A student practices plasma cutting during a class at the Penn Commercial Business/Technical School ... [+]
Once more, from the top: here is why public pension reform matters.
In December, I cited a report by the Chicago Tribune that, due to lack of funding, 20,000 adults in Illinois with cognitive disabilities were on a waitlist for group homes or day programs, waiting seven years or longer, due to lack of funding.
Earlier this month, the Trib reported that, due to the end of work-requirement waivers for SNAP/food stamps, social services agencies were scrambling to place recipients in job training or volunteer programs.
Here’s a key excerpt:
“Basic processes to help with the administrative burden have yet to be put in place, state caseworkers say. For example, there is no efficient way to report volunteer or training hours completed outside of state-sanctioned programs, so people will have to do so monthly in person at benefits offices, where waits can stretch longer than two hours, said John Mitchell, an officer with AFSCME Local 2858, which represents caseworkers in northeast Cook County.
“Understaffed benefits offices also haven’t prioritized connecting people with employment services as they’ve dealt with a backlog for processing SNAP applications that was so bad that the federal government threatened to suspend funding, Mitchell said.”
Last week, the Tribune reported that the University of Illinois system was raising its tuition after having frozen it for the past six years. The increases are modest, all things considered, but here is the key paragraph:
“Residents long have complained that U. of I., the state’s flagship, is too expensive and does not offer enough financial aid. University data shows all three University of Illinois schools remain among the priciest in their peer groups, even though other schools raised their prices during Illinois’ tuition freeze.”
And this week, Chicago Mayor Lori Lightfoot announced plans for an anti-poverty summit “to marshal resources from the city, business community and philanthropic groups to rescue Chicagoans ‘trapped in the throes of generational poverty,’” as reported at the Chicago Sun-Times. How’s she funding this?
“The $250 million earmarked for Lightfoot’s ‘Invest South/West’ program is ‘re-prioritized money already in the pipeline’ from tax increment financing; the moribund $100 million Catalyst Fund; the Small Business Improvement Fund; and the share-the-wealth Neighborhood Opportunity Fund generated by developers paying a fee for permission to build bigger and taller buildings downtown.”
But at the same time, the city of Chicago issued its new “refinancing” bonds, in which the city found $210 in cash up front due to lower rates — and, it turns out, those rates were not favorable solely because of a lower interest rate environment, in general, but because the city legally committed the right to future sales tax revenue it has coming from the state, so that investors will receive their money even if the city goes bankrupt and has to default on other loans and cut city services. And it was only possible to do so because of a last-minute back-room provision inserted into the 2017 budget in the literal last hours of the legislative session. (See this Wirepoints report for details.)
The list goes on: insufficient spending on childcare subsidies for low/moderate-income parents . . . insufficient state spending on education, placing the burden on local property tax payers . . .
These are all areas where there is widespread agreement that the State of Illinois falls short.
At the same time, of course, however eager the Democrats currently in power in Illinois (that is, controlling the governorship and State House and State Senate, with supermajority control over the General Assembly, as Illinois labels it) are to raise taxes through a graduated income tax, skeptical voices caution that it simply isn’t possible to raise taxes however much you’d like to boost spending however much you’d like — even if you claim those increases will be limited to “the rich” (which is always defined as “everybody with more money than your audience at any given point in time). Not only will it raise the ire of those taxpayers, but increasingly many of them will find somewhere else to live.
And, yes, one would like to imagine that there’s an easy solution to these woes, whether it’s the perennial pledge to cut wasteful spending or the dream to find new sources of free money (in Illinois’ case, pot and gambling). But Illinois politicians have believed in the promise of free lunches for far too long.
And this is why public pension reform matters: 25.5% of Illinois’ spending is going to its state pension funds. Once the city has made it up to the top of its funding ramp, it will be spending 18% of its revenue on pension contributions, assuming its revenue projections are not overly optimistic. (See here for the contribution schedule — $2.2 billion in 2022 — and here for the revenue projection which I’ve increased by two years’ worth of inflation.) And these percentages could go higher if the state and city are forced to unwind the “Tier 2” pension cuts as a result of court cases or political pressure.
It should be obvious: pension reform is not about trying to fleece public employees and retirees.
Instead, it’s quite simple: had the state not promised more in pension benefit accruals each year than they funded through contributions at the time, that money would be available to spend on all these needs. And if Gov. Pritzker, the General Assembly, Major Lightfoot, and public union leaders were to forge a consensus for an amendment which would permit pension reforms, some portion of that 25.5% and the 18% would be freed up to spend on these needs.
As always, you’re invited to share your thoughts at JaneTheActuary.com!
