Back to the Future in Illinois — January 17, 2011

I love Chicago.  It’s a living, breathing, great city, lots of culture, clean, and – if you hold your nose at the corruption and machine politics – well-run.  We have the champion hockey team and a good shot at the Super Bowl.  Millions of people feel the same way; and tens of thousands of them are thinking about leaving.

It’s not because down in Austin you get bluebonnets on the hillsides while we still have ice in the street corners, and it’s not because winter in the Rockies means bright blue skies and sunshine instead of the grey lakefront.  It’s because our state taxes just went up by two thirds thanks to those clowns in Springfield.

It was vintage desperation politics in the spirit of the Pelosi-Reid Democrats: It passed by a single vote at 1:20 in the morning, mere hours before the new, post-Tea Party-wave legislature was about to be sworn in.  Governor Pat Quinn hailed it as an act of courage.  Like the courage of a cat burglar in the night.

Commentators a month ago, me among them, lauded the tax cut deal that President Obama struck with the Republicans, including this extra boost – a 2% one-year cut to the payroll tax.  A little extra stimulus, thanks very much.  Well, thanks to the Springfield solons, that tax cut has just been undone – good-bye stimulus.  Actually, it’s worse, because the FICA break lasts only a year, while the Illinois tax hike is temporary in the sense that all tax hikes are temporary – it phases out gradually by 2025!  Raise your hand if you think we’ll see that phase-out on schedule.  Me neither.

Businesses fare no better.  The business tax is hiked up by 30%, giving Illinois the distinction of being the third-highest corporate tax regime (state and national combined) in the world. And we’re surrounded by states with Republican governors – Wisconsin, Indiana, Iowa – and they’re all improving their states’ business climate.  Ours is going retro.  Let’s see, if I’m an energetic young business person looking to launch the next Google from the midwest, where do I set up shop?

It’s not all their fault.  They have cut spending – my first-grader’s school district saw $7 million cut from the payment they were promised from state coffers.  The dirty secret is that of this tax increase, exactly $00.00 goes to fill that gap.  So in addition to the extra money I have to send to Springfield, I’ll end up paying about the same in increased local assessments to keep my child’s school class sizes from going up by a third.

The worst thing is, this does not solve our fiscal problem, or even put it on a sustainable path.  It does nothing to cut spending or to tame runaway pension obligations.  It puts a fig-leaf on it: the law has a feature to hold spending in check that if spending goes up by more than 2% per year, the tax hike is reversed and state revenues fall back to the old rates (that’ll be the day!).  But actual spending cuts – well, look to Trenton for your inspiration if you want to see how it’s done, don’t look to Springfield.  And of course, if you’re hoping for an upsurge in business and jobs to close the gap, you’ve just added a big weight on the saddle of that particular horse.

The main problem in Illinois, as it is for so many states, is the pensions and benefits that have been promised to government employees.  Year after year, increasingly lavish promises, to be paid with our children’s earnings – and their children’s – have taken the place of cash salaries that current tax revenues could not provide.  And rather than face down the unions, government after government – of both parties, without question – acquiesced in the betrayal of their states’ futures.

So now, Illinois’ state pension fund has only 54% of the assets it needs to pay its promised benefits, leaving it with an unfunded liability of $74 billion. But it’s worse than that –  the $74 billion shortfall is all we lack if pension investments earn the assumed average return of 8.5% each and every year.  Given that the US stock market is roughly where it was ten years ago instead of being more than 85% higher – well, that assumption could use a little updating.  And the shortfall is actually much higher than they say it is.

Even worse is the astonishing generosity of the plans.  It is common for state workers to retire with full benefits at 50 or 55.  With life expectancy now reaching a good 30 – 40 years after that, we’re talking about piles and piles of cash being paid out to able-bodied workers wearing out the springs in their Barcaloungers.  I don’t know about you, but I’ll be lucky if I’m not working well past the official age of Social Security – and I’m paying for people younger than me to put up their feet?

Not to mention how some people game the system.  One of the most egregious on record comes from my own New Trier Township.  A school superintendent retired at the age of 57, and, thanks to a series of 20% pay hikes in his last five years (which set his retirement income), he enjoys a pension of $230,000 a year – for life!  Not only that, he had enough juice in his bones to move to Ojai California, to be schools superintendent there, where he is currently pulling down a minimum salary of $170,000 – on top of the pension that I and my neighbors are paying.  And on which, of course, he will earn further pension, for life.

At least he had the good sense to move out of Illinois.

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