Capitol Fax.com - Your Illinois News Radar

CTBA yet again blames state tax policy, back-loaded pension debt for structural deficit

Posted in:

Illinois

* Center for Tax and Budget Accountability…

The FY 2022 Proposed General Fund Budget (the “FY 2022 GF Proposal”) makes one fact abundantly clear: spending on services is not driving the state’s fiscal problems. After acknowledging bolder plans for the upcoming fiscal year, Governor Pritzker ultimately proposed spending $27.748 billion on public services, which is roughly the same in nominal dollars as FY 2021. After adjusting for inflation, however, the total amount of spending on services proposed for FY 2022 would be $434 million less in real terms than in FY 2021.

Which means the often repeated contention that Illinois’s fiscal problems are caused by profligate spending on services is simply not supported by the data. Indeed, quite the contrary is true. As Governor Pritzker noted during his budget address: “Illinois state government already spends less money per person than the majority of states in the nation.”

Big picture, Illinois’ ongoing disinvestment in General Fund services is harming communities across the state for one simple reason: over 95 percent of all such spending goes to the four, core areas of Education (including Early Childhood, K-12, and Higher Education), Healthcare, Human Services, and Public Safety.

So what drove Illinois to embark on its long-term course of disinvesting in core, General Fund services? A structural deficit caused by flawed tax policy that generates inadequate revenue growth over-time; and the unaffordable back-loaded schedule for repaying the debt the state owes to its five public pension systems.

The full report is here.

posted by Rich Miller
Friday, Mar 12, 21 @ 9:05 am

Comments

This is exactly why pension theft proposals will live on and on, no matter how unconstitutional or immoral they may be.

Comment by Ducky LaMoore Friday, Mar 12, 21 @ 9:25 am
While they are technically right about the pension underfunding being one of the underlying causes, they also know nothing can be done to cut the debt … it just has to be paid.

It would be nice if they acknowledged it and moved on past that dog whistle.

Comment by RNUG Friday, Mar 12, 21 @ 9:35 am
I think theft and immoral are pretty strong terms. The plans are poorly designed and unsustainable and until that gets fixed without burdening the taxpayers of Illinois with higher and higher taxes the problem will worsen and people will continue to vote with their feet. We are under ten years until we can flee this poorly managed state.

Comment by Out of Illinois Friday, Mar 12, 21 @ 9:37 am
Some would argue it is “immoral” to strip funding year after year from essential state services, to allow public employees to retire at 55 years old and receive millions more in retirement than they paid in while working, due to the magic of compounding annual increases, mandated by a state constitutional clause protected by politicians whose campaigns are funded by the unions representing those same workers and retirees, who then argue the problem actually is that the most taxed people in the country don’t pay enough taxes.

But we all have differing versions of morality, to be sure.

Comment by JB13 Friday, Mar 12, 21 @ 9:47 am
Very good summary, but the whole report is worth a read.
Legislation is already filed to extend funding targets by a decade this year. It seems “kick the can down the road” will be the plan again this year.
While I am generally not excited about the idea of starting most State Commissions, it might be a good idea to have some group look into how these pension funds are run. If we could improve performance results it would go a long way to improving funding levels.

Comment by Back to the Future Friday, Mar 12, 21 @ 9:48 am
=== mandated by a state constitutional clause protected by politicians===

… and a unanimous Illinois Supreme Court opinion, but you already know that.

Comment by Oswego Willy Friday, Mar 12, 21 @ 9:53 am
Also?

===Some would argue…===

The constitution and the unanimous Supreme Court ruling, and constantly whining about it is a real waste of time and energy.

Also, some would argue that.

Comment by Oswego Willy Friday, Mar 12, 21 @ 9:55 am
The structural deficit is caused by a flawed and overly generous pension policy that benefited legislators who were more concerned with feathering their own nest than solving the financial problems of the state

Comment by Lucky Pierre Friday, Mar 12, 21 @ 9:55 am
“receive millions more in retirement than they paid in while working” Citation please.

Comment by Skeptic Friday, Mar 12, 21 @ 9:59 am
== until that gets fixed without burdening the taxpayers==

not possible

Comment by SWIL_Voter Friday, Mar 12, 21 @ 10:14 am
== the most taxed people in the country don’t pay enough taxes.==

Voters had an opportunity to relieve themselves of some of this burden in November but they chose more burden instead

Comment by SWIL_Voter Friday, Mar 12, 21 @ 10:16 am
Nothing is sustainable if you don’t pay for it. That was the problem.

Comment by Norseman Friday, Mar 12, 21 @ 10:17 am
“are under ten years until we can flee”

Is that when the gun is removed from your head?

Comment by Flyin' Elvis'-Utah Chapter Friday, Mar 12, 21 @ 10:23 am
Flyin’ Elvis, that phrase is the “adult” version of the kid who threatened his parents with holding his breath until he turned blue.

Comment by former southerner Friday, Mar 12, 21 @ 10:30 am
=I think theft and immoral are pretty strong terms. The plans are poorly designed and unsustainable and until that gets fixed without burdening the taxpayers of Illinois with higher and higher taxes the problem will worsen and people will continue to vote with their feet. We are under ten years until we can flee this poorly managed state.=

=to strip funding year after year from essential state services, to allow public employees to retire at 55 years old and receive millions more in retirement than they paid in while working, due to the magic of compounding annual increases=

Both of the above comments follow similar logical fallacies.

The pensions are not “unsustainable” and that is backed up by empirical evidence. In 1970 the pensions were funded at about 41% of liabilities. 50 years later they remain at about the same level of funding.

The annual cost of the pensions (not the legacy debt payments) have actually declined significantly over the last decade thanks to Tier 2.

Pensions have not “stripped” funding from essential services. That kind of personification is a fallacy. The decision not to adequately fund essential services lies entirely with the ILGA and governors. The reality is, if anything “stripped” funding from anything else it is that services and other projects “stripped” funding from the pension payments over the last 100 plus years. Taxpayers never challenged those actions.

With regard to the statement regarding getting more than they paid in, this is the exact premise of literally all investments. You contribute money and then hope to receive more than you put in based on investment returns. That is how 401k’s work, 403b’s work, IRA’s, everything. The pensions systems rely on investment revenue to “sustain” the system when employees contribute a fixed percentage over 35 or more years.

I am not a financial analyst, but that is how investing works.

The CTBA is spot on. As our economy has changed over time our system of taxation has not adjusted and, instead, puts greater burden on a narrow tax base versus broadening the revenue sources and reducing things like property tax. The CTBA and Ralph Martire have been signing the same song for almost 20 years now. If we would have followed their advice even 15 years ago, much of our problems would be in the rear view mirror now.

Comment by JS Mill Friday, Mar 12, 21 @ 10:36 am
“receive millions more in retirement than they paid in while working” Citation please.

Tier 2 pensions usually will pay less then the employee paid in. It is among the reasons they are having teacher shortages, police recruiting shortages, and many other public employees. Those that are hired without understanding Tier 2 often re-think their long term employment plans when they realize what Tier 2 does to them.

Comment by DuPage Friday, Mar 12, 21 @ 10:44 am
The report provides a constructive solution to the state created problem caused by borrowing from the pension fund to cover the cost of services in Illinois which is caused by the structural deficit created by our taxing policies. Their idea is worth exploring. “One sound alternative to the Pension Ramp is implementing a “level-dollar” re-amortization of the pension debt that eliminates back-loading. Under a level dollar repayment plan, the state would make greater annual payments in early years than what’s required under the current Pension Ramp, but those new annual payments would remain level in nominal dollars over time. Over the long-term, this means in real, inflation-adjusted terms, the cost to the state—and taxpayers—of repaying the pension debt under a level dollar re-amortization ends up being substantially less than under the Pension Ramp.
For instance, CTBA identified a level-dollar re-amortization scenario that would cost $49.97 billion less in taxpayer dollars than the Pension Ramp through FY 2045, while still increasing the funded ratio of the five state pension systems from their then current level of around 39 percent,147 to 72 percent in 2045.”

Comment by illinifan Friday, Mar 12, 21 @ 10:46 am
== I think theft and immoral are pretty strong terms. ==

How about a more colloquial use of terms like “cheat” or “screw.” A state employee who may have never joined a union, never engaged in any sort of political decision making, can work for decades as a prison guard, social worker, truck driver, secretary, file clerk, etc., possibly explicitly because they were promised a stable pension at the end of the line. Then at the end, because of decisions beyond their control, people want to refuse to pay them.

It may not meet the statutory definition of wage theft, but it definitely feels like it.

Comment by Homebody Friday, Mar 12, 21 @ 10:47 am
receive millions more in retirement than they paid in while working” Citation please.

Because of the “power of compounding interest”, neglecting to mention that that power also applies to the money placed in the funds by the worker.

Comment by Morty Friday, Mar 12, 21 @ 10:48 am
“JS Mill , whose comment I missed somehow, stated this better than I did.

Comment by Morty Friday, Mar 12, 21 @ 10:52 am
JS MILL… The difference here is that a 401k is an actual account with someone’s name on it; not just a promise from the state. If state employees had 401k plans instead of pensions, they would be fully funded to whatever level they choose. Consequently, taxpayers would not be facing this time bomb and public services would be much better funded.

Comment by Bluegrass Friday, Mar 12, 21 @ 11:02 am
====If state employees had 401k plans instead of pensions===

And if the sky was green, grass might be blue.

Get back to reality, bub.

Comment by Rich Miller Friday, Mar 12, 21 @ 11:07 am
=== they would be fully funded to whatever level they choose===

The employees are fully funding their part.

You know that… or you’re ignoring that?

===taxpayers===

We’re all taxpayers, even state employees. Do keep up.

Comment by Oswego Willy Friday, Mar 12, 21 @ 11:09 am
Thank God we don’t have this kind of drama in DuPage.

Comment by Frumpy White Guy Friday, Mar 12, 21 @ 11:15 am
Reading things like this reminds me of “The Critic” from History of the World, Part I. (Won’t post the link here - NSFW - but it is on YouTube.) In addition to “Show your work” think we should require “Be constructive” … .

Comment by Anyone Remember Friday, Mar 12, 21 @ 11:18 am
I will get much more than I ever paid into Social Security, my 401k plan or my IRA. The same goes for public employees..
It is easy to place the burden to fund the systems on “taxpayers” and blame “politicians”, but the case of underfunded plans also has been caused by benefit changes that have ignored the math that goes into the actuarial targets.
The “cure” to the problem is taxpayers putting in more money, employees putting in more money and investment results improving.
Sounds simple, but extending the ramp is easier so that is the “short term” solution I suspect is coming this year.
Pritzker is going to ta a good game, but that will be about it- - just talk.

Comment by Back to the Future Friday, Mar 12, 21 @ 11:19 am
==Voters had an opportunity to relieve themselves of some of this burden in November==

Apparently that one-tenth of a percentage point wasn’t compelling enough.

==The reality is, if anything “stripped” funding from anything else it is that services and other projects “stripped” funding from the pension payments actions.==

As did employee raises, increased health care benefits, pension enhancements…

Comment by City Zen Friday, Mar 12, 21 @ 11:25 am
Can anyone explain the rationale of having almost 7000 units of government in Illinois, 35% more than any other state? Until there is a serious attempt to deal with this structural problem all other attempts to address our fiscal issues will fail.

Comment by striketoo Friday, Mar 12, 21 @ 11:44 am
JSMill said it best. Public services wouldn’t need to be reduced if pension funds weren’t stripped of their funding in order to fund public services in the past. Hence, the debt owed to the funds since they funded public services. No one cared when they were the recipients. The idea that public services being reduced because of pensions has it a** backwards.

No, benefits are not overly generous. Perhaps some at high levels receive what is perceived to be generous, but then again, is it radically different in the private sector? Given that the benefit is the sole payment that sustains retirement, at least for teachers (no social security , even if you paid into it from other supporting jobs) makes me wonder if many would prefer that retirees live on borderline income that might make the state pay for supported housing, subsidies for food.

Comment by A Friday, Mar 12, 21 @ 11:45 am
“Citation please.” For the record, I wasn’t quibbling that pensioners get back more than they put in, because as has been well noted, that’s how investments are supposed to work. I was more calling into question the “millions” part of it.

Comment by Skeptic Friday, Mar 12, 21 @ 11:47 am
As for getting more than you ever paid in……..true of all social security recipients, etc Unless you die early or before you start collecting, like my dad, 5 months shy of retirement—38 years of contributions that are in the pot for someone else. That’s life.

Comment by A Friday, Mar 12, 21 @ 11:49 am
Skeptic
Some employees in the systems such as physicians, School Administration employees, CPAs and engineers earn salaries that tend to be in the hundreds of thousands fairly consistent with employees in the private sector.
Since pensions are based on the salary you receive when you retire some of these employees (based upon how long they live) could get “millions” in retirement income.

Comment by Back to the Future Friday, Mar 12, 21 @ 12:08 pm
A said it well. The generation that underfunded the pensions is now the generation collecting the more generous Tier 1 benefits. Younger and newer residents and state workers don’t appreciate paying a giant credit card bill on their behalf while they claim those fatter checks and pay lower property tax bills as seniors. Unions and politicians who negotiated CBAs with pay increases in lean years while forgoing pension contributions bear the most blame, but those of us in a sandwich generation of trying to pay for current services and pay down their debt need help from the generation that created this mess. Taxing retirement income is the fairest way to address this burden shift.

Comment by Wonk Friday, Mar 12, 21 @ 12:21 pm
=As did employee raises, increased health care benefits, pension enhancements…=

So you think people would work without raises? And in what industry do people not get raises? How does the private sector handle increased costs? Spoiler alert- they raise prices.

These costs increased like any other sector but nobody wanted to pay the price. Taxes.

Comment by JS Mill Friday, Mar 12, 21 @ 1:51 pm
=The difference here is that a 401k is an actual account with someone’s name on it; not just a promise from the state. If state employees had 401k plans instead of pensions, they would be fully funded to whatever level they choose. Consequently, taxpayers would not be facing this time bomb and public services would be much better funded.=

My pension is an actual account with my name on it, I check it all the time.

Who is to say that the state would keep its word on a contribution match? The minute something goes south there would be those who would clamor to cut the contribution. The 401k is more unreliable. Then there is the SSI contribution. No money saved for “services”.

And, after all of that..the legacy debt remains at the tune of $6.5 billion or more per year.

Comment by JS Mill Friday, Mar 12, 21 @ 2:32 pm
== Can anyone explain the rationale of having almost 7000 units of government in Illinois, 35% more than any other state? ==

The original reason was a restrictive state constitution, long since replaced, that made it necessary to birth new units of local government.
Now each governmental unit has inertia on its side, as well as local elected officials, employees and their friends. The Elk Grove Township Highway Dept, for example, is in charge of four (4) miles of roads. By contrast, Elk Grove Village takes care of 182 miles of streets. Nonetheless, serving four miles takes a whole township department with its own tax levy and an elected highway commissioner.

Comment by anon2 Friday, Mar 12, 21 @ 2:48 pm
@- Wonk - Friday, Mar 12, 21 @ 12:21 pm:

===Taxing retirement income is the fairest way to address this burden shift.===

Progressive income tax would be the fairest. Otherwise a increase in the income tax rate with a larger exemption would be next fairest. Most retirees stay in Illinois and spend their money in Illinois adding to the Illinois economy. If they start taxing retirement income, it would be an incentive to move out of state.

Comment by DuPage Friday, Mar 12, 21 @ 3:14 pm
Regardless of the merits of taxing retirement income, it is politically impossible to do. Consequently, we ought to concentrate on helpful policies that have some chance of passage.

Comment by anon2 Friday, Mar 12, 21 @ 3:41 pm
To be clear, when talking about taxing retirement income, those advocating this DO mean all retirement income, right?

Comment by A Friday, Mar 12, 21 @ 4:06 pm
Shot…

=== Regardless of the merits of taxing retirement income, it is politically impossible to do.

… Chaser.

===Consequently, we ought to concentrate on helpful policies that have some chance of passage.===

Any… any discussion of the Frerichs Tax, taxing retirement income, is a fool’s errand, impossible, and even parsing to what “it even means”… it’s not happening anytime soon.

Doesn’t mean that Mike Frerichs isn’t in favor of talking about… that’s still on the table, maybe in ads in 2022 as well.

Comment by Oswego Willy Friday, Mar 12, 21 @ 4:10 pm