September 18, 2013



Remember that old saying? Don't kill the messenger.

When the owners of 1.8 million parcels of real estate in Cook County got their first- and second-installment 2012 tax bills in February and July, the message, as mandated by the county's recently passed Debt Disclosure Ordinance, was beyond grim, beyond bleak, and perhaps even beyond remedy.

The bills' messengers, the U.S. Postal Service, as the deliverer, and the Cook County Treasurer's Office, as the preparer, transmitted some very traumatic information -- that even though property values have declined, property taxes have increased and will continue to increase, by a whole lot, and the cause is debt, both bonded and unfunded pension.

Here are some facts and figures:

First, according to county Treasurer Maria Pappas, during the period from 2000 to 2010, property taxes have increased by 48 percent on all Cook County properties and by as high as 172 percent on some residential properties. As taxing units struggle to meet their employees' pension obligations and automatic cost-of-living hikes boost the pay of current employees and the benefits of retirees, taxes will explode within the next decade.

Second, the collective debt owed by the 549 taxing agencies in the county, as reflected on the tax bill, is $140 billion. That equates to indebtedness of $87,720 per household in Chicago and $35,774 per household in the suburbs. Chicago, with a 2013 budget of $6.3 billion, has debt of $61.7 billion, which is a debt-to-income ratio of 9.8-1. Cook County, with a 2013 budget of $2.95 billion, has debt of $21.2 billion, which is a ratio of 7.2-1. The Chicago Board of Education, with a 2013 operating budget of $4.8 billion, has debt of $30.5 billion, a ratio of 6.4-1.

Most suburbs are groaning under the weight of debt, from bond issues to pay for infrastructure and pension liabilities. Park Ridge's debt was $184 million for 2011, while Evanston's was $719 million and Berwyn's was $303 million for 2010.

By comparison, the U.S. debt is $17 trillion, and the 2013 budget is $3.5 trillion. The debt/income ratio is 4.8-1. Incredibly, Chicago is in a bigger fiscal mess than the feds. Put it another way: Every one of Chicago's 2,695,598 residents -- man, woman and child, citizen or noncitizen -- would have to pay $22,894 to erase the debt now, and in 10 years the debt will grow by 30 to 40 percent.

Third, under Public Act 96-1495, which passed by the Illinois General Assembly in 2010, Chicago must fund 90 percent of its pension indebtedness by 2040, starting in 2015. The city's pension liability is $28,625,214, of which 59.7 percent, or $17,104,077, is unfunded. That means that the pension system, like social security, is on a pay-as-you-go basis, with pension deductions to present employees used to pay for pensions owed to past employees, plus their medical costs.

On the current city tax bills, with Chicago among 12 taxing districts, a property owner pays 18 percent of the total bill to Chicago, 53.5 percent to the Board of Education, 5.9 percent to the Chicago Park District, 5.8 percent to the Metropolitan Water Reclamation District, and 5.9 percent to Cook County. For suburbanites, almost 70 percent of the taxes paid are allocated to the local school districts, 10 percent to the local municipalities, and 3.3 percent to Cook County.

Fourth, pensions consume an ever-increasing portion of all tax revenues. In Chicago, 45.7 percent of property tax revenue is applied to pensions; it's 37.2 percent for Cook County and more than 40 percent for suburban school districts.

If Chicago's unfunded pension liability of $17.1 billion were to remain frozen until 2040, the city would need $15.4 billion to "fully fund" it over the period from 2015 to that year, or about $625 million a year in new tax revenue, which is 10 percent of the current budget, but with built-in collective bargaining pay and pension cost-of-living increases, even with "pension reform" for new employees, pension obligations will increase by 10 percent annually, and it will require at least $1 billion a year, or 16 percent of the current budget, to comply with the state law.

That means either (1) a new revenue stream, such as doubling the city sales, tax plus a casino, and probably a corporate head tax to be applied to all employees or (2) tripling or quadrupling property taxes.

Pappas, who was elected county treasurer in 1998, has a simple solution for the county's 2,200 taxing districts: Don't hire. Don't spend. Cut the budget.

In 1998, when Pappas succeeded the Ed Rosewell, who was first elected in 1974 and who had been convicted of hiring two state legislators as no-show "ghost payrollers," the office had 258 employees. As of August it had 80, a reduction of 70 percent. The treasurer's corporate budget is $3.9 million, which pays for all employees and operating expenses and which is funded by tax revenue. Had the office kept its payroll of 258, the 2013 budget would be $27 million, Pappas said. "Eighty percent of the cost of government is personnel and pensions, and the cost of personnel keeps rising," she said. A treasurer's clerk hired in 1998 for $23,000 makes $43,000 today due to annual 2 to 3 percent COLA pay increases and step increases, which are part of the collective bargaining agreement negotiated by the Service Employees International Union, the employees' union. "That's $20,000 in 13 years," Pappas said. "You don't find . . . a 90 percent pay increase in the private sector."

Governments are fed -- and taxpayers are bled -- by those on the public payroll. They pay the union dues to ensure perpetual pay hikes, hefty pensions and pension protections, the unions donate to the politicians who approve the bargaining agreements, and the taxpayers get gored. That's why Spain, Portugal, Greece and Italy are teetering on the edge of bankruptcy.

Pappas' critics, who are legion, sniff that her office just shuffles paper, not bodies. Every County Jail prisoner costs $50,000 a year, and the county absorbs the cost of three hospitals and 30 clinics, with few patients being private-pay.

However, Pappas, who is seeking re-election in 2014, insists that her fellow county office holders need to stop making excuses and start finding solutions. She said that in 15 years she has transformed the treasurer's office from a "rathole" into a technologically proficient money-making and taxpayer-serving machine, collecting and distributing $11 billion to 2,200 taxing bodies.

When Rosewell left office, taxpayers' checks would languish undeposited in mail sacks for six to 10 weeks, Pappas said. "There was one letter-opening machine," she said. Every lender, whose job it was to pay the borrower's tax bill, would have to send an agent to pay $5 for a duplicate tax bill. Pappas said that at tax time there were "thousands of people" in her office. "Chaos, corruption and incompetence flourished," she said.

In the past 15 years, Pappas has implemented a plethora of reforms. First, there is transparency. Every annual tax bill informs the taxpayer of the cost, meaning budget and indebtedness, of every taxing unit. Second, tax-paying has been made convenient: A total of 400 Chase Bank branches and 56 Dominick's stores accept more than 700,000 yearly tax payments, charging 18 cents per transaction. Payments can be paid online, so the 500-plus mortgage lenders, who are responsible for 800,000 parcels, make 1.5 million online payments for a $5 fee per transaction. More than 225,000 residential taxpayers also pay online. As a result, the office has accumulated $9.7 million in its Automation Fund.

Third, there is a Web site in 22 languages, with 330,000 hits per month. Fourth, there is a "paperless revolution." "Every document, dating back 50 years, including the warrant books, is being scanned," Pappas said. "The cost is borne by the Automation Fund. Every check is scanned. Very soon, every document relating to every PIN number will be computer accessible, at no cost to the taxpayers."

Fifth, the office maximizes interest on its cash flow. At peak payment times, the office has more than $1 billion in cash, auctioned daily at 9:20 a.m., with the money wired to the best-interest bidder at 9:25 a.m.; only Cook County banks may bid. The office generates $25 million in interest. The taxing bodies are wired their revenue at the appropriate time. Sixth, the revenue generated from tax and scavenger sales and late payment fees has risen from $30 million in 1998 to $90 million in 2013.

Finally, Pappas' office corporate budget declined from $14.2 million in 2001 to $3.9 million in 2013.

As a Democrat in Cook County, Pappas is assured of re-election, but being innovative and fiscally conservative, she is assured of the jealousy and animosity of other county office holders. "This is a success story," Pappas said. "We have made government more efficient and less costly. It can be done."

Once the "Golden Greek Goddess," Pappas, age 64, failed resoundingly in her 2004 U.S. Senate bid. Initially a contender, facing Dan Hynes, Blair Hull, Gery Chico and Barack Obama, Pappas finished a dismal fourth, with 6.1 percent of the vote to Obama's 52.8 percent. "I love my job," Pappas said, conceding no future advancement.

A piece of advice to Cook County and Chicago property owners: Sell. Flee. Get out. Your property will soon, like Mount Vesuvius erupting over Pompeii, be buried in the ashes of pension debt.

Send e-mail to russ@russstewart. com or visit his Web site at www.