What’s the Next Move?

by Dave Schuler on April 2, 2014

the editors of the Chicago Tribune respond to Chicago Mayor Rahm Emanuel’s plan for addressing Chicago’s public pension problem:

Three years into his mayoral term — after campaigning on a promise to fix pensions — Rahm Emanuel finally is ready to file legislation that would reduce the city’s dangerously unfunded pension liabilities for municipal workers and laborers. Emanuel says he has a deal with those employees’ unions that would bring two of the city’s four funds for retirees closer to full funding. The agreement includes a mix of politically risky property tax increases and benefit cuts.

Note the operative word: two of the city’s pension funds. City Hall hasn’t come to terms with police and firefighters over the unfunded liabilities in their pension funds, or with teachers who work for Chicago Public Schools, a separate taxing body. Yet to stabilize just two of the funds, he already is proposing an increase in property taxes, to be phased in over five years.

Why has it taken the mayor so long? I can think of any number of reasons. He may have had the vain hope that the Illinois legislature would save the city. It’s far from a done deal that they will even approve his plan or whether once approved it would survive court challenge.

He may have hoped that an improving economy would render the question moot. That hasn’t happened.

He might have been too busy planning his next career move to formulate a plan.

Something that non-Illinoisans should keep in mind: the city is just one of dozens of independently taxing entities, all of whom will undoubtedly be increasing the property tax. Add to that the “temporary” increase in the personal state income tax which the governor has proposed be made permanent and the state’s persistent economic woes and we’re right on track to be the state with the highest taxes, the highest rate of unemployment, and the lowest state contribution to education.

For most people Illinois is only an attractive place to live when business in the state is good. Attracting blue chip businesses (which will only cut jobs going forward) with inducements in the favor of special tax treatment just puts the burden on companies and individuals who can’t get similar treatment is a lousy strategy. It appears to be the only strategy our state’s leaders have.

{ 6 comments… read them below or add one }

jan April 2, 2014 at 4:04 pm

Illinois is a blue state with blue state policies. Taxing those with the means to pay money is the way they make government programs, pensions and obligations work. It’s the way California politics functions as well. Gov. Brown was able to deflect some of the long term debt a bit, patching together a temporary budget showing a surplus, by higher revenues captured through end-of-the-year increases in capital gains sell-offs and higher income taxes. But, like the recent rains stemming too many of our multi-year drought conditions, so too will that extra spurt of money do much to mend long term debt obligations down the road.

Dave Schuler April 2, 2014 at 4:10 pm

Taxing those with the means to pay money is the way they make government programs, pensions and obligations work.

Illinois does not have a graduated state income tax. State and local governments rely heavily on property and sales taxes which are both regressive. That means they’re not taxing “those with the means to pay” but everybody.

Guarneri April 2, 2014 at 5:01 pm

Heh. Greetings from sunny and warm (82 today) Naples, FL.

Dave, do you know if 8% is still the (laughable) returns assumption for the pension portfolio?

Dave Schuler April 2, 2014 at 5:40 pm

Yep.

Andy April 2, 2014 at 10:12 pm

8% has been laughable for over a decade.

Guarneri April 3, 2014 at 8:03 am

Setting aside a thrust of the post that Dave – as always more charitable than I – makes, that Rhambo is just another garden variety pol here in Chicago using a Pavlovian Democrat and comatose base to further his goals at the cost of the electorate and general population……I can’t help but notice parallels to Obamacare.

Phony or twisted numbers and assumptions. Getting a class of voters hooked on the opiate of free stuff, and counting on their addiction for votes and continued support. Justifying an outsized and untenable “solution” as the only humane alternative………and characterizing dissent as the province of the evil………..or, changing the rationale in the face of obviously ludicrous assumptions to “well, we had to do something.” Even as “something” has the efficacy of most government programs: minimal.

Just as 8% works only on the truly ignorant or willfully ignorant, so do Obamacare’s numbers. And just as public pension schemes are cratering of their faulty structure, so will Obamacare. The proverbial 1% will contract for care privately. A certain class will continue to “free ride,” it will just be through subsidy. And the vast middle will be less well off, both monetarily and in their health care.

At least a few will be able to strut around feeling good about themselves for “caring,” or having gotten a few shekels in their pocket.

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