Editor’s Note: California and Illinois have a lot in common. Both have diverse, resilient economies, both are large states with most of the population concentrated in urban areas, and both have been controlled for decades by public sector unions. The crucial difference, of course, is that at least in Illinois, there is a reform minded governor who is standing up to the unions. But will it matter? In this article by Mike Shedlock, including commentary by Michael Bargo, it is clear that the depth of government union power in Illinois will be hard to overcome, even by a charismatic governor who is committed to reform. One of the most noteworthy quotes in this article comes from Bargo, who contends that literally 100% of the property tax proceeds paid by residents of Chicago are required to make pension payments. One analyst estimated the total per capita state and local debt for a Chicago resident at $88,000. But this debt wasn’t incurred to “help the working class and poor.” It is primarily to pay for pensions. California’s teetering pension systems are one market downturn away from facing a situation just as dire as Illinois. The hypocrisy of the government union controlled politicians in Illinois, and California, is only matched by their unwarranted power.
Here is my post from two weeks ago, Emanuel Fiddles While Chicago Burns; Public Schools Over the Edge; 9% Cloud Tax on Data Streaming; Emanuel Eyes Property Tax Hikes. discussing the sorry state of affairs in Chicago.
Michael Bargo, writer for the American Thinker, provides additional commentary on this topic.
Here is a lengthy snip from Bargo’s recent, well-written article Public Pensions Prove Zero Sum Economics.
One of the major appeals in Democrat presidential campaigns is to explain to voters that they need Democrats in office to take money away from the rich. And since the rich own big corporations, they will pay workers as little as possible. This idea is what Barack Obama had in mind in 2008 when he said he will redistribute money to the working class and poor.
But so far this analysis has only been applied to the private sector; the “rich” who own stocks or run corporations. If public sector workers, particularly pensioners who are not working, are taking significant amounts of money from taxpayers, then this may also be seen as contributing to the shrinkage of middle class incomes.
Of course, Illinois is not the only state dominated by high Democrat taxes and public sector spending but it serves as a good case study of what Democrats do when they have total control of budgets for decades.
The results are startling. Today, Chicago’s public sector unions are underfunded, according to the City itself, by $26.8 billion. This is just the City of Chicago. When the state debt is added, the total amount of debt owed by each Chicago household to the city and state rise, according to the Illinois Policy Institute, to $61,000. SEC Commissioner Gallagher stated the number is $88,000.
Pension payments to Chicago public union employees have become so high that today all the property taxes paid by the households of Chicago go exclusively to pensions. The operating expenses are paid by additional taxes on things from packs of cigarettes, to gasoline, sales tax, and cable TV bills. Given these facts about how Chicago’s property taxes are used, it’s not surprising that its new Republican governor wants to freeze property taxes to rescue the middle class’s paychecks from Democrats.
All public debt creates taxation and the effects have an impact, sooner or later. The more time allowed for debts to go unpaid, the greater the amount of taxes eventually wasted on interest payments.
Chicago is now the slowest growing of all major cities. In 2014 Chicago only gained 82 people in population. Residents are fleeing Illinois, taking their purchasing power with them. Illinois is also the slowest state to recover from the recession.
Chicago households will have to pay, through taxes, muni bond and unfunded pension debt for decades to come. Far into their lifetimes, and the lifetimes of their children. Zero sum theory is true, but the lion’s share of the proof shows that government spending, not private sector investing, takes money from average Americans.
Zero sum theory has been used by Democrats as nothing but a rhetorical tool used to exploit voters’ emotions of envy and greed. But in the end, the greed is exercised by Democrats while taxpayers in Illinois find themselves deep into a hole of government-created debt.
The private Illinois Policy Institute has uncovered most of the facts used here, and often had to file FOIA requests. In some cases, they had to take state agencies to Federal court to find out how much they were earning, and how much debt they had accumulated. This is all planned, it is a strategy used by Democrats to con taxpayers into putting them into office; saying they want small class size and to help the elderly; while all along they were secretly passing huge public pension contracts and dumping the cost onto average middle class and poor taxpayers.
These facts show two things. One is that these payments are so high that all Chicago households are under a crushing debt burden that takes many thousands per year away from their household budgets. And secondly, these figures provide an opportunity to measure whether this transfer of wealth from households to public pensioners negatively impacts economic grow. Illinois has the most public debt, the lowest credit rating, and the slowest growth.
Who Really Runs Illinois?
Little or no legislation passes through the Illinois legislature without the approval of Michael Madigan.
Wikipedia notes Madigan has been a House member since 1971, and Speaker in all but two years since 1983.
Chicago Magazine named Madigan the fourth-most-powerful Chicagoan in 2012 and second in 2013 and 2014, calling him “the Velvet Hammer—a.k.a. the Real Governor of Illinois.”
Rich Miller, editor of the Capitol Fax Illinois political newsletter, wrote “the pile of political corpses outside Madigan’s Statehouse door of those who tried to beat him one way or another is a mile high and a mile wide.“
Taxes Not the Answer
The results of Madigan’s tenure as the long-serving “real governor” of Illinois are as follows:
- Pension holes in the hundreds of billions of dollars
- Budget deficits
- Business exodus
- Private taxpayer exodus
- High taxes
- Shrinking middle class
Tax hikes are clearly not the answer. Illinois has a spending problem, not a revenue problem.
Unfortunately for Illinoisans, other than kowtowing to public union demands, raising taxes is about the only thing Madigan knows how to do.
The results of Madigan’s tenure speak for themselves.
Isn’t it time to try a new tack?
Here’s Where to Start
- Bankruptcy legislation to allow municipal bankruptcies
- Pass Right-to-Work legislation
- Scrap prevailing wage laws
- Property tax freeze
- Freeze defined benefit pension plans
- Pension reform
- Fair redistricting
- Reform worker’s compensation laws
That’s a big list of things that needs to be done, and Madigan is on the other side of every one of them.
As I said at the top, Emanuel Fiddles While Chicago Burns.
And at the state level, Madigan Fiddles While Illinois Burns.
About the Author: Mike Shedlock is the editor of the top-rated global economics blog Mish’s Global Economic Trend Analysis, offering insightful commentary every day of the week. He is also a contributing “professor” on Minyanville, a community site focused on economic and financial education, and a senior fellow with the Illinois Policy Institute.