Veto sessions of the Illinois General Assembly often come and go before most citizens realize that lawmakers are again on the loose in Springfield. Not this year. Casino gambling expansion, a 10 percent state jobless rate, the scandal-drenched tuition waiver program that lets legislators reward their friends’ children, literally at the expense of other college students — plenty of issues hang over the Statehouse like grim November clouds. On two priorities — reforming public pensions and making this state less hostile to employers — legislators can solve problems they helped create or they can once again govern for failure.
Their refusal to move aggressively on Illinois’ doomed pensions and its lousy business climate during the three years since Rod Blagojevich’s governorship imploded doesn’t give us optimism. Nor do the facts that (1) timid lawmakers are running for re-election in newly drawn districts, (2) an unpopular vote now risks a challenge in the March 20 primary election, and (3) on pension reform in particular, public employee unions are demanding, inexplicably, that the current unsustainable scheme continue:
What’s a few more billions?
Every day, the future burden of Illinois’ public pension plans increases. Just as, every year, the amount Illinois must pay to feed the pension beast also increases. In round numbers, the hugely unpopular “temporary” income tax increase that Democrats passed in January, and that Gov. Pat Quinn signed, covers state pension obligations and not much more. That’s why deadbeat Illinois isn’t rapidly retiring its backlog of unpaid bills.
The state pegs its unfunded pension obligation at some $86 billion, although the real number is probably much higher. Pension officials expect to earn higher investment returns than they’ve been earning in recent years. If they’re right, bully for them. If they’re wrong, they’ll go to their graves regretting how they misled hundreds of thousands of retirees.
Last year, lawmakers passed legislation trimming pension benefits, but only for employees hired after Jan. 1, 2011. The reform package now under consideration instead would affect current employees going forward. An editorial in Sunday’s Washington Post, “Public pension pain,” acknowledged efforts to salvage pension systems in California, Illinois and New York and concluded:
No one said that it would be easy to take on public-sector unions; nor are pensions the sole cause of state and local financial distress. The Democratic governors who have acted, even tentatively, deserve credit. But the problem is so big that they will eventually have to do more. Sooner or later, state and local governments must further rein in benefits for current employees — so that the cost of providing for public servants tomorrow does not make it impossible to provide actual public services today.
That passage invokes two Illinois realities that mystify us:
* When will public employees demand, rather than let their leaders oppose, pension reforms? Don’t rank-and-file members realize that, as is, their pensions are at risk? And when the leaders hide behind their mantra — true, but incomplete — that lawmakers didn’t pay enough into the systems, when will union members ask: “And why did you let them get away with that? Was it because legislators were spending our pension money on your other priorities? Or was it because lawmakers were creating special pension sweeteners just for union leaders?”
* When will taxpayers who support other priorities — public schools, safer highways, care for the disabled — stop pretending that Illinois has infinite resources? When will those citizens demand reforms to stop pensions from draining the state treasury?
We expect lawmakers this week to clamp down on some of those sweeteners for union officials — egregious deals exposed in recent weeks by Tribune reporters. But don’t let anyone tell you that a remedy in this area will save a pension system so grievously in debt. It won’t. Only a cut to the benefits public employees earn in future years will begin to fix a debacle Made in Springfield.
Or lawmakers could again hide from the bigger problem here and let taxpayers’ unfunded obligations keep growing until the spring legislative session. What’s a few more billions?
Taxes and jobs
Illinois businesses are converging on Springfield to climb aboard the tax-relief bandwagon, and political leaders in this badly strapped state have no one to blame but themselves: Lawmakers who jacked up corporate income-tax rates on a supposedly temporary basis now face a backlash from employers. Small companies feel that big ones get all the breaks. Big ones that haven’t gotten the breaks want, you guessed it, some breaks.
Having successfully provoked business owners big and small, legislative leaders of both parties are talking about making amends. The vehicle is a hurry-up package of tax changes originally conceived as an orderly review of the business tax code. Now it’s being marketed as a jobs bill. In reality, it could turn into a bipartisan budget-buster of tax giveaways.
Some of these proposals may be good ideas, but remember, Illinois is broke. If in final form the package of tax changes is revenue-neutral, or if lawmakers offset its costs with spending cuts elsewhere, that’s one thing. If in final form it’s a Christmas tree with tax breaks as ornaments and no offsetting savings to cover them, that’s another.
The negotiations began months ago in fairly mundane fashion. CME Group, which operates Chicago’s leading financial exchanges, pleaded for a lower tax rate, saying its current state tax burden had become unfair because of technological changes in the derivatives markets.
Wealthy traders seeking an advantage in the corridors of power typically elicit zero sympathy. Still, CME raised a valid point. At top exchanges around the world, the open-outcry trading floors with their shouting and arm-waving have mostly gone the way of the dinosaur. The vast majority of trades occur via computer screen. As a result, it doesn’t make sense to tax CME and its smaller kin, CBOE Holdings, as if all their trades still took place in the physical trading pits of downtown Chicago. Most trades originate out of state or even out of the country, so some adjustment to the tax scheme for the city’s exchanges makes sense.
Look out below.
Once word trickled out that CME and CBOE might be receiving a significant tax cut, the wish list grew. Gov. Quinn, channeling his inner populist, proposed increasing the earned-income tax credit for low- and middle-income families. He also reportedly wants to index personal income-tax exemptions so they rise with inflation.
The GOP, meantime, wants a cut in the estate tax and favorable tax treatment of operating losses. Illinois supposedly would pay for the cuts by introducing a longer schedule for depreciation of asset purchases. That proposal may or may not make up for the lost revenue from the tax cuts being talked about, however.
Sears, which wants financial inducements to keep its headquarters in Illinois, also might profit from this package.
We’ve all seen this before: legislative leaders rushing a complicated package that deserves more careful consideration than it’s likely to get in a veto session. Which leaves us wondering:
However good this tax package, will Illinois be able to afford it? Or will it just lead to more unpaid bills and more taxpayer debt?
