Tobin on Budget Impasse

The man who first pointed out that the increase in the income tax imposed by legislative Democrats and Governor Pat Quinn would go to pay for pension, instead of paying Illinois overdue bills was Jim Tobin.

Here are his comments on the current budget situations:

No Budget Relief Without Spending Reform

Chicago—Taxpayers United of America (TUA) today released the results of its analysis of the proposed Illinois state budget and the current financial health of the state, as well as recommendations for policy changes to avoid future prolonged budget disputes.

“Illinois is in desperate financial trouble after years of unrestrained spending and lavish, gold-plated pension and health plans for government employees,” said Jim Tobin, President of Taxpayers United of America (TUA).

Illinois Governor Bruce Rauner (R) released his fiscal 2016 budget proposal on February 18. The budget calls for total general fund spending of $32.0 billion, a $2.7 billion reduction from the fiscal 2015 revised budget.

The proposed level of appropriations from all funds in fiscal 2016 is $61.8 billion, compared to $66.3 billion in fiscal 2015. The largest areas of total state spending are healthcare at 31.5 percent, education at 25.7 percent, and human services at 16.1 percent.

The largest areas of general fund spending are education at 42.9 percent, healthcare at 22.4 percent, and human services at 17.4 percent.

Jim Tobin

Jim Tobin

“The political class and some media outlets frame the budget crisis as an issue of revenue, but that’s just not the case.

“The problem with Illinois’ budget is the result of years of profligate spending by the General Assembly and a series of governors who encouraged it,” said Tobin.

“Gov. Rauner is trying to reverse that trend, but it will require the General Assembly to rethink years of unwise spending habits.”

General fund revenues are projected to be $32.0 billion in fiscal 2016, a $2.1 billion, or 6.1 percent, decline from fiscal 2015.

The budget proposal addressed ongoing budget deficits through minor pension reforms, nullified by the State Supreme Court in May, which would have saved the state $2 billion; reducing government employee health insurance costs; cutting overall spending while prioritizing core government services such as education; and budget reforms including ensuring that bills are paid, consensus forecasting, a priority based budget, and building up a rainy day fund, according to the National Association of State Budget Officers (NASBO).

As of March 2015, the state had $111 billion in pension debt and more than $6 billion in unpaid bills, according to the Illinois Policy Institute.

Illinois, already tagged with the lowest credit rating among U.S. states, is at risk of downgrades and higher borrowing costs after lawmakers’ fix for its $111 billion pension shortfall was struck down in court, says Crain’s Chicago Business.

Illinois, which is grappling with billions in unpaid bills, is graded four steps above junk by the three biggest rating companies.

“The taxpayers of Illinois continue to send their hard-earned dollars to Springfield, even as they witness the General Assembly squander their tax dollars year after year, while always demanding more,” said Tobin.

“The Illinois General Assembly confiscated plenty of our tax dollars already, so the least the legislature could do is balance the budget with those tens of billions of dollars before strong-arming Illinoisans for more revenue.”

“An amendment to the state constitution is needed before government-pensions can be cut or retirees can be forced to pay more into their plans,” said Tobin. “But until a constitutional amendment is passed, there are a number of changes that can be made to correct Illinois’ spending problem.”

“Ending pensions for all new government hires will eventually eliminate unfunded government pensions. New government hires should plan for their own retirements by being placed in Social Security and 401(k)-style plans.”

“Furthermore, if each government employee were required to contribute an additional 10% toward his or her pension, Illinois taxpayers would save $150 billion over the next 35 years, or roughly $4.3 billion annually.”

“Finally, requiring Illinois government employees and retirees to pay for one half of their healthcare premiums would save even more – an estimated $230 billion over current projections,” said Tobin. “Without addressing these colossal spending habits, among others, Illinoisans can expect to see their economic well-being diminished while the constitutionally-protected government pensions continue unabated


Tobin on Budget Impasse — 18 Comments

  1. I heard that in Illinois pensions for state workers can only be paid out of property taxes so in my opinion they should pass a budget and work on the pensions.

    If property taxes were frozen, which what person doesn’t want regardless of party, a bigger percentage would still go for pensions which are guaranteed under the constitution.

    We need to fund pensions and schools in other ways so there can be property tax relief.

    Rauner wants to pass the Republican Koch Bros (Americans for Prosperity) agenda but he is not dictator and he did not win the legislature so he must compromise on a budget, then people would blame the Democrats if they did not work on the pensions, etc.

    Instead in the current status only the poor and disabled are feeling the pain.

    Illinois has a flat tax which benefits the high income and Republicans won’t take tax loopholes away from businesses when 3/4 of Illinois businesses don’t pay taxes.

  2. I can’t see the legislature wanting to get serious about spending.

    You hear few ideas from them.

    They have veto proof majority, but they don’t want egg on their face for raising taxes so they aren’t doing it (but they are mad at Rauner for not raising them, even though he has said he is open to raising them provided they make a deal with him).

    They don’t want to cut spending, they’d rather let Rauner do that and call him an out of touch scrooge.

    Democrats in Springfield, like Republicans in Washington, have a goal to win political battles against the Executive.

    The government is dysfunctional.

    Yes, checks and balances were put in for a good reason, but what you see in modern politics isn’t so much about standing up for principles as it is making political calculations about the next re-election bid and ad hoc support or opposition to proposals depending on what letter is next to the person’s name who proposed it.

  3. I have heard no one but Karma suggest state pensions will be paid out of property taxes.

    The suggestion has been made for Chicago and Cook County employee pensions.

  4. Well, Cal, I don’t know if it is true but they said it on WTTW when talking about pensions.

    Also Joe Democrats in Illinois cannot raise taxes because 3 Democrats including Jack Franks have vowed not to vote for an increase.

    So we go around and around in circles blaming each other for politicians of both parties who did not keep funding pensions as was their responsibility for the past 20 years at least.

    And when they do try to compromise the Supreme Court says it is against the Constitution.

    If Rauner really wants a budget he would not try to redo Illinois in 4 years because he probably has his eye on higher office and he would sit down with unions and compromise.

    This is not a business where the CEO is always right this is a government.

  5. And a lot of teachers play both sides of the game as do other union members. T

    hey want the raises and good benefits but vote also for property tax relief.

    A magic wand will not solve Illinois problem which has been long in the making.

    Businesses need to pay their fair share or we pay their share.

    Republicans don’t want to take tax loopholes away because they say that is a tax hike, but the rich have big lobbyists who helped pass these loopholes and poor people and even the middle class is having less of a voice in it.

    From 2011-2013 the top 14 richest Americans made over $100 billion more ( it is more like $176 but I can’t find what I read now) and the disabled (Cerebral Palsy in Illinois asking for budget), the people in nursing homes who receive a small amount $60 of their own social security checks so they could have a haircut, go to a movie, or buy a coffee, were scaled back by Rauner.

    If Jesus did come back he would be ashamed of everyone.

    Remember what he said it is easier for a camel to get through the eye of a needle than a rich man to enter Heaven and don’t believe the propaganda that if businesses pay that is unfair.

    It is fair.

    Also people who only invest in stock market pay less in taxes than people who work but we say we honor work (lie).

    You may clap when someone pays less tax but remember you probably pay for their share.

  6. The state pays 50% of all non-Chicago teacher pensions.

    That’s why school districts have a motive to spike end of career salary.

    Those stats above confuse teacher contributions.

  7. Karma, cut and paste from reputable news sources not op-ed and crazy rags, slow down and comprehend what you’re reading.

    Farce or not, I’ll take a property tax freeze.

    So many of the taxing bodies in McHenry Co are crying wolf without ever really attempting to make meaningful cuts to their budgets.

    Our county should not own a nursing home, Lakewood and others should not own golf courses.

    As far as businesses paying their share I know plenty that don’t have very much profit to pay taxes on.

    If you can live off capital gains and pay a lower tax rate good for you!

    IL needs a complete and total change in the way it does everything.

    Scale back IDOT and let the townships and municipalities maintain the highways that run through them.

    Go to a voucher system and be rid of the teachers’union monopoly.

    Legalize pot and stop clogging up the jails with petty drug offenders.

    Put a tax on it to help fund mental health.

    Pensions are going the way of the dinosaurs regardless of how much money we throw at them, it’s a ponzi scheme that should have been stopped 20 years ago.

    Major change is always painful.

    Stop with the band aids and get on with the surgery

  8. State pensions are paid from state revenue not local property tax revenue.

    The state pensions are 5 of the 19 pension funds in the Illinois pension code (the 19 pension funds mushroom into over 600 pension funds in practice because each police department, fire department, and fire protection district participating in the Downstate Police and Downstate Fire have their own fund.

    The 5 state pension funds are:

    Teachers & public education administrators outside Chicago (TRS)
    State university employees (SURS)
    State employees (SERS)
    General Assembly (GARS)
    Judges (JRS)

    RS = Retirement System.

    Now it gets a little more complex in that the TRS employee contribution does come from local taxes.

    The TRS employee contribution is 9.4% and broken down as follows.
    7.5% Retirement Benefits
    0.5% COLA aka Post Retirement Increases
    1.0% Survivor Benefits
    0.4% Early Retirement Option (ERO)
    9.4% Total

    However most teachers receive some sort of refund of some of those contributions at retirement for various reasons.

    If the teacher / administrator does not use ERO the employee receives a refund of those contributions at retirement.

    If the teacher “upgraded to the 2.2 formula” they sometimes receive a partial refund for some of that cost at retirement.

    If at retirement the teacher / administrator does not have a dependent beneficiary they receive a refund of the 1% survivor benefits for time worked after January 24, 1959.

    And, in the majority of the school districts in Illinois, the school district “picks up” some or all of the employees contribution to TRS, a scheme which usually hikes teacher gross pay in what’s called the salary schedule add on method; picks are spelled out in collective bargaining agreements and administrator contracts.

    The school district contribution to TRS is .58% (little over 1/2 of 1%) and that comes largely from local property taxes.

    Why largely.

    Because school districts receive Federal and State revenue, as well as local property tax revenue, although the bulk of revenue in the middle and upper class suburbs comes from property taxes, in most lower income suburbs a greater portion comes from state and Federal, but there are variations, for instance if there is a lot of property tax wealth from commercial, industrial, or manufacturing in otherwise lower income suburbs.

    The state has kicked around the idea of shifting the state contribution to TRS, from the state, to the local school district.

    The state contribution to TRS is actually “on behalf of” the school district.

    The amount of the shift was the “normal” contribution which excludes the unfunded liability.

    But haven’t heard much discussion of that lately.

    So the bottom line after all that is the state pension funds receive their funding not from local property taxes but from state revenue, with some exceptions for TRS.

    All of the Illinois public sector pension funds ideally should be receiving the majority of their contributions from investment returns, not employee or employer contributions, but that can vary depending on actual investment returns (some years the investments and market performs better than other years) and the funding level of the pension fund (grossly underfunded pensions don’t generate as much investment returns as well funded pensions, all other factors equal).

    Also investors have to pay capital gains tax when investments are sold, so the claim is capital gains tax is less than payroll taxes?

  9. The best long term solution is to repeal in its entirety the pension sentence added to the state constitution on December 15, 1970.

    The process is for the Illinois General Assembly to pass a Joint Resolution Constitutional Amendment in either the House or Senate, what’s known as a HJRCA or SJRCA.

    The Governor signs it.

    The question is placed on the ballot for an election.

    The voters approve the measure.

    But it’s going to take a lot of work for that to happen in a Democratic Supermajority House and Senate, not to mention there are also many Republicans who are in office largely thanks to public sector unions.

    More people have to understand the problem and vote.

    It’s a crisis of Democracy right now.

    To many people are apathetic, indifferent, politically lazy, or don’t understand the ramifications of not better understanding what is happening in state and local politics.

    The pension and bond debt is unsustainable with Federal, State, and local layers of government making it very difficult for the taxpayer to grasp the seriousness of the problem.

    Also, the rules for public sector unions are much different at the Federal level than state and local in Illinois.

    Illinois public sector union laws should more closely align Federal public sector union laws and a lot of our state and local financial problems would be less severe.

    Public sector union laws vary greatly state by state.

    And the pensions in public sector pensions in Illinois have been hiked much more than at the Federal level.

    We have some really bad public sector union and pension laws in Illinois.

    Not coincidentally Illinois has the highest percentage of state workers belonging to a public sector union.

  10. Well if teacher pensions have been hiked it is by local school boards (in McHenry most political winners are Republicans) and teachers and firemen and police should have always been part of the social security system.

    Also SURS promises 8 1/2% interest which is ridiculous with the stock market volatility and also those responsible for investing money and making poor decisions need to be held accountable.

  11. Local school boards didn’t care about spiking salaries which resulted in spiking pensions and that’s one major reason why TRS is in such bad shape.

    The school districts would all point to each other, we have to keep up with the Jones’ to retain and attract the best talent, was the mantra.

    There is no market for educating students, it’s a monopoly school district that has a monopoly on education taxes.

    Worse than just a monopoly school district, there is a monopoly teacher union (in most school districts there are other unions present too, but teachers are by far the highest paid of union employees in a school district).

    Worse than just a monopoly teacher union in a monopoly school district, there was a monopoly by the teacher union to obtain money from all teachers, irregardless of whether they wanted to join the union or not, if the teacher didn’t join the union, the teacher is forced to pay so called fair share dues.

    Worse than a monopoly union fees to a monopoly union in a monopoly school district, the school district as an employer contributes only 1/2 of 1% to the teacher and administrator pension fund, with the state contributing the rest.

    That public sector legal corruption of monopoly employer, monopoly labor, monopoly fees to union by everyone wanting a job covered by the labor union, and no financial responsibility for hiked pension, is the #1 problem in the state.

    That is a problem that Jack Roeser endlessly discussed for 40 years.

    A problem Bill Zettler wrote about in his book Illinois Pension Scam.

    A problem people such as Larry Snow and Chris Jenner delved into at the school board level.

    Yet the problem remains.

    The incredible power of the biggest political forces in Illinois, the local teacher union and others involved in public education including the local school district and its Superintendent and assistance superintendents and others.

  12. Well now for the common sense disclaimer which should not have to be said but there’s always the inevitable hyper sensitive or agenda driven person.

    School districts and the employees in them vary greatly, so take that as criticism of the overall system wide bureaucracy and not every single employee in the bureaucracy.

    Inject the corrupt political culture in Illinois into that dysfunctional school system bureaucracy and here we are.

    There are some exceptions such as in some small school districts with a reform driven board, but in general there is no effective local taxpayer control of public schools.

    It’s a myth.

    Because taxpayers are not organized.

    Organized labor is organized.

    All sorts of associations and lobbying organizations for school district personnel are at least somewhat organized.

    Most school districts and boards and those with some type of power have an endless array of tactics to discredit any dissenters, nipping any possible taxpayer organization in its infancy before it has a chance to blossom, using Saul Alinsky type tactics amongst others.

    The good employees are sucked up into that mess and can actually do a lot of good despite the dysfunction.

    The system outputs some outstanding students that are used as showcases.

    But in terms of long term fiscal stability at a cost effective price and overall performance, they system is out of control for a wide variety of factors, which could easily take a book to explain.

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