Report: Illinois homeowners paying ‘shadow mortgage’ worth thousands

Illinois homeowners, whether they’ve paid off their mortgage or not, have an additional “shadow mortgage” averaging $90,000 that they’re on the hook for in the coming years, according to a new report.

Policy researchers at the nonprofit Wirepoints came to that estimate by adding up and dividing the future liabilities owed by the state, county and local municipalities in the form of pensions and retiree healthcare costs by household.

“When divvied up between Illinois’ households, the ‘shadow mortgage’ each one is on the hook for now totals hundreds of thousands of dollars per household, if not more, depending on who politicians target to repay those debts,” according to the report.

Researchers began by assessing how much property owners in Chicago would owe per household, but Wirepoints President Ted Dabrowski said they found the entire state had a similar debt average.

“Whether you’re in Carbondale or Effingham or Rockford, you owe a second mortgage to pay down all of these pension debts,” he said.

With a new push to make wealthy Illinoisans pay a higher percentage of the state’s tax burden, Wirepoints applied the tax burden to just homes with an income of $75,000 or more. They found that those nearly two million homeowners would owe an average of $215,000 each.

These extra mortgages manifest themselves, Dabrowski said, as higher property taxes, pension fees in places like Peoria and Danville, or tax increases at the state level.

“You’re effectively paying a second mortgage and it’s coming through all of these different taxes,” he said.

One response, Dabrowski said, has been to leave the state and its debt obligations to those who remain.

The majority of the recent income tax increases went to the state’s pension obligations, allowing state lawmakers to avoid cuts to other programs.

Dabrowski said lawmakers need to amend the Illinois Constitution’s pension protection clause, which states the initial retirement agreement between a public worker and their employer cannot be impaired, only improved. Others, including Gov. J.B. Pritzker, have said that changing the constitutional language is a fool’s errand because the U.S. Constitution’s contracts clause would then keep the pensions from being altered and entail costly litigation. Rhode Island did something similar in 2019 and it was upheld by that state’s Supreme Court.

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