Nothdurft: Growing consequences from Legislature’s inaction
By John Nothdurft Guest Commentary January 15, 2013 10:58PM
The 2013 Illinois Senate begins with a color guard parade down the center isle during swearing ceremonies on the Senate floor at the Illinois State Capitol Wednesday, Jan. 9, 2013, in Springfield Ill. (AP Photo/Seth Perlman)
Updated: February 17, 2013 6:05AM
A week before Christmas, Moody’s Investors Service surprised no one by giving Illinois an early lump of coal by downgrading Illinois’ credit outlook from stable to negative. Another leading credit rating firm, Fitch Ratings, did likewise last week.
That’s a painful and inevitable result from the outgoing Legislature accomplishing little of substance last year and early this month, most notably failing to resolve the growing crisis in pension funding.
After the news broke that Moody’s had downgraded the state’s credit status, Gov. Pat Quinn rightly criticized the Legislature’s inaction on pensions. But he also took it as a chance to scold about the serious “revenue shortfall” in Illinois.
That is a statement from a man who signed a bill to increase the income tax on business and individuals by billions of dollars during the lame-duck session two years ago, has proposed no genuine long-term fix to arguably the worst public pension system in the country and continues to increase spending despite recurring budget deficits.
Of course, it wouldn’t be fair to place all the blame on Quinn because there’s plenty of it to pass around. Instead of curbing the state’s insatiable addiction to spending and approving fundamental pension reform, our legislative “leaders” are proposing new tax hikes to further burden consumers and businesses from actually partaking in commerce.
Their ideas have included new or higher taxes on satellite TV, natural gas energy production and car purchases and rentals. Shopping on iTunes or eBay? Tax it.
After the sheer incompetence shown in Springfield, does anyone still believe that lawmakers will ever let the “temporary taxes” on personal and corporate income expire as they said they would?
Even if you generally agree with higher taxes, the state cannot continue down the current path. Just as higher taxes on incomes and job-producing businesses didn’t fix the state’s huge budget deficit, no amount of targeted tax increases will fix the state’s pension systems and recurring budget problems.
The state took in $20.5 billion in tax revenue in fiscal year 2010, and in fiscal 2012, it took in $32.2 billion, an increase of 57 percent, according to numbers from the Illinois Commission on Government Forecasting & Accountability, which does fiscal and economic research for the Legislature.
Despite this dramatic increase in tax revenue, total state spending also increased 5 percent, resulting in a $5.3 billion budget deficit. In addition, the state has $9 billion in unpaid bills to vendors and an unfunded long-term pension liability that’s estimated at about $96 billion.
You don’t have to be clairvoyant to realize that government services will be crowded out by the rising payments for interest and pensions unless substantial changes are made.
If you care about having enough government resources for schools or police or the mentally ill, then it is incumbent upon the Legislature to overhaul the state’s expenditures, starting with pensions.
There has been a lot of talk and various proposals, but pension reform didn’t get done in the fall veto session nor during the lame-duck session that ended last week.
Short term, the state should make some combination of obvious changes to its pension systems, such as the minimum retirement age, vesting periods, cost-of-living adjustments and employee contributions.
Long term, there are only two changes that need to be made. First, the state must guarantee and cap the amount of money that it contributes into its five pension funds each year rather than guaranteeing an open-ended amount of benefits.
Second, the state also must be prohibited from being able to “borrow” from the pension funds by not making its required payment. The simplest way would be to put the retirement money into the worker’s own retirement account, but there are other ways to do this as well.
Every time the Legislature kicks the pension-reform can down the road, the more at risk taxpayers, public services and public employees become. Now, a new Legislature will try to achieve reform.
Illinois cannot afford for its political leaders to be devoid of leadership on this critical issue. The problem will not go away, only grow worse.
John Nothdurft is director of government relations at The Heartland Institute, a Chicago-based nonprofit research organization dedicated to finding free-market solutions to social and economic problems. email@example.com.