TAX HIKE TURNS 2, NEW REPORT SHOWS ILLINOIS DEAD LAST IN PENSION FUNDING
Nothing highlights Illinois’ fiscal challenges better than the second birthday of the Democrats’ 67 percent income tax increase. Just two years ago, Senate President John Cullerton sold the tax hike as a means to pay off old bills and resolve the state’s financial problems. At the time Cullerton said, “The purpose of this bill is to raise enough money so that we can continue to pay our pensions without borrowing the money. To pay off our debt. To have enough money to pay the interest on that debt." Two years later, that has not been the case.
Led by Gov. Pat Quinn, House Speaker Michael Madigan and Senate President Cullerton, Democrat lawmakers took advantage of the 2011 lame-duck session to push through the largest income tax hike in state history during the wee hours of Jan. 11, 2011. Senate Republicans, including State Senator Bill Brady, voted against the hike. At the time Brady and the Senate GOP Caucus argued that a “temporary” tax increase would be used to increase spending instead of paying off debt. Two years later the tax increase has neither made a dent in the state’s unfunded pension liabilities, nor has it been used to pay down the backlog of obligations owed to Medicaid providers or state vendors.
Two years after the Democrats’ giant tax increase, Illinois’ finances remain in shambles, public employee pension reform remains in limbo, and the backlog of bills remains in the billions. Senator Brady said that though Democrat leaders pushed the tax hike as a way to pay off old bills and resolve the state’s financial problems, insisting they would eventually roll back the increase, they have continued to spend as though the increase will be permanent. Taxpayers are paying more, with nothing positive to show for their forced contributions.
Comptroller Judy Baar Topinka recently told a House Executive Committee that the state’s current bill backlog tops $9 billion. Topinka testified against proposed legislation to borrow $4 billion to pay down those same bills Democrats said would be eliminated using tax increase revenues. And while Illinois has become accustomed to lackluster showings in national rankings over the last decade, some may find it ironic that at the end of the second year of the “problem-solving” income tax increase, a new report in Crain’s Chicago Business shows Illinois continues to rank dead-last in pension funding.
GOVERNOR’S PENSION PLAN FALLS FLAT
Public employee pension reform continues to top the list of the most critical issues facing the General Assembly, as lawmakers adjourned the 97th General Assembly without acting on a pension reform plan. Though Gov. Quinn spoke to a House Committee on Jan. 8, throwing his support behind a last-minute bill to set up a commission charged with designing and implementing a pension fix, the House of Representatives adjourned without considering Quinn’s proposal.
The Governor’s plan—widely thought to have been likely to be ruled unconstitutional if it had been approved—would have required the panel to issue a report outlining pension changes that would become law unless lawmakers took action to overturn the proposed changes. Action on the hot-button issue now carries over to the 98th General Assembly, who will take up work on the politically-charged pension reform efforts.
Illinois has long been home to the worst-funded pension system in the country, with more than $94 billion in unfunded liabilities. This week’s Crain’s reported that, “According to the U.S. Census Bureau's latest Annual Survey of Public Pensions in fiscal 2011, Illinois had $89.29 billion in total cash and investments to cover $175.59 billion in obligations to current and future retirees. By that count, the Land of Lincoln has a 50.9 percent funded ratio — worst among the 50 states.”
The report said that an 80 percent funding threshold is “generally viewed as being acceptable to support future pension costs” according to a 2007 Government Accountability Report. However, Crain’s also reported the American Academy of Actuaries takes a more stringent view that the 80 percent standard is “a myth,” and arguing that “pension plans should have a strategy in place to attain or maintain a funded status of 100 percent or greater over a reasonable period of time.”
Illinois’ 50 percent funding falls woefully short of either threshold, and though the state’s unfunded pension liabilities exceed $90 billion, many consider even those figures to be optimistic, placing the funding ratio lower and the total debt much higher. Poor fiscal management under Governors Rod Blagojevich and Pat Quinn has led to numerous downgrades to Illinois’ credit rating and credit outlook in recent years.
Most recently, Moody's Investors Service saw the glass as half empty in December when it downgraded Illinois' credit outlook to negative from stable, citing “pension funding pressures” as a primary cause for concern. Illinois in 2012 already slipped to an A2 rating, worst among the states Moody's rates.
LAME-DUCK ENDS, MAJOR ISSUES REMAIN
Pension reform wasn’t the only issue stakeholders hoped lawmakers would address in early January. It was speculated that the General Assembly would act on some controversial issues, such as same-sex marriage or legalization of medical marijuana, but the lame-duck session ended without any of these measures advancing to Gov. Quinn for consideration.
Despite inaction on some legislative fronts, House lawmakers did approve legislation that would allow undocumented immigrants to apply for temporary driver’s licenses. Having already been approved by the Senate, Senate Bill 957 now moves to the Governor, who has said he supports the measure.
The legislation had bipartisan support from lawmakers who said allowing undocumented residents to apply for a driver’s license will increase safety for all motorists, who have been sharing the road with an estimated 250,000 drivers who are not trained, tested, licensed or insured. However, opponents argued the licensing amounts to the government sanctioning the violation of immigration laws, and suggested that similar laws in other states opened the door for fraudulent behavior, without dramatically increasing the number of uninsured drivers.
And while some hoped lawmakers and the Governor would come to an agreement on a new gaming expansion package for Illinois, that proposal failed to materialize. On Jan. 8, Senate President John Cullerton quietly sent Quinn gaming expansion legislation that had been approved by lawmakers in 2011, but held through procedural maneuvering. The move took some by surprise, though Quinn’s previous criticism of the package indicates it’s unlikely he will sign the bill into law.
ATTORNEY GENERAL APPEALS RIGHT-TO-CARRY COURT RULING
An appeal filed this week by Attorney General Lisa Madigan to ask for a new hearing in federal court could delay adoption of right-to-carry legislation in Illinois. The appeal by the Attorney General may prove to be a set back after a recent ruling required Illinois legislators to construct a law legalizing concealed carry within 6 months.
On January 8, Attorney General Madigan filed an appeal asking for the full U.S. 7th Circuit Court of Appeals to review the decision and make a ruling. The December ruling, issued by a smaller panel, gave state lawmakers 180 days to pass a concealed-carry statute to enable gun owners to join citizens in 49 other states with similar laws.
The Attorney General's appeal has had little effect in slowing efforts by pro-Second Amendment legislators to begin drafting new concealed-carry bills to meet the three-member panel’s 180-day deadline. Conversely, recent gun tragedies and the nation’s-highest homicide rate have prompted Chicago-area lawmakers to draft counter assault-weapons bans and other purchasing restrictions.
Specific proposals have not emerged yet, but expect several proposals to be formally introduced because gun issues were a major topic of the recent “lame duck” legislative session.
If lawmakers fail to meet the deadline, many of the state’s current statutes on firearms could be ruled null and void. Despite the rules on right-to-carry, Chicago Mayor Rahm Emmanuel has said he intends to push new restrictions on firearms in the city, after gun control measures died during the lame-duck legislative session. Traditionally, the Chicago Mayor’s plan has taken a very restrictive view on concealed-carry and firearm ownership.