If Governor J.B. Pritzker has his way, Illinois will institute a graduated income tax to replace its flat 4.95 percent tax rate. The governor claims that increasing the tax rate will generate billions in new revenue while only raising taxes on the wealthiest 3 percent of taxpayers with income of more than $250,000.

Before legislators can consider the proposal, however, voters must first pass a referendum that removes language in the state constitution mandating a flat income tax rate. They face an uphill battle: though Democrats control the Illinois General Assembly, the rules require that the referendum for a state constitutional amendment pass by an “extraordinary majority.”

Both sides are gearing up for the anticipated fight. As with any battle, there is truth to the adage of the ancient Greek philosopher: “The first casualty when war comes is truth.”  Think Big Illinois, a progressive group that endorses a graduated income tax based upon income, claimed: “In almost every state with an income tax, wealthy people pay a higher tax rate than the middle class.”

The fact-checking organization PolitiFact Illinois begged to differ, pointing out that “Even by the most conservative definition, there are 19 states with income taxes that do not apply higher rates to the earnings of the wealthy—nine flat tax states and 10 with graduated taxes with rates that top out at income below $25,000. Add in another eight states where top rates for married couples kick in somewhere between $31,000 and $104,000, and the Think Big claim becomes even more dubious.” The reality is far from the assertion that “‘almost every’ income-taxing state levies a higher rate on top earners, earning this claim a rating of Mostly False.”

But how much would a graduated income tax improve the state’s dire financial condition? By September 2017, Illinois was in arrears to the tune of $16 billion and has accumulated the worst unfunded pension debt in the nation. At best the referendum would only partially address the shortfall.

Far from “plugging Illinois’ fiscal hole,” the Commission on Government Forecasting and Accountability estimates that the tax increase would at most decrease that debt by only $5 billion per year (other estimates put the figure as low as $3.4 billion), let alone solve the pension crisis and provide needed additional funding for the cash-strapped school system, healthcare, etc. In fact, the additional income would be quickly swallowed up by the growing $4.7 billion shortfall per year accumulated by the state’s five major pensions.

And the new revenue wouldn’t begin to address the hundreds of local pension funds in the state that are drowning in debt. In fact, Moody’s estimates that Illinois has a stratospheric–and frankly unimaginable–$234 billion in unfunded liabilities.

Any additional revenue generated by increasing income taxes would have minimal effect. According to an article posted by the Illinois watchdog group Wirepoints: “The new revenue would barely dent our problems and only further enrage the Illinoisans who are already fed up and ready to leave.”

The bill is coming due for a state which for decades has been run by free-spending politicians who annually approve ever-ballooning budgets that have routinely raided the state’s pension funds and driven up debt to unsustainable levels. Yet many politicians appear to be constitutionally incapable of accepting blame or recognizing that grave financial improprieties have become the norm in the state, giving new meaning to the biblical admonition about those who brazenly wipe their mouths and say: “I have done no wrong.”

Again, to quote Wirepoints, such politicians “ignore growing debts and count borrowed money, asset sales and raids on segregated funds as income.”  There are no easy solutions, but there is no escaping the looming abyss, and we can only hope and pray that the Prairie State will find the courage to enact fiscal revolution, beginning with pension reform and making the hard choices necessary to–as most families have learned to do–live within its budget, as Illinois’ Constitution requires.

Take ACTION: Click HERE to ask the governor and your state lawmakers to vote against any legislative proposal that would increase tax burdens for Illinois citizens.

More taxes, more spending, more debt and more bleeding of Illinois families.  That’s the message too many state lawmakers are advancing for the citizens of Illinois.

Let them know that you oppose any new tax increases when they refuse to cut government waste and bloat. You can also call your lawmakers through the Capitol Switchboard at (217) 782-2000.

Why is the Illinois Family Institute publishing another article about state government employee pensions? Because excessive taxes in Illinois are putting a strain on Illinois families — and 25 percent of our state budget pays those overly-generous pensions.

Now, policy experts Ted Dabrowski and John Klingner have provided yet more evidence that “A dramatic rise in pension benefits — not funding shortfalls — caused Illinois’ state pension crisis.”

People like pension expert Bill Zettler pointing out that out a dozen years ago. Whenever I have the opportunity, I mention it as well in my articles. Did people believe Zettler or me? It doesn’t matter — now they must contend with Dabrowski and Klingner.

Their new report is linked here:

Illinois state pensions: Overpromised, not underfunded – Wirepoints Special Report

Wirepoints also has articles about it here:

Illinois politicians: stop guilting taxpayers

Illinois’ pension crisis: Incompetence or malice?

Here is just an excerpt from that last link:

The actual growth in benefits handed out to state workers and retirees since 1987 has dwarfed everything else in the economy, from incomes to inflation to population to the state budget. Multiples times over.

This has all kinds of obvious implications for the economy, growth, outmigration and most importantly, the lives of ordinary Illinoisans.

Pension growth — at nearly 9 percent a year for 30 years — is swamping everything else. It’s no wonder why Illinoisans in so many parts of the state are struggling with high taxes, weak job prospects and stagnant incomes.

Also, Dabrowski calls it corrupt (as I do):

[A] financial mess like this would normally be investigated. Any business that ignores or hides a massive liability for decades will end up on the brink of, or in, bankruptcy.

. . .

If this state were a corporation, think Enron or Worldcom, all kinds of regulators would be sniffing around and asking all kinds of questions. How did lawmakers get this so wrong? Was the extreme growth in benefits due to incompetence or was it purposeful?

“Though the odds of a real investigation happening in Illinois are zilch,” Dabrowski writes, “it’s still worth asking the right questions.”

The answers are easy, as Bill Zettler wrote in his book. The system is a scam, orchestrated and carried out by those betting that taxpayers will never learn just how ridiculously high the retirement benefits are for many saintly teachers, school administrators, union officials, and various other groups employed by our governments.

Illinois continues to make national news due to its inability to do basic math. Here are a few examples:

Rising Tax Rate Can’t End Illinois’ Economic Drought
Yet leading candidates to replace Gov. Bruce Rauner think the only problem with the state’s income tax rate is that it doesn’t go high enough.

In Illinois, Public Pension Funding Cannot Keep up with Pension Benefits’ Growth
Pension benefits have grown six times more that state revenues, 8.4 times more than household incomes, and 9.5 times more than inflation. A major driver of this benefit growth is collective bargaining, which allows government employee unions to negotiate with public officials over pay, benefits, working conditions, and other matters. Unlike in the private sector, where employers have strong incentives to rein in labor costs, public sector unions face relatively little employer resistance to their demands, since both sides in the negotiations are employed by government.

Here are two quick things from Pension Pulse:

The Pension Storm Cometh?
Public employee unions have managed to extract promises from state and local governments that are simply impossible to keep. And those governments have been papering over the extent of their obligations with accounting assumptions that are so overly-optimistic as to be deceptive.

In this article, Pension Pulse touches on the legal wrangling over the pension systems:

The way the courts interpret the pension promise may be legally sound but it is economically absurd.

Who made this “legally sound”? Our AWOL conservative elected officials at all levels, who have failed to bring attention to this kind of excess.

I must say, though, I love the use of the word “absurd.”

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As Illinois continues to lose population (we are now the sixth largest state, not the fifth), our politicians in both parties continue to run up debt and unfunded liabilities.

Here is Meaghan Kilroy writing at Pensions & Investments (www.pionline.com):

Illinois has the highest pension burden among all 50 states, said Fitch Ratings’ 2017 state pension report released Tuesday.

According to the report, Illinois’ unfunded pension liabilities amounted to 22.8% of residents’ personal income at the end of fiscal year 2016, compared to a median 3.1% for all states and 1% for Florida, the least burdened state.

Since it is the Christmas season, I chose not to title this article “The Dumbest People in America.” But how else do you describe a state that has 25 percent of its budget going to pay government employee pensions and its voters who continue electing the same people who won’t do a thing about it? And “[u]nder Fitch’s calculations, Illinois’ net pension liabilities totaled $151.5 billion at the end of fiscal year 2016.” Please know that other sources calculate that number as substantially higher.

The Wall Street Journal recently featured a related article titled “Illinois Drives People Away: The taxpayer migration continues from the Land of Ever Higher Taxes.”

Makes you proud, doesn’t it?

From the Journal article:

The Prairie State lost a record $4.75 billion in adjusted gross income to other states in the 2015 tax year, according to recently IRS released data. That’s up from $3.4 billion in the prior year. Many of the migrants were retirees who often flock to balmier climes. But millennials accounted for more than a third of the net outflow in tax returns.

. . .

Too much for us to distill in one editorial, but suffice to say that exorbitant property and business taxes have retarded economic growth. Illinois’s corporate tax rate is 9.5%, and pass-through business owners pay 6.45%. Though Illinois’s flat 4.95% income tax rate is relatively low compared to its neighbors, Democrats have found other ways to clobber their citizens.

You can let your eyes glaze over at these numbers if you want, but understand that you will be paying more every year if you do.

To paraphrase one radio talk show philosopher — we should all be able to tie half of our brain behind our back and still realize something is amiss.

This helps explain why Illinois’s economy has been stagnant, growing a meager 0.9% on an inflation-adjusted annual basis since 2012—the slowest in the Great Lakes and half as fast as the U.S. overall. This year nearly 100,000 individuals have left the Illinois labor force. The University of Illinois Flash Economic Index, which measures corporate earnings and investment as well as personal income, hit a five-year low in October.

Merry Christmas! Feeling poor yet? Well, at least we know our retired government employees will be enjoying the holidays.

In a recent op ed, Illinois policy experts Ted Dabrowski and John Klingner put it rather simply when referring to what Illinois politicians are increasingly good at: “they offer government worker retirement benefits that are no longer affordable to the residents that pay for them.”

Illinois News Network recently quoted State Sen. Dan McConchie, R-Hawthorn Woods:

Whether it’s through their property taxes or because of the recent income tax increase, they just can’t afford to [stay here].… This day of reckoning is fast approaching us. I don’t think we want to wait until the absolute last minute to try and do everything we can to really right the ship.

Allow me to define reckoning: It is time to stop talking about “reforming” the government employee pension systems in Illinois. You cannot reform what is purposefully corrupt and completely insolvent.

The Illinois Constitution’s line prohibiting the lowering of government employee benefits should be ignored if it’s not repealed. No clause in a constitution can make this math work. The systems should be cut off from the taxpayers and sent into bankruptcy.

Any candidate suggesting that the pension systems can be reformed is not telling you the truth.

Happy New Year!

End-of-Year Challenge

As you may know, IFI has a year-end matching challenge to raise $160,000. That’s right, a great group of IFI supporters are colluding with us to provide an $80,000 matching challenge to help support IFI’s ongoing work to educate, motivate and activate Illinois’ Christian community.

Please consider helping us reach this goal!  Your donation will help us stand strong in 2018!  To make a credit card donation over the phone, please call the IFI office at (708) 781-9328.  You can also send a gift to:

Illinois Family Institute
P.O. Box 876
Tinley Park, Illinois 60477

Before citing a few facts and linking to a few articles from the Illinois Policy Institute, let me outline reality in simple terms: the pensions systems cannot be fixed. They need to be shut down, taxpayers should be cut free from the scam, and the state government should get out of the pension business. After decades, it has proven incapable of being trusted with tax dollars for employee pensions.

Some may think my position is extreme. I would argue that anyone pretending that the systems can be salvaged is dreaming “sweet dreams that leave all worries far behind” them.

They need to wake up. Bankruptcy laws exist for just this kind of  circumstance. The system is insolvent. Period. It’s not even close.

Another critical issue is also ignored: Looking at just the teacher union contracts with local school districts, they are premised upon the fiction that government employees and government officials (in this case elected school board members) can legally contract not only with under-aged Illinois citizens, but also unborn future taxpayers.

If contract law is to be applied properly, all the past, existing and current contracts would be voided. There isn’t one of them that has been signed in the past few decades that was not predicated upon the fact that future generations would have to pony up the billions of dollars needed to pay for generous health care and pension benefits once the contracted employees retired.

There is also a serious U.S. Constitutional issue regarding the unequal treatment that is being given to government employees. You can read about it here.

Regarding the Illinois constitution’s clause regarding diminishing benefits, how about we apply those words the same way our state constitution’s protection of religious liberty is being applied to Catholic charities and adoption, marriage, and bed and breakfast owners.

The Illinois Supreme Court has ruled that Illinois taxpayers are on the hook for all the excessive benefits. Conservative legislators especially like to use the court as an excuse for failing to get real about the magnitude of the problem. The court should be ignored. We are not a country or state run by the courts, but rather by the people, and the Illinois Supreme Court doesn’t have the constitutional power to tax and spend.

If members of the Illinois Supreme Court would like to consult with Bill Zettler about common sense, I have his email address. They’d double their understanding of constitutional government in the process. The state’s constitution cannot produce a miracle. Economics always wins and if something is impossible, it won’t happen. Even if you’re saying it should from a seat on the highest court in the state.

As promised, here are just a few facts and a few links from the Illinois Policy Institute:

• The problem facing Illinois’ five state-run pension funds is the unaffordable pension benefits that have been granted to government workers and government unions over the past several decades.
• The generous rules on retirement ages, cost-of-living adjustments, or COLAs, and employee contributions have caused pension benefits to grow by more than 900% since 1987.

Some of the biggest drivers include the following facts:

• 60 percent of state pensioners retired in their 50s, many with full pension benefits.
• Over half of state pensioners will receive $1 million or more in pension benefits over the course of their retirements.
• Nearly 1 in 5 will receive over $2 million in benefits.
• Almost 60 percent of all current state pensioners can expect to spend 25 or more years collecting benefits, based on approximate actuarial life expectancies.
• Due to automatic, 3 percent compounded COLA benefits, those pensioners can expect to see their annual pension benefits double in size.
• The average career pensioner will get back his or her employee contributions after just two years in retirement.
• In all, pensioners’ direct employee contributions will only equal 6 percent of what they will receive in benefits over the course of their retirements.

Those are all from this article, which includes this:

The generous retirement benefits pensioners receive are fundamentally unfair to the taxpayers who are forced to pay for them. Private-sector workers are expected to fund the pensions of state pensioners who can retire and draw benefits in their 50s, who can receive annual pension boosts that can double their pension benefits over the course of their retirements, and who get back what they contributed to pensions after only two years in retirement.

Now tell me, how can Republicans and conservatives serving in elective office in Illinois not be motivated to do something after reading just those facts?

A few more links from IPI:

Pensions Over People
The pension problem was created and has been fueled by weak politicians — men and women who decided their next elections were more important than the next generation.

Each Illinois Household on the Hook for a $56K in Government-Worker Retirement Debt
In just six years, the total debt Illinois households are on the hook for has jumped to $56,000, or 31 percent. That’s a $13,000 increase for each household. Total unfunded debt for state and local governments in Illinois now totals $267 billion.

Illinois Needs to End the Third-Party Payer Problem for Teacher Pensions
Illinois’ teacher pension system is structured to allow local school boards to agree to generous contracts, knowing taxpayers across the state will foot the bill.

For even more enjoyable reading, focus on “pension spiking,” the use of unused sick days to ramp up pension checks, and compare how Social Security measures up to being able to retire in your late 50s and get a pension that is an average of your salary for your final four years. Oh, and compare Social Security cost of living adjustments with that of the state’s 3% COLA.

Again, for the latest and best information the current state pension crisis, peruse the many articles at the IPI website.

As a footnote — other top shelf organizations have researched and reported on the government employee pension scam. Here are just three examples (follow the links to learn more from each group):

Mapping the $100,000+ Illinois Teacher Pensions Costing Taxpayers Nearly $1.0 Billion
By Adam Andrzejewski, the founder and CEO of OpenTheBooks.com.

The Heritage Foundation

And this problem is not unique to Illinois — visit Pension Tsunami to learn more.

Read Part 1 — There is No Excuse for the Failure of Reform

Read Part 2 – The Illinois Pension Scam: State Officials (Including Conservatives) Have Known About it for Many Years

A bold voice for pro-family values in Illinois!

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In preparation for the recording of an IFA Spotlight weekly podcast, executive director Dave Smith asked me to do some research about the Illinois government’s employee pension problem. For me, it is not a fun topic to delve into because for a dozen years now I’ve watched elected conservative state legislators completely ignore the seriousness of the legalized theft that has been going on in Illinois for decades as it pertains to pensions.

Yes, legalized theft. How else can you describe someone paying into a fund about $154,000 over the course of their working years and then expect $2,200,000 in pension benefits from taxpayers during their retirement years? Those are just the Teachers Retirement System numbers, as you can see on the chart below from the Illinois Policy Institute.

Ever wonder why so many kids have trouble with math? From these figures, not even the math teachers seem to understand arithmetic. If they did, we would have heard from the thousands of them spread throughout the public (government-run) K-12 and college systems. Certainly with math that far off they would have organized and spoken up to warn of the coming collapse of the impossible scheme.

But nope. Nothing. Silence. Why should they mess with a good thing? Why not keep your mouth shut and profit handsomely off of the taxpayers?

Thanks to several sources, especially the Illinois Policy Institute, it is difficult to not be drowned in an ocean of terribly disturbing facts.

There are a handful of organizations that have done and continue to do great work on this issue. In the following articles I’ll focus on the Illinois Policy Institute and Taxpayers United of Illinois. In this post, I have to give credit to business owner and government employee compensation expert Bill Zettler. A dozen years ago Bill wrote a letter to the editor at the Daily Herald which was titled, “Yes, Illinois needs pension reform.” Here was the opening sentence:

Give ’em a million, save a billion.

From the article:

My new slogan “Give ’em a million and save a billion” comes from a simple mathematical fact. The average teacher in Illinois who retires after 34 years retires with a pension worth well in excess of a million dollars cash. So if we taxpayers just give them a check for $1 million when they retire (whatever happened to a gold watch?) we will save tens or hundreds of billions over the next 40 years.

That was 2005. As you can see from this IPI chart, the numbers have skyrocketed since. (Click image to enlarge.)

There is so much material that a book could be written on the topic. Actually, a book has been written. A few years ago, Bill Zettler penned “Illinois Pension Scam,” with a forward by the late Jack Roeser. Buy a copy and read some of what your conservative legislators have been ignoring since Bill started to provide a free seminar on what is one of the biggest crisis facing our state.

Over the years Bill investigated and laid out the facts from several angles — and each article could have and should have sparked outrage on a scale large enough to begin a movement to force reform.

Why didn’t it happen? There are several reasons. You can be the judge about which might be the leading factor:

• State legislators deal with a lot of issues, and asking them to learn about the Illinois pension scam is too much to ask.

• State legislators would rather avoid the controversy that would arise when they would confront the army of government employees who benefit from the Illinois pension scam.

• In order to win public support for genuine reform would require state legislators to learn how to become public opinion leader regarding the Illinois pension scam.

• Illinois legislators have their own generous pension plan, so they don’t want to rock the boat and thereby risk having their own pension thrown overboard.

Bill Zettler also knew how to write effective headlines. Here are just a handful of examples for your reading pleasure:

This first post is from 2007 — and because it’s loaded with numbers I just link to the first part. Note — even back then the numbers were outrageous. Conservatives in Illinois have had plenty of time to learn about it and make the case:

Total Pension Liability for One School District: D300

Does Your Employer Contribute $69,000 a Year to Your 401k Retirement Plan?
Answer: I don’t think so. And it’s not because your employer is greedy but simply because it would be impossible to pay that amount and stay in business. They would be bankrupt.

This one is from 2009:

Gov. Quinn: Raise Taxes on $10/hr Workers by 41% to Pay for $10 Million Pensions
73,000 State University Employees Pay Zero for Pensions or Healthcare

Did you know that? The fact is, the count is many times that number when it comes to cushy teacher contracts.

Bill asked a lot of good questions over the years — here are two:

Should A Public Employee Have A Yearly Pension Greater Than His Career Pension Contributions?

Should Part-time Public Employees with Partial Careers get Six-figure Pensions?

Bill covered many anecdotal examples — here are three:

Work for the State 5 Years, Pay in Zero, Get $130,000 Pension
Work for Yourself 45 Years, Pay In $260,000 Get $28,000 Social Security. Anybody see a problem here?

Is $224,000 Per Year Too Much Compensation for a Drive’s Ed Teacher?
How about $1,174 per day for an Art teacher or $149/hr for an English teacher?

Pension Insanity: $75,000 Salary Turns Into $155,000 Pension for One Kindergarten Teacher
I guess it’s OK though; it’s for the kids.

As Bill Zettler wrote in 2008, it’s time to  solve the Illinois public pension problem.

Bill Zettler’s archive can now be read at my website.

Up next: More details about the Illinois pension scam.

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