Update and clarification: Replace all Illinois public employees with contract workers

Firing state employes could solve Illinois’ pension problems.

As Illinois daily sinks ever deeper into the financial cesspool, 35 states are considering cutting taxes, according to the National Conference of State Legislatures.

Indiana cut its personal income tax 5 percent over two years and, with a variety of others cuts, will save taxpayers about $600 million. Wisconsin is expected to take in $500 million more in the next two years than first estimated, prompting tax-cut talk and possibly giving public schools more money.

Florida temporarily eliminated a sales tax on manufacturing equipment. Iowa cut property taxes and limited assessment increases on residential and agricultural property to no more than 3 percent annually.

Of course, not all 35 states cut taxes. But none that I could find raised personal income taxes 67 percent like Illinois did in 2011. That, of course, has produced more revenue, but most of it goes to pay for public employee pensions. Unexpected increased revenues didn’t do much except to pay off a couple billion dollars of old bills, leaving the state a measly $5.8 billion in arrears.

Bradley Hahn, spokesman for state Comptroller Judy Baar Topinka, says the figure consists of 74,537 actual unpaid bills at the comptroller’s office totaling $3.8 billion and an estimated $2 billion in bills that the office believes are at state agencies but not yet submitted to the comptroller’s office.

Illinois remains the biggest deadbeat and proud owner of the lowest credit rating among the states. It undoubtedly will go lower if Gov. Pat Quinn, Senate President John Cullerton and House Speaker Michael Madigan this week again fail to unite their Democrats in the General Assembly to solve the state’s pension problem.

The pension reform bill sponsored by Madigan that passed the House is, according to analysts, better than Cullerton’s Senate bill. Madigan’s bill limits pensionable salary, reduces the amount of automatic annual pension increases, requires the pension systems to be 100 percent funded by 2045, increases required employee contributions and phases in a higher retirement age.

Cullerton’s plan so represents public employee unions that they warn against anyone in the House “tinkering” with it. As if the unions own the state. Wait, they do.

But even if Madigan’s legislation, which now has Quinn’s support, passes, it won’t really solve the problem, and that’s the biggest disappointment of this entire debate. The Illinois Policy Institute reminded us Monday that the only “true” solution is to institute a “defined contribution” pension system in which employees contribute a set amount that is matched by the state or local governments.

As opposed to the “defined benefit” system in which retirees are guaranteed certain and ever-increasing amounts of benefits. The institute asserts that by transitioning to the defined-contribution plan, unfunded pension debt — now conservatively estimated to be approaching $100 billion — will be cut in half.

Nice, but it’s a little late in the game to be pitching an entirely different plan that’s not included in either the Madigan or Cullerton legislation. But it’s not a bad idea to keep the plan in mind when the current negotiations and the entire pension system collapse, as they ultimately will.

This stubborn and childish deadlock has every sign of continuing until the state descends into an unimaginable crisis. Maybe everyone then will come to their senses and in widespread anger and frustration amend the state constitution to remove the provision that protects public pensions from being “diminished.”

But there’s another scenario suggested by John Tillman, Illinois Policy Institute CEO: Fire all the state employees. Replace them with contract employees. Then we don’t have to worry about shelling out for extravagant and backbreaking public pensions.

CLARIFICATION FROM JOHN TILLMAN: While not recommending this as policy, John Tillman, Illinois Policy Institute CEO, says there’s another scenario that may become inevitable if either the Madigan or Cullerton bills pass: firing all the state employees.  The state will go broke and either have to cut core services, massively raise taxes or move all government workers into the private sector as contract workers with no state guaranteed pension.

 Of course, it would take a new governor (the next election is in 2014) committed unquestionably to cleaning up the mess. One who would say, “Sorry, folks, but we just don’t have the money to continue this insanity. The interest that we now have to pay on the debt we have incurred to prop up the pension funds is eating up money for schools, social services for the needy, highways and infrastructure.”

I can only guess at the legal consequences of such Draconian action, considering the complexities of labor law. The angry demonstrations in Wisconsin over state-imposed restrictions on collective bargaining would pale in comparison to the turmoil that would erupt in Illinois.

But what other choices do we have? If the Democrats who run the state don’t come up with a compromise, we’ll continue on the same path, borrowing ever more money and incurring ever larger interest payments until the state is actually bust. But if Democrats agree on a compromise and Tillman is right that nothing short of a defined contribution system will fix the problem, then we’re still in a jam.

Have we actually reached a point where there is no practical or political solution?

This column also appeared in the Chicago Tribune

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  • Cutting the workforce by one third would be better. Cutting one third of the glorified clerks, paper pushers, and bumbling bureaucrats would not have a negative impact on any services in this age of technology.

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    In reply to Peter Bella:

    There could be areas of state government where your view holds water, but remember, all these radical proposals for pension "reform" will also apply to teachers and higher education employees, where a 1/3 cut will only serve to accelerate the decline of Madiganistan. Education is critical to the state's well-being and destroying it is not the way to save our state.

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    Illinois already has the fewest number of state employees per capita of all 50 states. Illinois is also in the bottom 5 of all 50 states in total state expenditures per capita. Illinois state government spends the lowest amount per student for K-12 education out of all 50 states.

    Yet there is wealth in Illinois. Illinois has the 5th highest gross domestic product of all 50 states. Even allowing for population, Illinois still has the 15th highest gross national product per capita.

    On the other hand, 32 other states have higher individual income tax rates than Illinois' 5% rate - including 4 or our neighboring states.
    Individual state income tax rates:
    Illinois: 5% (after being 2% for 20 years.
    -- 0.36 percent on the first $1,428 of taxable income.
    -- 0.72 percent on taxable income between $1,429 and $2,856.
    -- 2.43 percent on taxable income between $2,857 and $5,712.
    -- 4.50 percent on taxable income between $5,713 and $12,852.
    -- 6.12 percent on taxable income between $12,853 and $21,420.
    -- 6.48 percent on taxable income between $21,421 and $28,560.
    -- 6.80 percent on taxable income between $28,561 and $42,840.
    -- 7.92 percent on taxable income between $42,841 and $64,260.
    -- 8.98 percent on taxable income of $64,261 and above.

    -- 4.6 percent on the first $10,070 of taxable income.
    -- 6.15 percent on taxable income between $10,071 and $20,130.
    -- 6.5 percent on taxable income between $20,131 and $151,000.
    -- 6.75 percent on taxable income between $151,001 and $221,660.
    -- 7.75 percent on taxable income of $221,661 and above.

    -- 1.5 percent on the first $1,000 of taxable income.
    -- 2 percent on taxable income between $1,001 and $2,000.
    -- 2.5 percent on taxable income between $2,001 and $3,000.
    -- 3 percent on taxable income between $3,001 and $4,000.
    -- 3.5 percent on taxable income between $4,001 and $5,000.
    -- 4 percent on taxable income of $5,001 and $6,000.
    -- 4.5 percent on taxable income of $6,001 and $7,000.
    -- 5 percent on taxable income of $7,001 and $8,000.
    -- 5.5 percent on taxable income of $8,001 and $9,000.
    -- 6 percent on taxable income of $9,001 and above.

    -- 2 percent on the first $3,000 of taxable income.
    -- 3 percent on taxable income between $3,001 and $4,000.
    -- 4 percent on taxable income between $4,001 and $5,000.
    -- 5 percent on taxable income between $5,001 and $8,000.
    -- 5.8 percent on taxable income between $8,001 and $75,000.
    -- 6 percent on taxable income of $75,001 and above.

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    Dennis, have you forgotten your own post of a week or so ago about the phony pension problem? As you explained, based on Dr. Lousin's work, the $100B debt is totally bogus. You also endorsed her proposal to tax pension income, which I'm told is also supported by many public employees and retirees. Let's put all this draconian, unconstitutional nonsense from the IPI, the Civic Committee, the Civic Federation, et al to bed once and for all. Those groups, starting with Tillman, Msall, and Fahner, and concerned only with preserving their privileged status at the top of the IL economic heap and not recognizing state and federal law. If you start changing the Constitution because some part is "inconvenient," there is no end to the process. The only amendment we need now is one to permit, if not require, a graduated income tax, which all the groups above will fight with every bit of energy and every available dollar.

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