Members of an April 11 panel discussion sponsored by the UI Institute of Government and Public Affairs went out of their way to not blame anyone for the state’s massively underfunded state pension systems.
Three days later, Ralph Martire, in a pension presentation before the Campus Faculty Association, took state politicians to task, unabashedly blaming them for decades of poor stewardship, a preternatural practice of putting politics before the people they serve, and a striking inability to understand basic principles of math.
Martire, the director of the Center for Budget and Tax Accountability, delivered his harsh assessment amid moments of gallows humor at the University YMCA on April 14.
“You know how they filled that hole?” Martire asked a roomful of attendees after showing a chart outlining the state’s structural annual operating deficit, which started in 2001 and will increase to nearly $4 billion this year. “Not paying your pensions,” he said.
Despite a pension reform bill passed in 1995 designed to bring the state to a 90 percent contribution level, legislators have every year since balked at providing any more than 40 percent funding, he said.
“That was the goal, but they used it instead to cover operations. There was no funding mechanism passed,” he said. “Who thought that might work? They intentionally grew their unfunded liability.”
Martire said Illinois was well on its way over the cliff of fiscal irresponsibility when the 2008 recession hit, causing already troubling numbers to become disastrous.
Those same legislators already have raised income and corporate taxes, and started slashing services to respond to the crisis, but Martire said continued political irresponsibility and flawed tax codes will make the effort most difficult.
His advice? Adopt a more-progressive tax code that would generate more revenue and bring service-funding levels more in line with inflation, population and the levels of other states.
According to Martire, Illinois will have to slash services by nearly 30 percent annually to balance the books, and most of those cuts will have to come from education and programs to help the poor and sick.
He said taking that course would be a matter of balancing the budget “on the backs of the most vulnerable.”
“These numbers have real consequences,” he said.
Martire said Illinois is one of the few states that does not have a progressive tax code, wherein higher wage-earners pay a higher tax percentage. The CTBA also recommends expanding Illinois sales tax to services instead of goods only and taxing “some” retirement income.
Even with the recent corporate tax increase, corporate taxes in Illinois are still among the lowest in the Midwest and generate the least revenue.
Martire said it was laughable, following the corporate tax increase, that neighboring states tried to lure companies from Illinois across the border – because Illinois has always had and continues to have a lower rate. Before the recent tax increases, Illinois ranked 44th nationally in taxation.
“Who’s gonna move?” he said “They have higher taxes and have for decades. It’s malarkey.”
Not having those fair regulating structures in place allows politicians to continue to use “goofy numbers” and “the political machinations of these numbers.”
Likewise, he said Illinois is well behind comparable state counterparts in number of public employees, and that forcing them to take the brunt of cuts will be economically counterproductive. He said every $1 spent by the state on employees actually generates $1.36 in private sector activity.
“If you cut wages to workers, they spend less,” he said. “You are literally taking their money out of the dry cleaners and the grocery stores.”
He said Illinois already had weathered the loss of 400,000 jobs during the downturn. “I’m thinking losing another 100,000 is not a good idea.”
Budget-cutters targeting Medicaid costs are in a similar negative zero-sum situation, wherein every dollar cut at the state level loses matching federal money and causes the loss of $2 in services.
“It’s not a real net savings,” he said.
As for pension reform, Martire suggests at least setting up a system that would allow pensions from now into the future to be funded adequately. He said it’s unlikely a change in current pension benefits would survive a state constitutional challenge.
“It’s seems pretty clear that it’s unconstitutional,” he said. “But this is something that’s coming your way and you have to be ready to argue against.”
Martire said the biggest mistake of all would be for the state to substantially cut education, especially considering Illinois already ranks 49th nationally in the amount of money it spends on secondary education. Between 2000-2007, property tax revenue grew by 23 percent while median income in Illinois fell by more than 5 percent.
The gap between what Illinois spends per pupil and the national average has grown from $100 to $2,000 with the proposed cuts in education. And minority schools in Illinois have an estimated $1,100 less to spend per student than the average elsewhere in the state, he said, mostly as a result of school district funding that is based on property taxes.
He said that gap is in direct correlation to minority-to-white wage growth. Between 1980-2007 the gap for Hispanics increased by 40 percent compared to white counterparts, and for African Americans the gap grew by 126 percent.
“Not only do they not want to cut the gap,” he said, “they want to further it. And here’s the kicker: Education matters more than ever.”
Martire said the information in his presentation, “Who’s Got Your Back?,” was prepared as a non-partisan response to the state’s budget crisis.
“My organization is bipartisan, which means my board doesn’t like or trust each other,” he said.
