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.