Yesterday I proposed potential solutions for the national unemployment problem. Today I’ll turn my eye to Illinois’s fiscal problem.
Here are the reactions of Illinois’s Comptroller and sole Republican holding statewide office, Judy Baar Topinka, to the recent actions of Illinois’s legislature:
These echo my reactions and those of Chicago’s Mayor Richard Daley.
The Sun-Times responds:
Lawmakers last year passed an aggressive two-tier pension system with less generous pensions for new hires and reformed the state Medicaid system. Quinn says he has cut appropriations over the last two years by nearly $3 billion.
Lawmakers must poke and prod the pension and health-care benefits for existing and retired state employees to look for savings. Though the state Constitution appears to protect benefits already accrued, there are steps the state can take that potentially don’t run afoul of the constitution, such as increasing how much employees contribute toward their pensions, raising the retirement age and reducing the annual cost-of-living increase. State retirees who pay nothing for their health care now also should begin to contribute.
while the Chicago Tribune remonstrates:
We’ll leave to the Tax Foundation and other data outfits the task of calibrating precisely how much more uncompetitive Illinois becomes if the Senate passes and Gov. Pat Quinn signs this fiasco into law. Quinn and the rank-and-file Democrats who launched the enormous tax grab will own what happens next. So will House Speaker Michael Madigan and Senate President John Cullerton. Governors such as Mitch Daniels of Indiana and Scott Walker of Wisconsin, their treasuries already enriched by refugee employers who’ve fled Illinois, should send the Springfield Democrats orchids and champagne.
Those Illinois Democrats have, for two do-little years, dodged a choice: Reduce spending, raise taxes, or enact some mix of the two. Cutting overhead would offend their friends in the public employee unions and other pet constituencies. Ask retired state workers to pay something for their health care? Cap employee pensions? Perish the thought.
So — get this — not only are they raising taxes to avoid budget cuts, they’re including a provision to let their spending continue to rise — year after year.
The fatuousness of the legislature’s pledge to hold spending increases to 2% is underscored by the reality that so much of the state’s budget is composed of healthcare and public employees’ pensions that the only thing that needs to happen to exceed that aspirational cap is for those things to grow at the expected rate.
Unfortunately, the state is hamstrung by its lack of control over healthcare expenses, constitutional provisions governing public employee pensions, and federal government mandates governing Medicaid and, consequently, attempting to bring the state’s budget under control solely by adjusting those items it can control demands more draconian cuts than would otherwise be necessary. We’ve got to change the rules.
1. Convene a constitutional convention.
The state needs to convert more fully from defined benefits public employee compensation plans to defined contribution plans and that can only be effected via changing the constitution. There should also be anti-gerrymandering provisions (Illinois is among the most gerrymandered of states), controls on spending increases and tax increases similar to those in other states, and a host of other measures aimed at transferring power from the legislature which has shown itself unwilling to control itself to the people.
2. Constrain the state’s healthcare costs burden.
Illinois should petition the federal government for exemptions from regulations governing Medicaid. Failing that it should abandon the program altogether. The federal government dropped the ball on controlling healthcare costs. The PPACA will only increase the burden that uncontrolled healthcare costs will impose on the states. It is not only elections that have implications. So does legislation.
3. Include revenue increases in the solution but don’t kid yourself into believing it’s the whole solution.
Illinois should constrain the personal income tax increase to 4% (from the 5% the legislature enacted), the rate that Gov. Quinn ran on, and abandon the increase in the business income tax entirely. Reducing economic activity in Illinois won’t solve Illinois’s fiscal problems. Don’t drive businesses and consumers into neighboring states.
4. Recognize that we aren’t as rich as we thought we were.
Public employee compensation should be rolled back to levels commensurate with the income and revenues we have rather than the income and revenues they thought we were going to have. The same is true for the expansions to welfare put into place by now-impeached Gov. Rod Blagojevich.
Mish Shedlock is hosting a campaign to recall Gov. Quinn.
There’s a roundup of links to media responses to the Illinois tax hike here.
“The state needs to convert more fully from defined benefits public employee compensation plans to defined contribution plans and that can only be effected via changing the constitution.”
The sanctity of contracts applies solely to CEOs and bankers I guess.