Saturday, April 27, 2013

Illinois Politicians: Uphold the constitution and address the state’s debt crisis

Breaking a constitutional contract with public employees is not the solution.

Consider these solutions for the state’s "debt" problems:

·      The current “Pension Ramp” does not work for the five public pension systems. The “Ramp” entails larger payments today as a result of the 1995 funding law – Public Act 88-0593 – to pay the pensions systems what the state owes. The state’s pension debt (money that legislators stole from the public pension funds for decades and used for other services and pet projects) needs to be amortized for a longer frame of time (a flat payment) “just like a home loan that is amortized.” Though the initial payment will be greater in the beginning, over the long term it will become a reduced cost and a smaller percentage of the overall Illinois budget as it is paid off throughout the years;

·        Raise revenue to pay all of the state’s debts. With a constitutional amendment, “given an appropriately designed graduated-rate structure, Illinois could cut the overall state income tax burden for 94 percent of all taxpayers—on average providing a tax cut to every taxpayer with less than $150,000 in base income annually, raise at least $2.4 billion more in revenue, and keep the effective individual income tax rate for millionaires well below five percent… Illinois taxpayers with the bottom 94 percent of base income collectively would receive an annual tax cut of $1.06 billion… [T]he combined effect of this policy would be a stimulus to the economy from tax cuts and additional state spending (assuming that the additional revenue is used to fund current public services that would otherwise not be funded) that would create at least 36,000 private sector jobs in communities across Illinois…” (Executive Director Ralph Martire, Center for Tax and Budget Accountability, CTBA); (read HJRCA0002)

·        Make the 2011 income tax hike permanent. Designate the additional 2% in income taxes (approx. $7 billion per year) solely for paying down the unfunded liability… Secure enough funding through sale of pension bonds to erase the entire unfunded liability at a suitable rate ($100 billion at 6.5%). This will turn “soft” debt into hard debt and a guaranteed payment for (perhaps) 25 years in an amortized and consistent method to pay back bondholders… Bond companies will now have a commitment to timetables and repayments they do not have currently from Illinois. They may also be willing to assist in this re-amortization of expenses. The annual payment will be known and unchanging as the state moves forward. The economy in Illinois (5th highest GDP in all 50 states) will improve, and there will be a lessening of expense and a growth in revenue. There will be no constitutional fight, and public sector employees’ contributions and good works would be honored…;
·        Eliminate the tax loophole for “Tax Increment Financing Districts” to pay the state’s debts;

·        Eliminate “Edge Tax Credits” and other tax loopholes for large corporations in Illinois to pay the state’s debts;

·        Increase taxation on the wealthy to pay the state’s debts: Illinois is in the top 10 of regressive state tax systems where the wealthiest taxpayers do not pay as much of their incomes in taxes as the poorest and middle-income wage earners (The Institute on Taxation and Economic Policy);

·       Create a Speculation Sales Tax to pay the state’s debts: a $1 per transaction on contracts traded on Chicago derivative exchanges (Dr. William Barclay);

·       Tax services. Broaden the sales tax base to pay the state’s debts: to include selected consumer services. Illinois is one of five states with sales taxes on fewer than 20 services (The Center on Budget and Policy Priorities);

·       Shifting the state’s “normal costs” for the public pension systems to school districts will have negative consequences and will not pay the state’s debts. “Property tax bases would not be sufficient to absorb any shift in the employer normal cost for teacher pensions… School districts are demographically and financially varied, and it would be difficult to impose a uniform normal cost shift on them… Illinois ranks last in terms of state spending on K-12 education, and school districts are already relying heavily on local property taxes… While shifting the state’s normal cost obligations onto school districts may provide some relief to the state’s budget, it will not mitigate these financial obligations and will instead push them onto school districts that, on average, already derive the majority of their revenue from local sources” (CTBA).  Furthermore, “The State shall provide for an efficient system of high quality public educational institutions and services… The State has the primary responsibility for financing the system of public education (Article X, Section 1 Constitution of the State of Illinois). There needs to be a required annual payment from the state to the pension systems;

·       Implement a more timely system of payments (cash management practices are greatly affected by budgetary practices in relation to deferred liabilities which place additional pressures particularly in the first and second quarters of the year to pay those expenses; timing of tax payments also affects the state's cash flow and should be adjusted accordingly);

·       Examine and improve the efficiency of the state’s government. This includes establishing term limits for Illinois legislators.



  1. Their plan is for the state to appear "poor" and in "financial crisis". When they go to state court they will appear to be in "financial crisis". They could do all of the things you mentioned and probably will do some of them. But not before they attempt to steal. The big question is will the courts fall for their "financial crisis" tricks. The state courts may play alone but what do they do when they get to the United States Supreme Court? Violating the State Constitution. Violating the United States Constitution. Violating long standing contracts. OUCH!

  2. Glen, creating an Illinois public bank should be added to your list. Check out the Bank of North Dakota which is a public bank. Additional information can be found at and also see: Before Next Crash, Create Finance System that Serves the Public, Part 1, 2 and 3 on Public banks are a way to reduce and control the state's debt and to return the banks profits to the general fund of the state rather than to a wall street for profit bank. Additionally, the costs of public projects undertaken by the state are greatly reduced, because public banks do not have to charge interest to themselves. The state would have more funds for pensions and infrastructure work.