and retiree healthcare plans; and no one told the taxpayer this was occurring.

So why should I the property taxpayer stay and pay higher taxes for pensions and retiree healthcare which has been hiked and furthermore no one told me that this hiking was going on the last 45 years, which in most cases is the entire working life of most adults still working.

So the taxpayer was tricked.

Keep in mind that Lakewood created a Tax Increment Finance (TIF) district.

When a TIF is created, bonds are typically issued by the village.

Lakewood has not yet issued TIF bonds.

TIF bonds use TIF district revenue to pay TIF bondholders.

If the TIF district revenues fail to materialize, depending on the wording in the bond Official Statement, the village (and thus village residents) is still obligated to pay the bond holders.

There are many perspectives in which to look at property taxes.

For example, Taxing District perspective and Property Taxpayer perspective.

A Taxing District can ask the County Clerk for the lesser of CPI or 5%, plus new growth, plus bond payments, plus some other items, in what’s called a Taxing District Levy Request.

The County Clerk converts the Levy Request to Extension and calculates the tax rates so the Taxing District can obtain the revenue from taxpayers, based on taxpayer property value.

The homeowner pays a portion of the Taxing District Extension as property taxes, based on homeowner property value (less exemptions) and tax rate.

The basic equation for property taxes is Taxing District Extension / Equalized Accessed Value (EAV which is roughly 1/3 of property value) = Tax Rate.

Tax Rate x EAV (less exemptions) = Property Taxes paid to taxing districts.

There is a lot of controversy as to when TIFs hike property taxes for those parcels outside the TIF district but within the Taxing District, and those can be parcels inside and outside Lakewood.

For example the McHenry County Conservation District, the County itself, the school district, the township, etc.

County clerk has posted the tif extensions on her website for 2014

There is no controversy about tif property taxes.

Only a completely self sufficient tif district–one which draws on no resources from outside its own borders— can claim not to create tax hikes for taxpayers outside its borders.

Tif properties built on golf courses and farmland essentially receive all school and public services for free, all these services being paid for by property taxpayers outside the tif.

Tif properties pay their property taxes to municipal rulers.

Municipal rulers decide which tif property owners within tif will be recipients of monetary gifts from that pool of tif property tax money.

As each year passes, inflation increases the value and cost of the free school and other public services being subsidized by taxpayers outside tif.

The best way to analyze tif is at extremes..

If no municipalities were allowed tif districts, is it a logical or an absurd assumption that no development would occur in this county over the next 35, years?

If development occurred absent tif, it would contribute fair share property tax.

And if no other development occurred, would property taxpayers’ situation be better or worse?

No development also means no need for higher spending to accommodate higher population. Property tax rates would arguably flatten their steeply rising trajectory as supply of services would level off to meet actual demand rather than projected demand.

Other extreme:

If every property in the county became part of a tif, is it a logical or an absurd assumption that schools and local government services could be provided for the next 35 years at the frozen dollar value of their 2015 budgets?

In a county with a 4% property tax rate, this enforced freezing of spending might be beneficial to taxpayers.

But the problem is that tif tax dollars get be spent at the sole discretion of municipal rulers.

It is doubtful that the distribution of tif dollars would be considered equitable by all tif homeowners.

There is little oversight or regulation of who is gifted tif money.

Taxpayers in tif still must pay property taxes.

If property values continue to fall due to fewer services and continuing high tax rates, tax rates must continue to rise.

Tif for everyone would result in shutdown of some portion of unfunded services(school, roads, police, government).

We would then discover how much of current spending is superfluous.

Some TIFs make sense.

The problem in Illinois at least is there is not enough transparency and data presented about the proposed TIF.

The parcel / PIN level EAV and taxes paid on the property should be presented on a spreadsheet for TIF parcels.

Pictures should be taken of blighted areas.

Odd shaped parcels should have more information on why the parcel cannot be developed without a TIF.

Various scenarios should be explained to taxpayers based on going forward if EAV increases, does not increase, etc. how that impacts taxpayers outside the TIF.

Right now TIFs are explained to the public in overly simplistic terms with hypotheticals skewed to make the TIF seem like it’s a sure thing great idea.

Much of the public does not have a firm understanding of the Taxing District Levy and Extension formula so how can they understand TIF.

Taxing Districts and States in a competitive environment to attract business, and that’s what we are in for the foreseeable future, need at times to offer incentives.

It’s sort of like a business, when do you discount the product, how much do you discount, for how long do you discount, what products do you discount.

Obviously parcels are not each business with products and there’s differences but that’s the basic concept.

Basically the idea behind TIF is the taxpayers recoup their investment via EAV growth of parcels in the TIF.

But they are not really explained like that.

Instead some simple “but for” example is used with a simple chart showing EAV frozen at current amount in the TIF district and as EAV increases upwards in the TIF district, the increment goes to the municipality.

There is no mention in TIF studies how taxes of taxpayers outside the TIF could increase to cover the diverted amount.

My taxes in unicorporated nirthern CL went up by 8.5%.

I’d love to know what I’m getting for my $22,000

Nunda township

So sick of paying such high property taxes.

And for what?

What is so great here that they’re so high?

There is no reason other than to fund pensions and projects we can’t afford or don’t need. =(