Thursday, October 11, 2012

Dear Mayor Emanuel and State Policymakers: It Was Always a Revenue Problem in Illinois and Still Is




I am tired of listening to talk-show hosts and their distinguished guests that omit the most significant facts about public pension plans in Illinois. First, anyone who talks about budget deficits should begin with these statements: The public pension systems were not and are still not the blame for the State of Illinois’ budget deficits. As a matter of fact, the lack of revenue across the country today was caused by the theft of billions of dollars by speculators and bankers in the private sector; moreover, in Illinois, they were caused by state policymakers’ only consistent legacy: their irresponsibility and incompetence.


Mayor Rahm Emanuel claims in his budget release (October 10, 2012) that “…Our taxpayers and residents should not be asked to choose between pension payments and public safety or pension payments and paved streets, or pension payments and public health”: Does he say that throughout the years, these public services in the State of Illinois have been paid primarily by money that was diverted from the state’s public pension funds? Illinois legislators have diverted $30 billion intended for the five public pension systems over the past decades. Illinois legislators have created the pension systems' unfunded liabilities.

“If we choose to keep those services and make no changes to our pension system, you and I would have to ask taxpayers to pay 150 percent more in property taxes. That is unacceptable to me. I think it is safe to assume it is unacceptable to you. And I know it is absolutely unacceptable to the homeowners of Chicago”: To reiterate, payments to the public pension systems were stolen and used to finance health care programs, public safety, park districts, street repairs, and garbage collection…

“No one should underestimate the difficult choices involved in delivering the reforms we need to stabilize our pensions and our pension payments. But they pale in comparison to the alternative – eliminating all of the essential services that Chicago’s residents expect and pay for”: Thus, Mayor Emanuel's (like other state policymakers’) idea of “reform” is to make the public employees abdicate their constitutional guarantees (in other words, eliminate their cost-of-living adjustment and reduce their wages) to pay for "essential services."

“I still don’t like the idea of hurting existing retirees on fixed incomes, but I’m more and more persuaded that everybody is going to have to take part of the hit to solve this one” (“Emanuel’s 2013 budget is calm before pension crisis storm,” Chicago Sun-Times, October 10): Really? “Everybody?” How long ago did the State of Illinois provide extortive tax breaks for the wealthiest corporations such as Sears Holdings Corporation and CME Group Inc., parent company of the Chicago Mercantile Exchange and Chicago Board of Trade? Who’s next in line for more diverted money from the public pensions? Could it be GE Transportation Worldwide, Google Motorola Mobility, Sara Lee, Federal Savings Bank, McGladrey, Sagence, and Sterling Partners who are moving their headquarters to Chicago? (Chicago Sun-Times).

Illinois is an extreme example of the implications of failure to fix [its revenue] problems. It has a flat, low-rate income tax that does not adequately capture income growth, and income tax revenues thus routinely lag behind economic growth. The state relies heavily on a state and local sales tax that is almost exclusively applied to goods and excludes almost all services. It is among the states that exempt from state income tax the largest share of income received by elderly individuals, regardless of their income levels. Illinois also does a relatively poor job of scrutinizing its spending through the tax code. Its budget considers only the single upcoming fiscal year, and policymakers often have taken budget actions without full consideration of the longer-term implications.

“Because Illinois is chronically short of the revenues it needs to cover its expenses, it has engaged in a number of poor fiscal practices over the years. It has postponed payments to vendors, failed to make adequate pension contributions or borrowed money to make the contributions, securitized or sold assets, and taken other dubious actions. As a result, it has had a particularly difficult time coping with revenue declines during this recession, with a fiscal year 2012 deficit projected to equal half of its general fund budget, and has developed an large overhang of longer-term debt and unfunded liabilities.

“But it is important to remember that the root cause of Illinois’ problem is a revenue system in urgent need of modernization, one that cannot support the level of expenditures that the state has chosen. Proposals have repeatedly been made over the last 25 years to remedy many of these problems, but political gridlock has prevented solutions to Illinois’ well-known budget problems from being enacted. In January 2011 Illinois temporarily increased its personal and corporate income tax rates to close a portion of its budget gap. But it still plans to borrow to cover its pension contributions and has not addressed the fundamental problems in its revenue systems that are the principal cause of its large structural deficit.

“Most states are not in as dire shape as Illinois. Nevertheless, if states fail to reduce their structural deficits and improve their budget processes, it will be more difficult for them both to maintain needed services and to prepare for the next cyclical downturn by accumulating adequate reserves. Nor will they have the funds to fix the problems that have been identified in the funding of public pensions and other areas” (the Center on Budget and Policy Priorities).

Revenue Solutions for Illinois: please read Illinois Revenue and Pension Debt Problems 

glen brown


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