By: Mark Glennon*

 

The Civic Federation had a long, proud history providing an important check on state and local financial management. It sounded the alarm loudly long ago about Illinois’ problems: “Doomsday is here,” said its President, Laurence Msall, six years ago.

 

No more. A noticeable change occurred about three or four years ago. Since then, the alarms have softened. Critical issues are overlooked or given lip service. Limp pension reform proposals dominate. Dire implications of its own research pass without comment.

 

Now, it has worsened. The Civic Federation has become part of the problem. Last week, it released a “Budget Roadmap” for the state, which can only cause one to ask, “what are they thinking?” Among its recommendations are tax increases totaling $9.4 billion per year. For some perspective, only about $5 billion would be raised if the temporary income tax that expired after 2014 was reinstated. That temporary increase raised the personal rate by 67% and the corporate rate by 45% but failed its stated purpose of reducing the states backlog of unpaid bills. The roadmap offers no reforms that would materially reduce the structural deficit and assure that its proposed tax increases wouldn’t likewise fail.

 

Among the Federation’s tax proposals:

• Retroactively raise the income tax rate for individuals to 5.0% from 3.75% and to 7.0% from 5.25% for corporations as of January 1, 2016.

• Temporarily eliminate the sales tax exemption for food and nonprescription drug purchases from the state’s portion of the sales tax.

• Tax retirement income.

• Expand the sales tax to services.

• Reduce the total discount provided to retailers for collecting sales taxes by instituting a monthly cap on the deduction.

 

It’s difficult to picture any legislator winning an election after supporting tax increases like the Federation supports, or to imagine that most businesses and people wouldn’t start preparing to leave.

 

How about pensions, from which the bulk of our problems derive? Astonishingly, the roadmap calls for the state’s teacher retirement fund to assume the unfunded liability of the Chicago teachers pension — effectively making state taxpayers liable for that pension deficit. That’s roughly $10 billion officially, but far, far more using real numbers. In other words, the state would make a $10 billion gift to Chicago to be used to pay Chicago teachers’ full pensions, and guaranty that amount would be sufficient.

 

Back in 1983, The Civic Federation said of the CPS pension, “Projected costs become infinite. This is an unnecessary expenditure this system cannot afford.” But now Illinois is supposed to take over that infinite cost? What changed? Not the pension projection, which only worsened. It’s The Civic Federation that changed.

 

The Federation has failed before to put up real solutions for the pension crisis. It supported the now-invalidated SB-1 pension reform law for the state, which, even if upheld, would leave us today with unfunded liabilities larger than when the bill was drafted. It also supported the City of Chicago reform bill for two pension, now up on appeal and likely invalid, which also would have little effect if upheld.

 

The roadmap also calls for a constitutional amendment to the pension protection clause — but only to allow for reduction in unearned benefits. That would be of little help. All unfunded liabilities are owed for work already performed, so the amendment doesn’t address the central problem. In fact, the roadmap calls for supplemental, additional payments into the pensions to bring them to 100% funding, but it provides no genuine analysis of how that can be done. The Federation works off the phony official numbers based on overly optimistic assumptions. Nobody can propose an achievable contribution schedule that can really be expected to fully fund our pensions.

 

That $9.4 billion of additional taxes would be just for the state. The Civic Federation appears ready to support large tax increase for local governments, too. Four months ago, they announced their support for Mayor Emmanuel’s can-kicking budget, which included the controversial, huge property tax increase.

 

I’ve asked around about what’s happened to The Civic Federation. Speculation about the reasons varies, though everybody familiar with them seems to agree they have lost their way. One member I know there told me they “just got tired,” though I think there’s more to it than that. Some ascribe it to crony capitalism. We have plenty of that in Chicago, but that did not traditionally hold back the Civic Federation from critical analysis. Others assume Rahm leaned on them or on some of their members. I’d bet the ranch that one is  part of it, but I have no firsthand knowledge.

 

The Civic Federation, by the way, should not be confused with the Civic Committee of the Commercial Club of Chicago. The Civic Committee, headed by President Ty Fahner, likewise used to be a strong critic of fiscal mismanagement. They’ve gone almost entirely silent recently, publishing nothing good or bad. I don’t know what the story is there.

 

The Civic Federation continues to produce research in which the underlying data is useful and professionally compiled. We often link to it or use it here. The problem is in their commentary and recommendations, or lack thereof. An example is their annual report on effective property tax rates in the Chicago area. Those numbers screamed “suicide” for many local towns in which tens of thousands of families have had their home equity obliterated (as we wrote here), yet the Federation simply published the numbers with no comment.

 

The loss of The Civic Federation as a financially sensible voice is a major blow. Making it worse is that the press, which frequently relies on the Federation for insights and commentary, probably will assume the Federation continues to represent a fiscally conservative viewpoint. It doesn’t.

 

*Mark Glennon is founder of WirePoints. Opinions expressed are his own.

Updated 2/16/16 to add the paragraph about the Federation’s position in 1983 on the CPS pension, quoted in a Bloomberg article today.

 

 

 

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Anon
Just what are you looking for? 85% of teachers are women. Women out live men. So probably 90% of retired teachers are elderly women. Most of the HUGE pensions are from rich districts and administration. You live in a $400,000 house, yet you hate old women and think they are over paid. My mother who passed away last year began teaching since shortly after Pearl Harbor. Her pension never reached $40,000. She never lived in a house like yours. MOST teachers DO NOT make much money during their careers, but over the previous decades have been told that the pension is part of their “compensation” so be… Read more »
upper-middle loser
I’m sorry but I had to stop reading once you implied that a $400,000 home was a mansion. I live in a $400,000 home. It is 2,400 sq ft and built in 1974. It is no mansion. I live in the oldest subdivision in a safe area with good schools. I went to college, as did my husband and we have children. We feel we have earned the right to live in a “safe” area with good schools and this is what we could afford… however, during the recession, when our property taxes almost doubled and gas was $5.00 a gallon, we thought we may lose our… Read more »
anon
I live in the same house I bought in 1978, it is worth $115,000 and is a “single family attached home”. My garage on the west is attached to the house next door, and the house to my east garage is attached to my house. No side yard 1100 Square feet. I have a college degree and have taught 40 years in a Jr. High/Middle school. During my “free” summers(and Christmas and spring “breaks”) I have, besides taking required inservices and grad courses, have worked 40 hour weeks doing such fun jobs as cleaning toilets, cutting grass, cleaning floors painting, warehouse, loading and unloading trucks, and retail.… Read more »
upper-middle loser
It’s all relative. I was born and raised in a rural community. My point was not to sneer your situation. I appreciate that your situation isn’t the outlier in some areas. I suspect you live in an area similar to where I was raised. The tax base is completely different. We are in a northwest suburb of Chicago. My husband joined a very large pharmaceutical company straight out of college and that is what keeps us here. Teachers were once considered a relatively low paying profession. There is still that stigma attached to the profession (which plays on the heartstrings of the uninformed). It simply isn’t true… Read more »
Mike

That is an atypical example.

nixit71
You are but one of many working families that are re-evaluating their residency once their kids graduate high school. Folks are moving into areas with good schools when their kids are school age, then moving out when they no longer are consuming those resources. It’s an expensive cycle, much like “scoop and toss” . The politicians are under some delusion that folks will feel obliged to continue some “social contract” when it’s really a value proposition. Folks are looking at their property taxes, seeing that they are paying high prices for services they no longer consume, and making the conscious decision to move somewhere cheaper. It’s a… Read more »
Andrew Szakmary
You asked what happened to the Civic Federation? Two things. The Detroit bankruptcy, in which bondholders fared much worse than pension system members, and the Illinois Supreme Court pension ruling, which eliminated any possibility of pension reductions in any scenario other than bankruptcy. So if Illinois doesn’t raise taxes, then you are positioning the state into a potential bankruptcy (assuming a Republican Congress and a future Republican President and the US Supreme Court all approve legislation allowing that) in which the rich folk who hold the municipal bonds and are members of the Civic Fed would take even larger haircuts than current and former government employees like… Read more »

Had dinner with him and Kurt Summers. Pension solutions never really came up.

John Hawkins

Your statement “…but failed its stated purpose of reducing the states backlog of unpaid bills…” is just false. The tax increase did indeed pay down the backlog. In 2010, the backlog was 6.4 billion. At the end of 2014, it was down to 4.4 billion. It also enabled the State to pay the statutorily required pension payment which increased from 2.7 billion in fiscal year 2009 to 6.8 billion in fiscal year 2014. Not until the tax increase expired in 2015 did the backlog revert back to record levels.

nixit71
If the legislature had passed balanced budgets based on a 3.75% state income tax rate every year for 4 years, the balance of unpaid bills would have been reduced to zero, the state still could have paid more towards pensions, and the state still would have 25% more revenue for operating expenses than it had for the previous 20 years. Instead, they kept spending high and released unbalanced budgets using accounting gimmicks. On top of that, Quinn managed to spend more in the first half of the 2014-15 budget, so when he was kicked out of office, Rauner had to work under a 6 month deficit. The… Read more »
bob oriole park
Before the state talks about raising taxes of any kind, they need to reform spending. During the years of the last income tax increase, the backlog of unpaid bills increased, in spite of the stated goal of the increase being used to pay down said bills. If they enact all the increases the Civic Federation wants, the backlog will still increase. We don’t have an income problem, we have a spending problem. With the Civic Fed’s proposals, it would be like going with an alcoholic to a bar to talk about him needing to reform his drinking habits. How can Tennessee have no income tax, a sales… Read more »
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