Property tax bills in Cook County arrived last week and they include what seems like a nice step towards transparency about the pension crisis. Not really. It's much worse than it appears.
For the first time tax bills show unfunded pension liabilities for units of government towards which your property taxes are paid directly. They show just the ones funded by your own property taxes, which means most taxpayers will see roughly eight to ten units and their pension deficits. (Illinois in total has over 650 municipal pensions.) If you are in Cook County, the county unfunded pension liability alone is shown as $6.4 billion, and other jurisdictions add roughly another $1.5 billion. Yes, that's billions, not millions, and it represents only the shortfall for public employees currently in the system (not future ones) -- the difference between what the pensions has and what it should have to meet those obligations.
Startling as those numbers are, the real numbers are worse. Governments report pension deficits under accounting rules far more lenient than they require of the private sector, and the government standards are widely seen as phony. Here's what University of Illinois finance Professor Jeffrey Brown recently said about the key accounting rule used by governments that drives their reported numbers: "One would have to search far and wide to find a reputable financial economist – of any political persuasion or ideology – who believes that this particular public pension accounting rule has any reasonable intellectual foundation."
How much worse are the real numbers? Professor Brown said the real unfunded pension liability for Illinois' five statewide funds is not the officially reported $97 billion you always see, but actually two to three times that! Those five funds, by the way, are not listed on your tax bill. They include the state's largest one, the Illinois Teachers Retirement System. They're the ones guaranteed by the state and getting all the press lately. We don't have good "real" numbers yet on all those local pensions, but that's coming. Moody's, the ratings agency, said it will demand more realistic numbers later this year and new government accounting standards go into place next year. Pension experts say those new standards will show that the real unfunded liabilities are roughly 50% to 100% worse than those officially reported for most Illinois pensions they looked at, and sometimes much more. Finally, most pensioners get healthcare coverage, which is usually a separate and entirely unfunded long term liability, also not shown on your tax bill.
Your name may be on the deed to your house, but those pension funds shown on your tax bill own a big piece of it.
Mark Glennon, www.wirepoints.com