I’d Really Like to Know How They Think Things Should Work

There are two big stories here in Illinois and Chicago, respectively, that I think are interrelated and deserving of a bit of consideration. In the first the Illinois legislature passed sharp cuts in Medicaid:

SPRINGFIELD — Hundreds of thousands of poor Illinoisans would lose health coverage, prescription drug discounts for seniors would be dropped and dental care for adults would be greatly curtailed as part of $1.6 billion in budget cuts lawmakers approved Thursday.

The major Medicaid reductions ignited anger in some lawmakers who say the cutbacks will jeopardize the lives of the state’s most vulnerable residents.

“I don’t know where it’s written in the law that this has to be balanced on the backs of poor people, on the backs of seniors, on the backs of the aged, blind and disabled,” said Rep. Mary Flowers, D-Chicago.

But supporters argued failure to approve the bill could lead to cuts throughout state government and result in the collapse of the entire Medicaid system.

The House voted 94-22 to approve the measure, and the Senate later approved it 44-13. But cuts are only part of the equation to fix Medicaid. Gov. Pat Quinn is seeking support for a $1-a-pack increase in the state’s cigarette tax to help fill an overall $2.7 billion gap in Medicaid funding for the budget year that starts in July.

As I’ve mentioned before the price elasticity of demand of cigarettes (coupled with the ease of avoidance of the tax) strongly suggests that the additional excise tax won’t deliver as much new revenue as they think it will. That sound you hear is the convoy of trucks from Missouri, filled to their roofs with bootleg cigarettes.

Illinois’s Medicaid expenses have increased enormously over the last decade. Part of the reason for that is the general increase in costs in medicine. But another substantial component is the large expansion of the Medicaid roster in Illinois over the last decade or so. The requirements necessary to qualify for Medicaid in Illinois changed several times over the Blagojevich era and, as a consequence, that roster has something like 380,000 more recipients than it otherwise might have had.

On the one hand you’ve got to have some sympathy for people who without Medicaid would have no healthcare insurance and are faced with medical bills that go up faster than their wages do. But on the other hand a good portion of those who will be stricken from the Medicaid rolls as a result of the newly enacted reforms should never have been on Medicaid to begin with.

The other story is the ongoing negotiations between the City and the Chicago Teacher’s Union:

The union and CPS are negotiating with the help of an independent mediator. By law, that negotiation will extend until mid-July, barring an earlier agreement.

If there is no agreement then, the mediator will propose a compromise.

Both sides will have up to 15 days to accept or reject that compromise. If either side rejects the deal, the terms are then made public. That will give residents a full view of what’s on the table. Thirty days after the report becomes public, the union can call a strike.

That process was established last year by state law. The law was written to create a more deliberate and transparent labor negotiation, to reduce the impetus for confrontation. It also set a high bar for a strike — 75 percent of the members of the union must approve it.

So why all the talk right now about holding a strike vote?

“It is impossible to take a vote in summer when all our members are on vacation,” union vice president Jesse Sharkey said Tuesday.

The graph here should put both of these stories into some perspective. As you can see Illinois’s general fund revenues have been flat or declining for the last several years even taking the large increase in taxes that took effect last year into account.

The state of Illinois derives most of its revenues from three sources: individual income tax, corporate income tax, and sales tax. City and county governments derive most of their revenues from two sources: sales tax and property taxes. Since 2007 property values have been flat or declined, retail sales have been more or less flat, and incomes have been flat or declined. In Illinois cities and counties aren’t empowered to enact income taxes and the state.

The bottom line for the state, city, and county governments here in Illinois is that the things that they depend on for revenue have been flat and the things they spend money one, mostly healthcare and education, have been getting more expensive fast.

I understand that Medicaid recipients and teachers want more money. That’s human. Nearly all of us want more money. What I’d really like to know is where they think the money will come from?

Here in Chicago, for example, the starting salary for a teacher with bachelors only for a ten month job is half again the median income for the city. The base pay of the superintendent of Chicago Public Schools is around $250,000 with teacher and administrator salaries ranging between that and $50,000. Chicago is not empowered to enact an income tax. There are legal limits to the rate at which property taxes can be raised and property values have declined. The sales tax in the City of Chicago is already the highest of any major city, high enough to drive some retailers out of the city.

So, that’s the basis for my question. Wages for Chicago teachers are already high relative to wages in the community they serve. Revenues are just about maxxed out. The foreclosure rate in the Chicago metropolitan area is already ninth among major metro areas and higher property taxes will only exacerbate that. Where the heck is the money supposed to come from?

22 comments… add one
  • Ben Wolf

    The great irony in all this will be that by cutting spending because it doesn’t have the funds, more people will be driven into Medicaid and unemployment compensation as they lose their jobs. The result will be more pressure on the state’s budget. This is exactly where the Feds as the currency issuer should be stepping in to help the citizens of Illinois, not the state itself.

  • This is exactly where the Feds as the currency issuer should be stepping in to help the citizens of Illinois, not the state itself.

    That’s precisely the problem I’ve been complaining about for the last four or five years. Federalism as it has developed prevents certain kinds of solutions from being implemented.

    There are economic catastrophes that we should be treating in just the same way as we do natural disasters like hurricanes or tornadoes–by rushing resources to the places they’re needed. I think that everyone would agree that when a hurricane strikes the west coast of Florida, rushing disaster relief to Wyoming and Idaho would be unhinged. But that’s essentially what we’re doing.

    States like California, Florida, and Michigan that are in the most serious situation should pay a price–they should go into a sort of receivership in which the underlying problems can be addressed de novo. But they shouldn’t just be left to fend for themselves.

  • Ben Wolf

    @Dave Schuler

    In a way our inaction is allowing the “Greecification” of a number of states. This is exactly what fiscal union is intended to avoid, by giving monetary authority to the central government so it can deal with the situation. But as you say, we’re just leaving them to their fates because our leaders seem incapable of doing anything other than big spending projects or nothing. We never try anything in-between or anything new to address the fact that real people are suffering.

  • Andy

    So what would you propose the federal government do to help Illinois and other troubled states?

  • So what would you propose the federal government do to help Illinois and other troubled states?

    I’m in broken record territory on this. The first thing the federal government could do for, really, all state and local governments is fix the healthcare system. Failing that the federal government could undertake the Medicaid system in toto.

    I think that Illinois’s problems are a combination of a) bad politics, b) collapse of the housing/credit bubble, and c) the general economic slowdown (i.e. spillover effects from serious slowdowns in other states). I think that other states, e.g. Michigan, have serious structural problems they can’t solve on their own other than by having a going out of business sale which they really shouldn’t be expected to do.

    The states that were most severely affected by the collapse of the housing/credit bubble, i.e. California, Nevada, Arizona, and Florida, in addition to their political problems have a different set of structural problems than Michigan does and, consequently, require a different sort of help. In the near to mid-term I don’t think they’re capable of solving their structural problems.

  • Drew

    Large scale natural disasters are episodic and reasonably rare events. Systemic spending increasing at an unsustainable rate is a different cat.

    Allthough not recent, you probably heard about Emil Jones and his buds voting thenselves great retirement deals.

  • hattip

    No, it is the spendthrift, socialist, immoral “policies” of “a number of states” run by Democrats that is the problem here, as it is the polices ot the tranzi, international socialists crowd in the EU that it has lead the PIIGS to the precipice they no face. It is not our “inaction” that has causes this–not in the least.

    The problem is Marxism masked as “Liberalism” by the modern Democrats. I will remind you that we are a nation of states, and that is enshrined in our constitution.

    What you are suggesting, to undo this, means to overturn the constitution of the USA.

    Medicaid, medicare and all the rest have to be done away with.

    People are not entitled to steal from others to fund lifestyles that that they cannot otherwise afford.
    One way or another, it will end as it is completely unaffordable.

    There is absolutely no moral or constitution right to taxpayer funded medical care.

    THe only solution is to role back the New Deal and all its accretions.

    THe very orst thing would be to have the rest of the country bail out the corrput and decadent Democrat party.

    It is arrogant and traitorous “Oligarchic Collectivism” that is destroying us.

    You would understand that if you were not a tool for the Marxist Leninists who control the Democratic Party, and, evidently, you minds.

  • Ben Wolf


    I think the assistance should be conditional. During the period in which the state is receiving direct assistance all compensation for public employees should be frozen to prevent exactly the kind of corruption you point out ocurring with federal money.

  • Systemic spending increasing at an unsustainable rate is a different cat.

    But sharp declines in revenue as a consequence of the collapse of a housing/credit bubble aren’t nearly as different.

    Last year every county in Texas was declared a federal disaster area due to drought. There are several counties in Mississippi that have been declared federal disaster areas every year for the last six years. The same is true in Tennessee. There are several counties in Alabama that have been declared federal disaster areas in every year of the last six years but one. And so on. The theory of disaster response may be “episodic and reasonably rare events” but the practice of disaster response is more like what I’m talking about.

    Look, I’ve championed the belief that we can’t solve our problems with tax increases alone here. However, that doesn’t mean that tax revenue that continued at the levels projected before the collapse of the housing/credit bubble wouldn’t ameliorate the problems that are being experienced.

    Note, too, that I favor controls of exactly the sort that Ben mentioned.

  • steve

    “Large scale natural disasters are episodic and reasonably rare events. Systemic spending increasing at an unsustainable rate is a different cat.”

    But that is really not the case. Discretionary spending, as a percent of GDP, has stayed fairly constant for years. The increase is in health care spending. This is accentuated in a recession.

    “But sharp declines in revenue as a consequence of the collapse of a housing/credit bubble aren’t nearly as different.”


    I think one of the roles of the federal government, besides national defense, is to step in when there are catastrophes. We should not let people starve because the banks had a crisis. Medical care should not stop. I also agree that there should be conditions. I like Ben’s idea of freezing salaries. I think you can set stricter limits on what is paid for by Medicaid, maybe call it emergency Medicaid. No elective surgery, for example. Only pay for generics.


  • jan

    My husband and I were driving south on Interstate 5 earlier this week. I had a random Fresno (central valley) talk radio station turned on just to pass the time. The subject was why did Fresno have the worse parks in the country. People calling in gave a variety of reasons as well as information. Basically the upkeep of parks are decreasing because of no funding in CA. However, maintenance contracts, that could be bid out to the private sector at 2 cents a foot, have to be bid out to the public sector at 6-7 cents a foot. Prisoners, who used to do some of the work, have now been passed over because of the Union’s insistence that these jobs go to Union people.

    The bottom line to callers’ discontent, even anger, were aimed at the unions in this state, the pension plans, HC benefits divised by the unions, and how they are breaking the back of the state financially.

    Perhaps, it is just the central valley folks who are fuming. After all it is this area which has had battles with water allocation due to protecting a small delta fish, causing signs to sprout along the interstate about the dust bowl effects of the arid land. Unemployment has leaped in these farming comunities, as owners attempt to rotate in crops that will tolerate less water. But, the public sector continues to flourish, as the rest of the state roller coasters along with all the housing, environmental, and fiscal uncertainties that plague this state.

    Callers, on this small radio station, pretty much showed a consensus in saying that unions and their various benefit plans were ruining CA as well as the rest of the country. They also predicted that people would eventually rise up against them, as there were too many inequities now between the public sector employee as compared to the one in the private sector.

  • michael reynolds

    My husband and I were driving south on Interstate 5

    My sympathies. I’ve driven the 5. That is one boring freeway.

    The subject was why did Fresno have the worse parks in the country.

    I didn’t want to peek at the answer. Is it because Fresno is a sh*thole?

  • steve

    37% of public workers are in unions. 6.9% of private workers are in unions. You need a new bogeyman.


  • Andy


    Sure, fix the healthcare system, you won’t find any disagreement from me there, but I’m talking about “rushing resources” to where it’s needed akin to disaster relief. What resources should be rushed to Illinois or, probably a better example, Detroit? What constitutes an “economic disaster” and how should that be defined?

    Also federal disaster relief has become broken over the last two decades – the Feds can’t say no to aid for minor disasters states can handle (and historically the have) which drains resources from preparing for future katrinas. Disaster declarations are becoming as much about politics as anything.

    I agree with you and Ben in the abstract, in the same way I agree with stimulus in the abstract. What congress is likely to do, as opposed to what it should do, are two different things though.

  • Andy, I’m not agitating for aid to Illinois. Illinois probably could resolve its own problems if it had the will to do so. I don’t think it will muster the will and it will take something akin to bankruptcy to force the state to address its problems. That will necessarily mean that the federal government will intervene but it will be the courts rather than executive and legislative branches.

    My concern is more for Michigan and, to a somewhat lesser extent, Nevada. I don’t see anything that either of those states can do to solve the problems they have.

    I’m not sure what the specifics would be. One alternative would be the same kind of aid to Michigan that Robert Byrd dragooned for West Virginia for decades: locating all sorts of federal departments there.

  • Andy

    Dave, I know you’re not agitating for Illinois, I’m just trying to flesh out what economic disaster aid would look like. I’m skeptical the Feds would be better positioned to solve a state’s problems and it seems likely, to me at least, that the result would be more akin to the bank bailouts.

  • PD Shaw

    There are two key problems. One is Medicaid, and I think Illinois is not as extended on Medicaid as some other states (CA and NY IIRC are far worse). A lot (but not all) of Medicaid’s problems for state finances originate in the federal program and in Obamacare. The feds should revisit the arrangements.

    The other problem, which I think Illinois might be number one, is the pensions. There appears to be some movement on that, but this is where an insolvency type restructuring might help. When Orange County went into bankruptcy, it paid all of its bills, just not in the way planned. If the feds offered money to help restructure the pensions into defined contribution plans, I think the states would be on stronger footing and be able to pay as much back as General Motors.

  • Drew


    I assume that was tongue in cheek.


    I think we are going to have to agree to disagree on the “housing as natural disaster” equivalency or nearly so. Otherwise we are legislating bailouts for poor policy/self dealing etc behavior. No one can prevent a natural disaster. By the way, as an adjunct point. I wouldn’t provide government assistance to those who live in, say, coastal Florida where hurricanes simply happen from time to time, but repeatedly. They get the view, don’t ask me to insure over the risk. Buy your own insurance.

    Who here thinks we should insure through the government the next New Orleans disaster, a city that r elides below sea level and built with levies not capable of withstanding cat 4 or 5 hurricanes?

  • Icepick

    Who here thinks we should insure through the government the next New Orleans disaster, a city that r elides below sea level and built with levies not capable of withstanding cat 4 or 5 hurricanes?

    Drew, New Orleans’ levies weren’t able to stand up to a Cat 1 storm. Katrina was a monster storm – but not in the vicinity of New Orleans.

  • New Orleans’ levies weren’t able to stand up to a Cat 1 storm.

    And by law that was the responsibility of the Army Corps of Engineers.

    The distinction between a natural disaster and manmade one is completely artificial. Every disaster can be thought of as inadequate preparation.

  • Drew

    “Every disaster can be thought of as inadequate preparation.”

    Really? People living in tornado alley should sleep in bunkers at night? I understand what your thrust is, but what next, never go out on the road because of the probability of a fatal car accident?

  • People living in tornado alley should sleep in bunkers at night?

    Or not live in tornado alley. We have decided as a society that there are some risks that we merely accept. San Francisco will be hit by highly damaging earthquakes from time to time. That is a certainty. It is neither rare nor avoidable. So they improve the building standards and we still treat it as a disaster worthy of federal assistance.

    When people live in flood plains there are three alternatives. Ban them from living in flood plains. When it floods, let them rot. Or help them anyway. What we do is a combination but mostly the third.

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