Cook County's Debt Management Solution

Following federal and state level debates over mortgage debt management solutions one municipality is looking at internal operations and data to identify ways to reduce debt.

It may appear far-fetched, but municipality debt directly affects homeowners and their lender/servicers through cause-and-effect financial distress that can pressure down home values and affect the residents’ ability to pay their mortgage.

Chicago’s Cook County has implemented Debt Disclosure Ordinance reporting changes designed to improve the county’s finances and better inform residents. When they vote for a local bond deal “homeowners need to understand” the financial burden it represents for them and their children, said the county’s treasurer Maria Pappas.

She called for the State Legislature to require all real estate brokers to disclose to prospective homeowners the amount of municipal debt, or how much local government owes before they purchase the property because it will affect their personal finances.

An analysis of the top 50 residential property tax amounts in each municipality in the county from 1996 to 2009 shows that on average residential property owners saw a tax increase of 121% that posed an enormous "stretch on their wallets." Pappas said the Cook County Board plans to further refine the ordinance requiring each agency to state the percentage rate of return on the data and to include into the post-employment benefits data additional information such as retiree health insurance premiums—that can quantify their direct impact to homeowners.

Debt and unfunded pension obligations have been serious problems at the state and federal level. The $108 million Cook County debt is one example that shows “a similar pattern” is bound to follow at the local level, Pappas said. “Fiscal problems permeate townships, villages…and the taxpayers are on the hook,” because they have to pay as taxes go up.

The county reduced government personnel expenses and invested in automation, a “simple, common-sense approach” that has saved taxpayers millions of dollars. In 2009 the County Board enacted the Debt Disclosure Ordinance requiring all its 553 primary governmental agencies to report their yearly budget and their debt. Earlier this year it also required information about 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. Cook County municipalities and taxing districts reported pension liabilities of over $50 billion and unfunded pension liabilities of $25 billion, equal to almost 25% of county debt.

If the Pew Center and the U.S. Government Accountability Office assertion that to be considered healthy local pension plans should be funded at 80% or higher were to be the benchmark, she argued, only one-quarter of the taxing districts in Cook County are adequately funded.

For example, the second installment of the 2010 property taxes will be tentatively due the first week of November, since the official due date will be determined after calculations concerning property values and tax rates are finalized by the Cook County Assessor and clerk’s office, Pappas stated in a recent release.

Pappas presented the data collected through the county’s Debt Disclosure Ordinance and first-of-its-kind analysis at a gathering of over 50 business representatives, civic and community leaders at the Civic Federation recommending other agencies consider a similar data drilling approach to debt management. She called on counties around the state and the nation to learn from the Cook County example but find a local solution.