A writer must “know and have an ever-present consciousness that this world is a world of fools and rogues… tormented with envy, consumed with vanity; selfish, false, cruel, cursed with illusions… He should free himself of all doctrines, theories, etiquettes, politics…” —Ambrose Bierce (1842-1914?). “The nobility of the writer's occupation lies in resisting oppression, thus in accepting isolation” —Albert Camus (1913-1960). “What are you gonna do” —Bertha Brown (1895-1987).
Isn’t it about time the state addresses the flawed
“…Starting in 1995, yet another funding plan was implemented
by the General Assembly. This one called for the legislature to contribute
sufficient funds each year to ensure that its contributions, along with the
contributions by or on behalf of members and other income, would meet the cost
of maintaining and administering the respective retirement systems on a 90%
funded basis in accordance with actuarial recommendations by the end of the
2045 fiscal year. 40 ILCS 5/2-124, 14-131, 15-155, 16-158, 18-131 (West 2012).
That plan, however, contained inherent shortcomings which were aggravated by a
phased-in 'ramp period' and decisions by the legislature to lower its
contributions in 2006 and 2007. As a result, the plan failed to control the
State’s growing pension burden. To the contrary, the SEC recently pointed out:
“‘The Statutory Funding Plan’s contribution schedule
increased the unfunded liability, underfunded the State’s pension obligations,
and deferred pension funding. The resulting underfunding of the pension systems
(Structural Underfunding) enabled the State to shift the burden associated with
its pension costs to the future and, as a result, created significant financial
stress and risks for the State.’ SEC order, at 3. That the funding plan would
operate in this way did not catch the State off guard. In entering a
cease-and-desist order against the State in connection with misrepresentations
made by the State with respect to bonds sold to help cover pension expenses,
the SEC noted that the State understood the adverse implications of its strategy
for the State-funded pension systems and for the financial health of the State.
Id. at 10. According to the SEC, the amount of the increase in the State’s
unfunded liability over the period between 1996 and 2010 was $57 billion. Id.
at 4.5 The SEC order found that ‘[t]he State’s insufficient contributions under
the Statutory Funding Plan were the primary driver of this increase,
outweighing other causal factors, such as market performance and changes in
benefits.’” (Emphasis added.) Id. at 4 (In re PENSION REFORM LITIGATION (Doris
Heaton et al., Appellees, v. Pat Quinn, Governor, State of Illinois, et al.,
Appellants) Opinion filed May 8, 2015, JUSTICE KARMEIER delivered the judgment
of the court, with opinion. Chief Justice Garman and Justices Freeman, Thomas,
Kilbride, Burke, and Theis concurred in the judgment and opinion).
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. There needs to be a
required annual payment from the state to the pension systems. The debt 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 difficult 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
How about the staterequiring an “actuarially-sound” annual
payment to the pension systems?
“Decades of mismanagement and failure to match contributions
are the predominant reasons that the state’s pension systems are suffering to
the degree that they are today. Years of pension holidays, continually
borrowing against the systems without a plan for repayment and a severe
economic recession, which caused investments to plummet, further exacerbated
the problem” (Senate President John Cullerton).
acknowledging the State of Illinois has a chronic revenue problem, and its
policymakers have stolen money for decades from public employees' pension plans
to hide these facts?
·“At the core
of the budget ‘crisis’ facing [Illinois] is [its] regressive state tax
structure. Low-and-middle-income families pay a
greater share of their income in taxes than the wealthy… [A regressive tax]
disproportionately impacts low-income people because, unlike the wealthy,
[low-income people] are forced to spend a majority of their income purchasing
basic needs that are subject to sales taxes” (United for a Fair Economy). Illinois
income tax uses a single-rate structure that results in low-income wage earners
paying more taxes than the wealthy. Illinois is among 10 states in the nation
with the highest taxes paid by its poorest citizens at 13 percent (The Institute
on Taxation and Economic Policy).
·Besides federal sources of income, the
state uses only 11 sources of revenue: personal income tax (but note
Illinois was tied for the fourth lowest individual tax rate on households in
the top income bracket), corporate income tax (note extortionate tax breaks
given to many Illinois corporations!), sales tax (Illinois does not tax
services like most other states for another significant source of revenue),
corporate franchise tax and fees, public utility taxes, vehicle use tax,
inheritance tax, insurance taxes and fees, cigarette taxes, liquor taxes and other
miscellaneous (or rather unsubstantial) tax sources (Commission on Government
Forecasting and Accountability).
·“A majority of states apply their sales
tax to less than one-third of 168 potentially-taxable services… [States that do
not tax services, such as Illinois], could increase [its] sales tax revenue by
more than one-third if [it] taxed services purchased by households
comprehensively.” Illinois is one of five states with sales taxes on fewer than
20 services (The Center on Budget and Policy Priorities).
·The state needs a tax rate that is
“efficient with minimal impact on the economic decisions that taxpayers have to
make” (Center for Tax and Budget Accountability), one that captures increased
revenues in times of economic growth, one that maintains revenue collections
during poor economic times, one that is simple and not liable to inconspicuous
error, one that is transparent and builds trust with the state’s government
officials (Center for Tax and Budget Accountability), and one that helps 99 percent
of the state’s population.
broader-based taxation system is needed that would provide a decrease in taxes
for low-income and many middle-income families. Taxing services alone “would
generate enough revenue to stabilize the General Revenue Fund and prevent
structural deficits that lead to cuts in basic needs and social service
programs” (Center for Tax and Budget Accountability).
·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. “Since the rich
are able to save a much larger share of their incomes than middle-income
families – and since the poor [can] rarely save at all – the taxes are
inherently regressive” (The Institute on Taxation and Economic Policy)...
Read my blog, Eric. It contains better solutions than scapegoating public employees and retirees...