Illinois's concocted budget crisis a red flag for all pension holders
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After 736 days, Illinois finally passed a budget on July 6 over the veto of Republican Governor Bruce Rauner, a billionaire businessman new to Illinois politics. However, the current state budget solves neither the state’s political crisis nor the budget brinkmanship played in Illinois. The fiscal philosophy and “chicken games” of Illinois are starting to infect other states, including seven other states in 2017 that have emulated Illinois by holding state budgets hostage for longer and longer periods.

Illinois political scientists have long decried the periodic budget crises in Illinois resulting from a governing philosophy of “never let an economic crisis go to waste for advancing a political agenda.” Michael Madigan, Speaker of the Illinois House from 1983-2017 (with a two-year hiatus as Democratic minority leader), has captained the periods of “no state budget” as those periods increased from months to years — though Madigan has ruled large Democratic majorities for over 30 years.

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Even during the Civil War, Illinois had a state budget, but by July 2017, Illinois was entering its third year without one. Speaker Madigan blamed the budget crisis on reforms demanded by Governor Rauner — though, from 2014-2016, the Democrats held veto-proof majorities in both the House and Senate and could have passed their own budget at any time.

 

In July 2017, Moody’s reported that Illinois faced over $15 billion in unpaid bills, $251 billion in unfunded liabilities and an imminent downgrade to junk bond status.

National political figures with roots in Illinois politics are even noted for their quotes on economic crises. As former Secretary of State Hillary Clinton stated in her March 6, 2009 speech on economics and the environment to the European Parliament: “[Rahm Emanuel] the chief of staff for President Obama is an old friend of mine and my husband’s …. And he said, you know, never waste a good crisis, and when it comes to the economic crisis don’t waste it ….”

In Illinois, Speaker Madigan’s office is the political power center, which is further empowered by what appeared to be a two-year artificial budget crisis manufactured for political advantage.

Illinois also operates pursuant to a governmental philosophy of “reward your supporters and punish your detractors.” Despite fiscal insolvency, the Illinois earmarks legislation for July 2017 included 600 pages of pork-barrel spending fast-tracked as an amendment to Senate Bill 6. Although balanced budgets are required by Article VIII of the Illinois Constitution, it is difficult to find a balanced budget since the 1990s.

Political insiders are also benefiting from Illinois. During a U.S. congressional hearing on March 25, 2015, the Illinois legislature’s giveaways of $35-$100 billion to gambling interests since 1990 received attention. For example, in 1990, the original 10 Illinois casino licenses worth a Wall Street valuation of approximately $5 billion ($11 billion in current dollars) were given away for only $25,000 each to political insiders, including one who became a prison insider. Currently, pending Illinois legislation proposes more billion-dollar giveaways by charging only $100,000 each for 10-12 new casino licenses.

These types of giveaways and over-spending argue that since the 1990s, Illinois has not had a genuine budget crisis, but instead, seriatim manufactured budget crises. These budget crises have grown in length and intensity as they have succeeded in advancing Speaker Madigan’s political agendas.

This governmental environment has indirectly enabled more instances of corrupt or unethical activities. With four of the last nine Illinois governors convicted of corruption, it was no surprise that in 2013, the Securities and Exchange Commission (SEC) branded Illinois with pensions security fraud. On March 12, 2013, a Wall Street Journal editorial noted, “It’s now official: The Land of Lincoln has the nation’s most reckless and dishonest state government when it comes to pension liabilities.” According to the WSJ, the state’s “accounting practices would get private market participants thrown in jail.”

The history of the Illinois experience with pensions is monetarily important for teachers and public employees throughout the United States.

In the lead-up to the 1970 Illinois Constitutional Convention, the national news was saturated with the 1960s criminal prosecutions of Teamsters President Jimmy Hoffa, including a Chicago-based conviction for raiding the Teamsters Pension Fund for loans to organized crime figures. As a target of former U.S. Attorney General Robert Kennedy, the Hoffa trials certainly contributed to the common knowledge umbra under which the 1970 Illinois Constitutional Convention enacted Article XIII to protect the pension funds of teachers and other public employees. Contributions to these funds were legally required by Illinois in lieu of Social Security.

However, after decades of over-spending, the 2012 Illinois legislature fast-tracked a public vote to eliminate the Article XIII protections via the deceptively-worded “Amendment 49”, which included more words than the Bill of Rights in the U.S. Constitution. This legislative attempt to raid public pensions was defeated in the November 2012 election by good government groups backed by overwhelming press support.

Speaker Madigan followed up in 2013 with Senate Bill 1, which was legislation challenging the Article XIII protections. In the unanimous Heaton opinion, which ruled SB1 unconstitutional, the Illinois Supreme Court denounced the cyclical effort of the legislative leaders to raid teachers pensions, instead of budgeting responsibly.

Throughout the country, teachers and public employees in all states are extremely vulnerable to similar legislative raids on their benefits — other than in Illinois, Arizona and New York, teachers have no effective protections in their state constitutions.

Other money-hungry states may soon emulate the Illinois template of manufacturing artificial economic crises to advance political agendas — and the pensions of teachers and other public employees are tempting low-hanging fruit.

In Illinois, Speaker Madigan’s veto-override budget raises the corporate tax rate from 5.25 to 7 percent and raises the individual income tax rate from 3.75 to 4.95 percent, which will generate $5 billion in revenues to be combined with $3 billion in budget cuts. Even with a budget, junk bond status is still an economic specter looming over Illinois, and only Speaker Madigan has the power to reform the broken state government. 

Professor John Kindt teaches law and economics at the University of Illinois. Since 1978, he has served as a University of Illinois faculty-elected representative monitoring educational and state budgeting issues.


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