Cost of Living in Illinois

[Running_Man]

The Federal Reserve has spoken on what should be done to stabilize pensions from the state of Illinois. Tax every home 1% of it’s value in addition to all present taxes for 30 years to fund the pension funds. The median home value state wide is $173,000 so this is a median tax of $1,730 per year on a state with a median income of $60,690 so this would be a 3% tax on average for the pension fund. Astounding the FED (regional I realize) would weigh in on this with an actual proposal so expensive to the average person.

How Should the State of Illinois Pay for its Unfunded Pension Liability? The Case for a Statewide Residential Property Tax | Midwest Economy

https://www.civicfed.org/sites/defau...operty_tax.pdf

[OldShooter]

Quote:

Originally Posted by Running_Man ... Astounding the FED would weigh in on this with an actual proposal so expensive to the average person. ...

Why is this astounding? It looks like grade school arithmetic to me. Given the status quo the money that must be extracted from "the average person" is easily calculated.

You can argue about who pays, but it in the end it is always "the average person." Tax the grocery store, fine. The tax is passed along in the cost of groceries. The only way for IL to mitigate things for the average person is to export the cost via corporate taxes that are passed along to citizens of other states -- if they can figure out how to do this and if the courts let them. Otherwise it's a zero sum game. The pensioners gain the money and "the average person" loses the money.

Next year and probably subsequent years for a long time, the same arithmetic will show an increasing burden for "the average person" because Illinois' citizens and businesses are leaving at record rates. Hello, exodus deniers: No, it isn't Illinois' weather - Chicago Tribune and https://www.usnews.com/news/best-sta...ut-of-illinois

[MichaelB]

This looks like a Chicago Fed blog entry, not a proposal or recommendation. More like “hey, here’s a idea worth considering.”

Nice link and interesting reading, R_M, thanks for bringing it to our attention.

[NoiseBoy]

As of now, Illinois is a pretty good state for retirees, if not for workers. Pension and Social Security income is not taxed, and you can freeze your property taxes at age 65. The article doesn't mention if the new tax would also apply to seniors so I assume that it would. While I don't agree with the author's proposal, it is an eye popping statement of the future costs the State is facing!

One thing I am not clear on is if the unfunded liability number is based only on current employee obligations, or does it assume that all future workers also receive the same pension deals? In other words, if the political will could be found to shift 100% of all newly hired state workers to a defined contribution retirement plan in say 2020, what does that do to the unfunded liability number?

[Gumby]

Quote:

Originally Posted by NoiseBoy As of now, Illinois is a pretty good state for retirees, if not for workers. Pension and Social Security income is not taxed, and you can freeze your property taxes at age 65. The article doesn't mention if the new tax would also apply to seniors so I assume that it would. While I don't agree with the author's proposal, it is an eye popping statement of the future costs the State is facing! One thing I am not clear on is if the unfunded liability number is based only on current employee obligations, or does it assume that all future workers also receive the same pension deals? In other words, if the political will could be found to shift 100% of all newly hired state workers to a defined contribution retirement plan in say 2020, what does that do to the unfunded liability number?

If the defined benefit pension is contributory (i.e. - the current employees pay some percentage of their pay toward their pension) the unfunded liability will actually go up once you switch all new employees to a defined contribution plan, because the current pension system calculation assumes a continuous stream of contributions as new employees join the workforce. The pension liability will eventually go back down, but in the short term it will go up.

[MichaelB]

People should read the paper, it’s an interesting proposal. I’m not clear if they are including business property in the calculations (probably are).

Getting back to one of the questions in the OP, i think this is not a proposal but just an rough effort to quantify the impact if this were to become a serious consideration.

[gerntz]

I'd only rent.

[bingybear]

Quote:

Originally Posted by gerntz I'd only rent.

usually rent jump to cover the cost to the landlord

[Chuckanut]

Well, the citizens of Illinois surely must realize they can only kick the can so far down the road. My guess is that the pension system was probably not fully funded for many years to pay for other goodies. Whoopie! Free Money!!

I am thankful my state has done a descent job of funding my pension. It may not be gold plated platinum, but it is mostly funded. However, I have run FireCacl assuing a 20% cut in my pension. I still survive, but there is a bit less money to use when 'blowing the dough'.

[Ronstar]

Thanks for the link to the article. Another piece of the puzzle to convince DW to sell and move.

[VanWinkle]

Quote:

Originally Posted by Ronstar Thanks for the link to the article. Another piece of the puzzle to convince DW to sell and move.

+1 I am in the same boat trying to convince DW that Illinois is no longer a prairie state, but a sinking state. I have spent most of my 63 years supporting pensions for the more fortunate. I do not blame those that receive the pensions, just those that underfunded the promises.

[Ready-4-ER-at-14]

Quote:

Originally Posted by NoiseBoy As of now, Illinois is a pretty good state for retirees, if not for workers. Pension and Social Security income is not taxed, and you can freeze your property taxes at age 65. The article doesn't mention if the new tax would also apply to seniors so I assume that it would. While I don't agree with the author's proposal, it is an eye popping statement of the future costs the State is facing! ...

Just a clarification of a peripheral part of your statement.

My understanding is the freezing of property tax at 65 is means tested for total household income < $50,000 annually. So may or may not be true for high net worth retirees.

I believe the freeze only applies to assessed value of the property so it can rise if taxing districts increase the tax rates.

I found the above information at a website called the civic federation and it is an org site with a google search.
Article details:
Value of Senior Citizens Assessment Freeze Property Tax Exemption Falls with Home Values
June 7, 2013

[NoiseBoy]

From my county assessor's website --

Senior Citizens Assessment Freeze Homestead Exemption (SCAFHE)
This exemption allows senior citizens who have a total household income of less than $65,000 ($55,000 for 2017) and meet certain other qualifications to elect to maintain the equalized assessed value (EAV) of their homes at the base year EAV and prevent any increase in that value due to inflation. The amount of the exemption benefit is determined each year based on the following:
The property's current EAV minus the frozen base year value (the property's prior year's EAV for which the applicant first qualifies for the exemption)
The applicants total household income

Each year applicants must complete and file Form PTAX-340 with the Chief County Assessment Officer. McLean County mails a PTAX-340 each year to any person currently receiving the Senior Citizens Homestead Exemption. The mailing is usually around the first of February.

They include pretty much all forms of income on the form, so I agree that lots of folks would find it hard to stay under even $65k a year in household income. On the other hand, my parents did not have to worry about hitting this limit, and when they sold their house 8 years ago, their property taxes on a 3 BDRM home were $250!

On a related note, I watched a local PBS panel discussion a while back that included the city managers for 3 local communities, including mine. The topic was the impact that Police and Fire pension obligations were having on their city's budgets. The State of Illinois sets all of the rules governing these pension plans even though they are not part of the State plans that we hear so much about. These liabilities are not unfunded because the State can, and has, taken over a city's budget to force them to pay their mandated costs. But, the city managers shared that the future is pretty bleak because their pension costs keep rising while tax revenue remains flat.

I found it worrisome because this pension issue is significant and yet it is not often discussed, and is not at all included in the "big" State pension plans issues. It actually shifted my thinking a bit on the wisdom of buying anymore property in my state.

[Tom52]

I have made a number of mistakes in my life but moving out of Illinois four years ago was not one of them. High property taxes plus the looming issue of underfunded pensions and it's potential consequences played into my decision to leave.

[Independent]

Quote:

Originally Posted by Running_Man The Federal Reserve has spoken

Note the disclaimer at the top of the piece:

Quote:

The views expressed in this post are our own and do not reflect those of the Federal Reserve Bank of Chicago or the Federal Reserve System.

[imoldernu]

Averages don't always count.
We live in Peru, Illlinois, 77 miles from Naperville, Illinois.

We're happy here, and don't feel that we track the average. First... about Seniors... There are two, not one tax benefits for those over 65. One is the Senior Homestead Exemption, and the second is the Senior Tax Freeze.

As far as cost of living... This is where averages are different, and the cost of living can be very different. Below are 2 'clips" from City-Data.com showing the difference in income, and the cost of housing. You can easily see the housing cost differential. Naperville is an upscale town, with income about twice that of Peru. Accordingly, the prices of entertainment, household goods, transportation and almost all home budget factors is much less. a while back, somewhere on ER, I detailed a $7,000/yr. cost of living differential, besides a $3,500 tax benefit.

This was a major factor in making our retirement location decision. Likewise, while we lived in Leesburg, FL, the cost of living in the center of the state was much less than that on the coasts.

BTW...lest you think lower average housing means the ghetto, if you know how to use Google Street View, go to 30th Street Peru, IL (Street next to ours) and take a look at the homes.