In Illinois Government, Who’s Chopping Whom?

Cuts. We all feel them. In some places, they run deeper than others.

Even my hometown of Oak Park, the land of the $37 million pool, is susceptible to cuts. According to the Better Government Association, Governor Rauner wants to cut the share of state income taxes distributed to municipalities through the Local Government Distributive Fund (LGDF) from 8% to 4%. So Illinois’ financial crisis has hit home for all of us, quite literally. Oak Park will indeed be hit hard by this measure. According to Voices For Illinois Children, this would specifically cost Oak Park a potential $2.5M for fiscal year 2016. And in a recent letter to the editor in my local paper, the author mentioned this, along with a myriad of cuts proposed by Governor Rauner that would harm working families, calling for residents to “stop the chop.” But this particular “chop” seemed a bit excessive. What on Earth could we innocent Oak Parkers have done to deserve such treatment from the state?

Good rhetorical, albeit loaded, question. There exists one particular local expense that has ramifications at the state level yet the state has little control over…pensions. In my pension research, I am reminded of a few gimmicks the unions have used to “legally” inflate their pensions, thereby costing the state more money than it should. I wondered if my own leafy village was guilty of such behavior. Then I came across this clause in Oak Park’s District 97 budget regarding educational funding from 2002-03 that sheds some light on reaping what we have sown: 2X20 salary retirement benefits (a contractual commitment to increase retiring certified salaries 20% for each of the last two years of employment) are included with salary budgets. The cost of the salary benefit is $470,000 for 28 staff members.

This is what is known as the infamous pension spike. Locally, it’s a one-time budgetary expense. For the state, it’s a bill they continue to pay to this day. Pension spikes come in many shapes and sizes (there are legends of a teachers’ contract that provided for 70% more in base pay spread over the last three years of employment). Since 2005, it has been limited to 6% over the final years of employment. Prior to that, in many school districts such as Oak Park, the spike came in 20% compounded increments over the final 2 years of service (hence 2×20). That’s a 44% total raise in just 2 short years. And because an educator’s pension is calculated based on the four highest consecutive annual salary rates, the “2×20” pension spike basically throws half of the pension calculation – a calculation, mind you, that is already extremely retiree-friendly and heavily weighted towards end of career earnings – out the window, inflating the pension by thousands of dollars. There are many ways you can imperil a properly funded pension. Providing a late career salary increase is just one of them.

So what does this one budget line item from over a dozen years ago have to do with Rauner’s cuts? Let’s see…the impact of the 2×20 pension spike, for just one teacher back then, could increase a pension by an extra $5,000 the first year (results may vary based on salary and tenure). Add a 3% compounded COLA over a decade, and it comes out to around an extra $65,000 in pension benefits for that one teacher through today. That doesn’t seem like much in the grand scheme of things, does it? Well, according to the budget, 28 teachers were eligible for this benefit. 28 teachers…each receiving an extra $65,000 in benefits…factor in life expectancy… you easily hit $1.5M total through 2015 alone (remember, we’ll still be paying for this for years to come). And this is but one group of retiring teachers. This “2×20” clause appears in D97 budgets before and after 2002. All it takes is one more retiring group and you easily eclipse the $2.5M the governor is threatening to withhold from Oak Park. Late career pension spikes, year after year, across over 800 school districts statewide…one can only fathom the financial impact of this cost shift from local to state government over the decades.

So Oak Park, along with many other municipalities, saddled the state with millions in additional pension costs over the years. In cruel yet comical irony, Oak Park managed a sort of reverse progressivism in all of this. Since our teachers are better compensated than most, it makes for higher pensions, thereby forcing those lower income municipalities to shoulder more than their fair share of our pension debt. In a depraved sort of way, we actually come out ahead (WARNING: SILVER LINING EXTREMELY THIN). Mind you, I have no issue with stand alone, end of career bonuses to reward careers devoted to our village. I do, however, take issue with outlier bonuses manipulating an already generous pension calculation that will be paid out over multiple generations. And I do take issue with paying year after year for yet another gift some schleprock from Generation Gimme took all the credit for. If ‘Seinfeld’ taught us anything, it’s that George bought the big salad.

And to add to this 7 Layer Cake of Cruel Irony, former governor and current lawnmower man Pat Quinn actually lowered the local share of state income taxes from 10% to 6% back in 2011. For those of you lighter in the wallet, you will recall that was the same time Quinn raised Illinois’ individual and corporate income tax rates (ergo the lightweight wallet). That meant the state pocketed all the extra revenue from the tax hike and passed none of it down to the towns and villages. Yet I don’t seem to recall my local leaders clamoring for our “fair share” back then. Considering they knew the tax hike was temporary <cough>, perhaps they should have presented a better case before Baron Von Madigan and the Taxaholics to get that money before it was gone. After all, tax revenues are to Illinois politicians as martinis were to Dean Martin. Consumed quickly.

So the state and local governments continue this tired dance. Cities pawn off extra unearned pension debt to the state. The state gets stingy on income tax sharing with its cities. Both cry foul. But at the end of the day, it’s the increasingly diminished and impaired taxpayer who pays, one way or another. But the state is the desperate bookie now, calling on overdue debts. And the enforcer is on his way to Oak Park to collect, with only the Hillside Strangler and those left-hand ramps on I-290 standing in his way.

Are we really surprised that it’s come to this? Where was my local state Senator Harmon’s concern for – as he put it – the resulting “fewer firefighters and police officers, slow snow removal and more pesky potholes” when Oak Park was spiking the pension punch and sticking the state with the bill? Perhaps Senator Harmon could use some of the over $100,000 worth of teacher union PAC money he received over the years to fill those “pesky” potholes. And why were the “Voices for Illinois Children” eerily silent as spiking happened across the state? That was the children’s money, right?  Perhaps they should have teamed up with the “Stand for Children Illinois” or one of the assortment of children-proxy PAC’s roaming the cornfields of Illinois and asked to reroute those spike funds their way instead. In-between all the talking and the standing, the children might want to ask Harmon and the other politicians exactly where they stand in the political pecking order. Better yet, allow me…SEIU, IEA, IFT, AFSCME, everybody else…

So whom exactly is the victim here? And who’s chopping whom? It’s hard to tell from my vantage point. Besides, I’m too busy watching my wallet float away.

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