The ongoing histrionics by union members first in New Jersey and now in Wisconsin is prompting this post. Here in Illinois, we have unfunded pension obligations of $83 billion. That’s right, $83 billion. As an employee in the private sector, and as an Illinoisian who has seen her state income tax rate jump 67% so the State can try to pay its debts, a substantial portion of which is unfunded pension obligations, my first question is, why do I and my tax dollars have to not only fund, but guarantee state and local union members’ pensions and benefits for the rest of their natural lives, while their contributions to the system are minimal by our private sector standards. And question two, where is the much-needed structural reform, which continues to confound businesses, large and small, and drive them out of state?
I have been listening to and watching Governors Scott Walker (R-WI) and Chris Christie (R-NJ) take the economic crises their states are facing and the entrenched public sector unions and meet them head on. Governor Walker’s proposed budget would require state and local employees contribute to half of the cost of their pension contributions — roughly 6 percent of their salary. He also would require them to pay 12 percent of their health-care premiums. And Governor Christie’s budget crackdown? First, by suspending future cost-of-living adjustments. Then, rescinding a nine percent increase granted back in 2001. And further, by increasing retirement ages and even changing the formula for which a lot of those benefits are set. The Governor’s also calling for state workers to kick in more for their pension and health care benefits.
Here in Illinois we have five state-funded pension systems, 631 police and fire pension systems, and the locally funded Illinois Municipal Retirement Fund (IMRF). These systems are funded by a combination of employee contributions, employer contributions, and investment income. The contributions that union members pay to these funds for retirement benefits are well below what their private sector counterparts pay toward their retirement and health benefits. According to a recent investigative report by the Kane Country Chronicle, “for every dollar paid into the IMRF retirement benefits from 1978 through 2009, 59 cents came from investments, 27 cents came from employers (i.e., taxpayers), and 14 cents came from members”. For State employees, the largesse is even better. Only retirees who are in top tier making $74,901 contribute to health insurance premiums. Of the 84,000 people in the retirement system, only 6900 pay any premium at all. “Contributions from those retirees brought in $11.9 million for fiscal year 2010 – well short of the $473 million in costs that State encountered.” And please keep in mind folks, pensions are not state-taxed in Illinois. In order to continue to fund these pensions, government either has to cut the spending dramatically, or increase taxes. Here in Illinois, Governor Pat Quinn has opted to continue to spend and borrow.
We have a state budget deficit of $13 billion, and yet the Governor’s proposed budget of $52.7 billion includes adding about 950 state jobs to the payroll (more union) and $1.7 billion in new spending. He also proposes to borrow an additional $8.75 billion bond sale needed to make the budget work, and is hinting at a progressive state income tax through the appointment of a Commission to look at the tax code. Just keep raising the taxes, so more people and businesses leave the State.
Illinois Senate President, John J. Cullerton, features on his website the recent editorial from the Illinois State Journal-Register call for Republican support for the additional borrowing of $8.75 billion mentioned earlier, “As we see it, this is not so much an acquisition of “new” debt as a transfer of existing debt.” We should leave the “debt holding to the professionals”, meaning the bond holders. Does the Journal-Register understand that the lower the bond rating, the more expensive to finance them, as in higher interest charges? Last June, Fitch downgraded Illinois’s municipal bond rating to A-, its fourth-lowest possible rating and the second-lowest in the country. With the recent tax increase, we’re back to “stable”. Moody’s however, assigned Illinois an A1 bond rating, the lowest rating for states. Compare both these ratings with Indiana’s AAA rating, the highest possible.
Illinois has long been the home of powerful union interests. The sweetheart deals that were negotiated by past governors and municipalities to keep the unions happy such as guaranteed COLAs, are coming back to haunt them and us, as taxpayers, as we have to make up the difference when investments fail to perform to set criteria. Last year, my property taxes funding various local taxing bodies decreased slightly in all but one area, my school district’s teacher’s pension fund. That tax rate increased 3.3%. As municipalities and states have to continue to fund union pensions, and my muni is only funding at 62% for police and 80% for firefighters, it’s obvious that either city services decrease as monies are shifted to pay for on and off payroll union pension benefits, or taxes rise. And in many instances, both, are happening.
I’m not opining that public workers should not receive a pension or benefits. But I am opining that these pensions and benefits should be re-examined in how they are calculated, and union members should be expected to contribute to fund them along with other benefits. Their pensions and benefits are coming at the expense of, and on the backs of, us taxpayers in the private sector.
I haven’t had a raise in two years, and like many others in the private sector, I watched my 401(k) implode, and only recently is it starting to show signs of life. No one’s guaranteeing us an income for life. While I and millions like me are trying to stay employed, or others have lost their jobs and are looking for work, my neighbor, a early-retiree from the data processing dept. of a local high school district, in 2008, bought himself a new, all the bells and whistles, luxury bus-size motor home. I think those run over $100k. Do I begrudge him his motor home, no. Good for him. But I can’t help but think your pension, my taxes.
Something’s got to give. And for me, that means all gold-plated entitlements are on the table, including police and fire. This past November, people in my muni voted 77% in favor of an advisory referendum asking if they would support meaningful public safety pension reform. I can only watch and hope that Governors Walker and Christie will be joined by others – Kasich, Jindal, Brewer – in showing some tough leadership to restore some sanity to state finances, and wrest control away from those who exemplify greed at its worst.
This is NOT an issue of class warfare, union busting, or unions vs. big business. It’s an issue of fairness in fiscal crisis. We all have to feel the pain. Otherwise, we’ll all go broke together, and then we’ll truly have Equality in Poverty.
 “The Anatomy of a Pension”, Ashley Rhodebeck, Kane County Chronicle, Thursday, February 10, 2011
 Julie Hamos, Director, Illinois Dept. of Healthcare and Family Services; quoted in article “State could ask Retirees to Pay More for Health Care”, Andrew Thomason, Illinois Statehouse News, Thursday, February 20, 2011
 Illinois State-Journal Register, “Republicans should help OK borrowing plan”, Editorial, February 9, 2011