Jane McEnaney
Policy Outreach Manager

This was an eventful week in Springfield. Though pension negotiations between House Speaker Mike Madigan and Senate President John Cullerton remain at an impasse, the General Assembly passed Senate Bill 2356, which raises the speed limit on Illinois’ tollways and interstates to 70 mph, up from 65 mph. Gov. Pat Quinn remains noncommittal on this issue.

Here’s a look at some of the legislative highlights from this week.

Medicaid expansion bill makes its way to the House floor

Senate Bill 26, which adopts ObamaCare's voluntary expansion of Medicaid, passed out of the House Human Services Committee on Tuesday. The bill has been placed on the House calendar and could be taken up for a vote by the full chamber as early as Monday.

The Illinois Policy Institute was pleased to see Republican committee members stand together in their opposition to the expansion of a failing system and hope to see the entire caucus do the same when SB 26 is heard on the floor. Illinois cannot afford to expand Medicaid, nor should it try to, because enacting SB 26 will not improve health outcomes for the state’s most vulnerable residents.

Furthermore, Illinois will face future credit downgrades if it expands Medicaid. Instead of trying to expand a system that is already broken, Illinois lawmakers would be well-advised to refocus their efforts on improving the quality of the state’s current Medicaid program. Transforming how Medicaid operates is the only solution that does right by both patients and taxpayers.

State-funded health insurance exchange passes the Senate

House Bill 3227, which establishes a state-funded ObamaCare health insurance exchange, passed the Illinois Senate yesterday. Although the Institute opposes this legislation, we were pleased that the Senate Republican Caucus held strong in their opposition to this bill, as its passage is critical to the implementation of ObamaCare in Illinois. The state simply cannot afford to create an exchange, nor is it under any obligation to do so.

Next, HB 3227 will return to the House floor, where members will likely vote in concurrence with the Senate’s amendments, thereby passing the bill, which Quinn is expected to sign into law.

Bipartisan pension reform measure on its way to Quinn’s desk

On Wednesday, the Illinois Senate unanimously passed House Bill 140, a pension reform measure sponsored by state Sen. Dan Duffy. Supported by the Institute since it was assigned to committee in January, HB 140 eliminates benefits packages currently afforded to part-time members of state-funded transit boards.

“Illinois is notorious for its large number of wasteful boards and commissions,” Duffy said. “While we’re financing these boards, paying their members often exorbitant salaries as well as benefits, we’re not making payments on pensions for teachers, firefighters and policemen. Benefits for these boards and commissions are low-hanging fruit, and are a good place to start in making up for the $100 billion unfunded pension liability in Illinois.”

Now, HB 140 heads to Quinn, who will hopefully sign this bill into law and cut waste out of our unsustainable and underfunded state pension system.

Less than one week left in the 2013 legislative session

Illinois’ 98th General Assembly is scheduled to resume their legislative session on Friday, May 31, once a state budget is passed. With Democratically controlled supermajorities in both chambers, this is not expected to be difficult. The Illinois House is scheduled to be in session on Sunday and the Senate resumes session on Monday. Rest assured – the Institute’s Government Affairs team is spending Memorial Day weekend in Springfield.

QUOTE OF THE DAY

Sun-Times: Staggering debt obligations of House’s pension reform should require 60% approval

Representatives of organized labor in Illinois contend that the pension-reform bill recently passed by the House would be unconstitutional because it diminishes or impairs the claims of retirees. I think it’s probably unconstitutional for a very different reason.

Our Legislature can spend money by simply passing an appropriation — by majority vote of both houses and with the approval of the governor.

However, the framers of our state Constitution realized that the incurring of debt was more dangerous to the future of the state. So they provided that debt may not be incurred for general purposes except under tight limits in amount and duration, and that debt “for specific purposes” may not be incurred — “or the payment of State or other debt guaranteed” — except by a vote of three-fifths of the members of both houses.

The Madigan pension reform bill passed by the House (though not the Senate) would impose a new “contract obligation” on the state, mandating annual funding. This funding obligation is declared by the House bill to be “protected and enforceable under” Section 16 of Article I (prohibiting any law impairing the obligation of a contract) and Section 5 of XIII (the pension clause) of the state Constitution. If the state should fail to pay the “amount guaranteed,” a special judicial “mandamus” mechanism is made available to compel payment.

This is a column — not a legal opinion. But it doesn’t take a lawyer to read the guarantee language that would make the pension funding payments a “contract obligation” of the state, and that refers to these annual payments as the “amount guaranteed.” This funding commitment would bind future legislatures to appropriate billions of dollars each year for decades. The total value of these funding obligations would be vastly more than any amount of debt ever previously assumed by our state.

If ever there were a moment of monumental importance to the future of the state — one when the extra protection of a super-majority vote should be required — this is surely it.

The drafters of the Madigan bill may argue that their bill only guarantees annual funding of the debt. But that annual funding is precisely the means by which “payment of” the “other debt” — the pension fund debt — is being “guaranteed.”

Why raise this point now, when the Senate hasn’t even voted yet? In part to assure that the super-majority requirement will be honored. In part to underscore the extraordinary seriousness and immensity of risk to the state represented by the proposed guarantee.

If Springfield hangs this fiscal albatross around our state’s neck, we can be sure Chicago’s pensions and CPS’ won’t be far behind. Who will be asked to guarantee those obligations?

Moreover, if the state were to guarantee funding of these obligations — including those of the K-12 school districts and state universities and community colleges — what would be the point of Speaker Madigan’s gradual “shift” of funding responsibility back to the school districts and colleges? If they fail to fund, would the state still be the guarantor?

We ought to make sure that at least 60 percent of our legislators in each house think this is a good idea. And if they do, we ought to remember.

Fiscal Times: Why A ‘Too Big to Manage’ Government Should Downsize

To listen to press secretaries and congressional hearings, one might think that an epidemic had erupted in the nation’s capital – an epidemic of incompetence and absentee leadership. Practically no area of government has immunity from this disease, whether it’s at the White House, the State Department, the IRS and Treasury, or at the Department of Justice.

Let’s start with the White House, which may well be the epicenter of the disease. The administration faces at least three major scandals – Benghazi, the Department of Justice’s snooping on reporters for the AP and Fox News, and the IRS targeting of conservative groups for harassment and procedural blocks on their tax-exempt applications.

To hear Jay Carney answer questions from the media, no one at the White House knew anything about any of these issues in the executive branch they manage, at least not until they heard about it on the television news. (Presumably, this is a big compliment to CNN.)

Actually, Jay Carney doesn’t even know what the White House does and doesn’t know, depending on the day of the week.  After claiming that no one at the White House knew anything at all about the IRS practices until Lois Lerner staged a self-serving question at an ABA conference to apologize ahead of the release of the Inspector General report, Carney then backtracked four separate times in as many business days.

Eventually – or perhaps more accurately, so far – Carney ended up admitting that White House counsel Kathryn Ruemmler knew about the IRS abuses by mid-April at the latest, and had discussed the matter with chief of staff Denis McDonough, although neither of them thought to update their boss on the matter. Media outlets responded by creating timelines of the evolution of Carney’s explanations.

Actually, even the President seemed unclear about what he knew and when. At a press conference last week, a reporter asked him when he knew about the IRS abuses toward conservative groups. Barack Obama responded by claiming he didn’t know about the Inspector General report until May 10th – which, as CBS News’ Mark Knoller pointed out, didn’t answer the question about when Obama knew about the abuses themselves.

Also, Carney now acknowledges that Ruemmler knew about the IRS abuses and shared them with McDonough but not the president – and, it should be noted, the IRS chief counsel was briefed on the targeting practices in August 2011, while Schulman claimed no knowledge of them in March 2012 in two appearances before congressional committees.

Chief counsels exist to brief executives on legal issues to prevent them from being blindsided, as well as to give advice on how to deal with them. A counsel who gets that kind of information and keeps it from the executive either does so to preserve plausible deniability for political reasons or because the counsel knows that the executive already has knowledge of the situation through other means.

Bloomberg: IRS Safeguards Toothless in Tea Party Nonprofit Cases

On July 22, 1998, President Bill Clinton signed into law a reorganization of the Internal Revenue Service designed to “give the American people an IRS that reflects America’s values and respects America’s taxpayers.”

That didn’t work out so well.

As the Obama administration confronts a political crisis that has reinforced the worst imaginings of anti-Washington Republicans -- and many others -- the IRS instead has become an emblem of government dysfunction.

“The service is an amazing bureaucracy,” said Bryan Camp, a former attorney in the IRS’s chief counsel office. “Amazing in that it’s able to get done what it gets done and amazing in its incredibly byzantine and archaic chain of command.”

Lawmakers of both parties and President Barack Obama this week assailed the IRS for singling out for special scrutiny applications for tax-exempt status from anti-tax Tea Party groups. Republicans, including Utah Senator Mike Lee, leveled a broader indictment, saying the agency’s actions demonstrated the inherent dangers of runaway government.

The agency at the center of Washington’s latest political storm hardly lacked for institutional safeguards. The 1998 restructuring -- the first such changes in nearly half a century -- created a nine-member IRS Oversight Board designed “to oversee the IRS in its administration, management, conduct, direction, and supervision” of the tax laws.

US News: The First Amendment Under Siege

It has been a bad few weeks for the First Amendment.

The sinister commonality to the Internal Revenue Service and AP scandals and the James Rosen affair is that each appears to have been (strike "appears ": each was) an attempt to suppress a core American right.

Freedom of the press was clearly the target in the Rosen Affair. The Justice Department, according to Ryan Lizza at newyorker.com, "not only subpoenaed Rosen's private e-mails but also said that Rosen was ‘an aider and abettor and/or co-conspirator' in the alleged crime." Lizza adds that, "[I]t is unprecedented for the government, in an official court document, to accuse a reporter of breaking the law for conducting the routine business of reporting on government secrets." Writes the Washington Post's Dana Milbank, "The Rosen affair... uses technology to silence critics in a way Richard Nixon could only have dreamed of."

With its broad sweep, the government's secret seizure of Associated Press emails is at least as bad for press freedom. As the New York Daily News' S.E. Cupp explains:

The chilling effect so often described by journalists is that reporters can no longer offer sources the assurance that their identities will be protected. When that happens, sources clam up and dry up. That silence, especially in matters of war, diplomacy and peace, makes it that much harder for the press to expose government injustices to the public. This calls into question our very understanding of what a free press is.

The IRS's targeting of conservative groups and individuals was an equally direct attack on freedom of speech. This is so obvious and so well documented that it hardly needs to be explained. Essentially the administration sought to silence critics.

I say "the administration" for increasingly it appears clear that the IRS was a tool of the White House. What else can you conclude from former IRS commissioner Douglas Shulman's 118 visits to the White House in 2010 and 2011?  Last night I was with a former senior aide to a president. With a shake of the head, I was told that even the most senior cabinet officers don't visit the White House 118 times in the course of an entire administration. There is no way, this top-level Washington veteran maintained, that they were talking about the implementation of Obamacare all that time.

WSJ: States' Rift on Taxes Widens

Blue States Hike Taxes Even as Red States Cut Them

Minnesota's move to raise $2.1 billion in new taxes, largely from the wealthy, to fund government programs puts it among a handful of states controlled by Democrats that are adopting more liberal fiscal policies at a time when many Republican-dominated statehouses are pushing to cut taxes.

The Minnesota tax package, which Gov. Mark Dayton signed into law Thursday, aims to raise the revenue largely for expanding early-childhood education programs and freezing tuitions at state universities, as well as closing the state's budget deficit and funding some jobs initiatives and property-tax refunds.

The measure was backed by the Democratic-Farmer-Labor Party, which holds control of both legislative chambers and the governor's office in Minnesota for the first time in more than two decades. The legislative session, which ended this week, also saw the passage of measures legalizing same-sex marriage and expanding union-organizing powers over the steady objection of Republican lawmakers.

"It is just what government should be doing, and just what Republicans refuse to acknowledge government should be doing," Mr. Dayton said of the tax plan.

The measures contrast starkly with initiatives to cut or eliminate taxes on individual and corporate incomes that have dominated the discussion in much of the country, thanks to Republican control of nearly half the statehouses. In Minnesota, Republicans said the tax increases would cause jobs and residents to leave the state for nearby places like Wisconsin and North Dakota. State Rep. Greg Davids called the legislation an overreach by the majority party, putting Minnesota "so far out of the mainstream."

Other blue states are taking similar steps, betting that new spending on education and infrastructure funded by tax increases can produce sustained economic growth that reaches a broad swath of the population. Massachusetts Gov. Deval Patrick and fellow Democrats who control the legislature are debating proposals to raise taxes on income and gasoline to fund new investments.

Stateline: Which States Tax Your Travel the Most?

Hate airline fees? Check your tab, because travelers are also being nickeled-and-dimed by additional taxes being imposed by states and cities.

Visitors to Fort Lauderdale and Honolulu, for example, typically spend about $22 a day on extra taxes on hotels, meals and rental cars. But that’s far less than if they went to Chicago, where state and local hospitality taxes total more than $40 a day, according to a report from the Global Business Travel Association, a trade group.

Even staying in Las Vegas and Washington, D.C. is cheaper than Chicago’s combined 16 percent tax on a hotel room and 20 percent tax on a car rental, the association’s data show.

Travel is big business for states.  Florida visitors, for instance, spent nearly $67 billion in 2010, the latest information available, and generated nearly $10 billion to federal, state and local governments, according to new state-by-state figures from the U.S. Travel Association, a trade group.

States welcomed a record number of foreign visitors in 2012, federal data show, with New York, California and Florida the top destinations.

Taxing tourists can be a dicey dilemma, though.  State and local politicians would rather avoid raising taxes on locals who can boot them out of office, but they also know that tourists can still “vote with their feet” and go where taxes are lower, said Erica Michel of the National Conference of State Legislatures.  In the early 1990s, she said, convention planners boycotted New York City when its taxes on hotel rooms exceeded 21 percent, she said. Today the rate is 14.75 percent, she said.

CARTOON OF THE DAY

Hilary Gowins
Editor

The state of Illinois has been experiencing net out-migration for the last decade. That is, the number of people choosing to leave the state is outpacing the number of people moving to Illinois.

Illinois had the eighth-lowest population growth in the nation between 2002 and 2012. And compared with its neighbors, Illinois’ population growth is abysmal.  

And Chicago's population growth is anemic as well.

CBS Chicago writes:

Chicago gained nearly 10,000 people from July 2011 to July 2012, but was the slowest-growing major city in the country according to U.S. Census Bureau estimates released Thursday.

It was the second year in a row that population grew here, but the increase so far shows no signs of making up for the loss of 200,000 people over the previous decade, according to a report in the Chicago Sun-Times.

The growth here reflects a recession-driven trend of fewer people moving out of urban centers, said demographer Ken Johnson of the University of New Hampshire.

“The recession has frozen the population into place, so it can’t move,” Johnson said. “Places like Chicago or the inner suburbs which were losing so many migrants just aren’t losing them anymore at the same rate.”

Like Chicago, suburbs in Cook County also grew slightly, adding about 7,600 people in contrast to losses from 2000-2010.

Scott Reeder
Liberty Justice Center

I once shocked an intern when I told her I was a reporter before cell phones were common.

I used to have to have to hunt for pay phones to call stories in to the copy desk. (Fortunately, the intern didn’t ask, ‘What’s a pay phone?’”)

Cell phones have become a ubiquitous part of our lives.

Now the General Assembly is trying to tell us when we can use those phones.

On Thursday the Senate voted 34-20 to prohibit people from talking on a handheld cellphones while driving. The measure, which already had passed the House, now proceeds to Gov. Pat Quinn for his consideration.

How about leaving it up drivers to decide when it’s safe – and when it’s not.

This kind of law is an example of the Nanny State in overdrive.

Can cellphones be distracting? Yes. But so can a lot of other things.

A few weeks ago, on Interstate 55, I was passed by a person reading a book resting on her steering wheel. It sent shivers down my spine – far more than seeing someone chatting on a cell phone while motoring on rural highway.

And who hasn’t seen a woman applying makeup or a man tying a tie while peering into a rearview mirror and driving to work?

There is no way a legislature can legislate for every eventuality.

Trust has to rest with citizens – not government.

We have to make wise decisions for ourselves – or be willing to bear the consequences.

Jacob Huebert
Associate Counsel
Liberty Justice Center

Jim Nuccio and Gabriel Wiesen are two young entrepreneurs who want to operate their Beavers Coffee & Donuts food truck in Evanston.

But one thing stands in their way: a city ordinance that allows only food trucks run by “licensed food establishments,” such as brick-and-mortar restaurants, to operate there. Jim and Gabriel do not own a restaurant in Evanston, so they cannot qualify for a license. The city has given no health or safety explanation for this requirement – instead, its only possible purpose is to protect established restaurants from food truck competition.

That is why the Liberty Justice Center stepped in and filed a lawsuit on behalf of Jim and Gabriel, taking on the unconstitutionality of this irrational and arbitrary ordinance. In response, the city of Evanston moved to dismiss Jim and Gabriel’s complaint. Incredibly, the city argued that their case wasn’t ripe for court consideration because they should have applied for a license, even though the express language of the ordinance and the application itself say they can’t get one because they don’t own a brick-and-mortar restaurant in Evanston. 

As we reported last February, the court agreed and required Jim and Gabriel to go through the application process.  During the last month, they completed the written application, assembled all the required documentation, and submitted it to the city. When the city wrote back to them and asked for even more detailed documentation, they provided it. 

On May 2, the city responded to Jim and Gabriel with an “Application Denied” letter. Despite meeting all the ordinance’s health and safety provisions, the city denied the license for one reason, and one reason only: because their vehicle was not “owned and operated by the owner or agent of a licensed food establishment in the City.” So the bad news is that Beavers Donuts will not be allowed to operate in Evanston unless and until the unconstitutional ordinance is struck down. The good news is that the city does not dispute that Beavers Donuts meets all of Evanston’s health and safety standards, and now their lawsuit can go forward. 

As the Liberty Justice Center continues to fight for Jim and Gabriel’s constitutional rights, there is something the citizens of Evanston can do as well: go to your city officials and demand that they explain how the brick-and-mortar requirement serves any purpose other than to stifle competition and consumer choice in Evanston. And ask them to repeal this ordinance.

These needless government restrictions are not only unconstitutional, but they also are bad policy. Indeed, city officials should be doing all they can to roll out the welcome mat for hardworking entrepreneurs like Jim and Gabriel who simply want to make a living by bringing their delicious gourmet donuts and coffee to Evanston residents.

Paul Kersey
Director of Labor Policy

Sometimes decline is a reality that must be dealt with before it can be reversed – and that’s the situation that the Chicago Public Schools board faces. With shrinking enrollment in traditional public schools the CPS board had little choice but to close down some school buildings and redistribute students to new classrooms.

Some of the choices CPS has made are questionable, and it is doubtful that many parents will see any improvement in the education their kids are getting (for reasons my colleague Josh Dwyer went over yesterday). But in defense of the CPS board, it has to be said that they weren’t helped by a union that has done much to drag CPS down, and is only making matters worse by insisting that CPS pretend that it isn’t losing students.

The Chicago Teachers Union’s position all along has been that Chicago schools either aren’t broke, or that if they are it’s only because they don’t tax enough. But CTU forgets that there are limits to how much a government can tax, and it looks like Chicago has run into its limit. The city lost 200,000 people between 2000 and 2010, and Chicago was still the slowest-growing major city in America in 2012.

Meanwhile, CPS struggles with poor academics, which CTU isn’t helping with its resistance to rigorous teacher evaluations. CTU’s pay raise demands have pushed the school system even further into the red. Even before the most recent contract awarded teachers raises averaging 17.6 percent over four years, CPS’s budget was all out of kilter due to a severely underfunded pension plan.

Back when the teachers strike ended last fall it was fairly obvious that CPS would have to respond by closing down schools. CTU’s rhetoric has gotten more and more passionate, but nothing they have said or done has changed the basic arithmetic confronting the school board. That’s why CPS did what they did.  And if the union doesn’t change its tune, there could be even more schools closed down in the not-too-distant future.

image credit: Sitthixay Ditthavong/AP

QUOTE OF THE DAY

Chicago Tribune: Apple to get parts from Illinois for U.S.-built Mac

Apple will source some components for its first line of U.S.-assembled Mac computers from Illinois, Chief Executive Tim Cook has revealed.

The Illinois-sourced parts will be assembled in a Texas plant the tech firm plans to build at a cost of more than $100 million.

"The product will be assembled in Texas, include components made in Illinois and Florida, and rely on equipment produced in Kentucky and Michigan," Cook said while giving testimony regarding Apple's tax policies at the U.S. Capitol Tuesday.

When contacted Wednesday, Amy Bessette, an Apple spokeswoman, did not to give further insight into Illinois' contribution to this plan, such as companies that will be involved.

"I'm afraid that we do not have any more details other than what was in the (Cook's) statement," Bessette said.

Apple has over the years come under scrutiny for its preference to build its products abroad, where the cost of labor is considerably cheaper.

The firm made a U-turn in this policy last year, announcing plans to begin assembling computers in the country this year.

Yahoo! News: Who makes money off your student loans? You might be surprised

Making money off the student loan industry isn’t just for big banks anymore. Thanks to new lending rules and historically low interest rates, the federal government is now getting a sizable piece of the action.

Commercial banks like Sallie Mae, a former government agency now the nation’s largest private student loan lender, continue to make an enormous profit (Sallie Mae reported $939 million in profit for 2012).

But today, nearly three years after the government cut commercial banks out of the federal student loan market, banks aren’t the only ones profiting from people seeking a degree. Now that the Department of Education is responsible for lending to students directly, the government is making big money off the nation’s scholars.

Current students and recent graduates currently carry $1.1 trillion in outstanding debt—more than the nation's combined credit card debt.

The Congressional Budget Office in February estimated that the Department of Education will make $35.5 billion in profit in 2013 from student loan programs. But that number was just revised this month to $50.6 billion in profits—a 43 percent increase for the year.

"Who's making the most money right now is the federal government," Tobin Van Ostern, deputy director of the student advocacy group Campus Progress, told Yahoo News.

It's worth noting that the $50.6 billion is just an estimate—loans are unlikely to be repaid at the estimated rate, and other factors are likely to change, like the cost of servicing loans. And profits are expected to decrease in coming years—in 2019, the government's profit is projected by CBO to be about $4.85 billion.

But the 2013 projection puts the Department of Education's student loan profits above those of last year's most profitable company, Exxon Mobil, which made $41 billion, according to Forbes' rankings.

So how did this happen?

Real Clear Markets: Apple CEO Tim Cook Pounds Another Nail Into the Keynesian Coffin

As most readers are now aware, technology giant Apple Inc. has in the past few days been the recipient of juvenile attacks from U.S. Senators on both sides of the political aisle. Its alleged misdeed: the legal shielding of overseas earnings from corporate taxation stateside.

Funny here is that back in 2001 Sarbanes-Oxley was foolishly passed to ensure that CEOs watch out for shareholders. Twelve years later Apple chief Tim Cook is under attack for doing just that.

Congress, ever eager to spend money not its own, is bothered that Apple would have the temerity to not expose all of its earnings to U.S. taxation. Politicians exist to spend, and Apple is apparently not giving them enough to spend despite the billions in taxes it hands to the feds on an annual basis. The hubris of the political class is surely limitless.

After that, the Apple story offers a real-world path to analyzing the effect of Keynesian stimulus programs. It says here that the Apple example reveals with great clarity just how anti-growth is the oxymoron that is ‘government stimulus.'

That's the case because whether right or left, it would be hard to find anyone so deluded as to say the federal government can allocate capital in ways more stimulative than can Apple. The technology behemoth employs 75,000 around the world, not to mention an exponentially higher number of individuals whose jobs are a function of Apple's great success.

Notable here is that Apple's ability to employ so many is solely a function of those with savings voluntarily offering them up to the Cupertino, CA technologist. For having done so many have seen the value of their delayed consumption skyrocket alongside Apple's frequent ability to provide consumers with what they want.

Assuming Cook had chosen to expose all of Apple's earnings to U.S. taxation he would not only have been fired, but it's also the case that the revolutionary creator of iPhones and iPads would have less in the way of funds to access in order to continue to innovate.

To Keynesians of the Paul Krugman variety, the above would not be a problem. In their staggeringly obtuse view of the world, how capital is allocated is of no consequence; the important thing being that money is spent with abandon. To the Keynesians who worship at the altar of consumption, the economic ideal is to get the money spent as quickly as possible.

Quick and the Ed: Teacher Benefits Are Eating Away at Salaries

The big news out of the latest Public Education Finances Report is official confirmation that school districts spent less money per student in 2010-11 than they had the year before, the first one-year decline in nearly four decades. It’s worth taking some time to reflect on that fact, but the full report is also a valuable source of data on state and district revenues and expenditures and the entirety of the $600 billion public K-12 education industry. One key takeaway is that employee benefits continue to take on a rising share of district expenditures.

The table below uses 19 years of data (all years that are available online) to show total current expenditures (i.e. it excludes capital costs and debt), expenditures on base salaries and wages, and expenditures on benefits like retirement coverage, health insurance, tuition reimbursements, and unemployment compensation. Although it would be interesting to sort out which of these benefits have increased the most, the data don’t allow us to draw those granular conclusions. But they do tell us that teachers and district employees are forgoing wage increases on behalf of benefit enhancements.

From 2001 to 2011 alone, public education spending increased 49 percent, but, while salaries and wages increased 37 percent, employee benefits increased 88 percent. Twenty years ago, districts spent more than four dollars in wages to every one dollar they spent on benefits. Now that ratio has dropped under three-to-one.  Benefits now eat up more than 20 percent of district budgets, or $2,262 per student, and those numbers are climbing.

This trend coincided roughly with a teacher hiring boom here in the United States, meaning these changes happened despite districts’ employing more teachers, and it’s likely to continue as states and districts continue to feel the pressure from unfunded pension and health care promises, which totaled $1.38 trillion at last count. This is not a good trend. Instead of hiring even more teachers or paying them more money, districts are devoting an increasing share of finite resources to employee benefits. Workers value compensation that shows up in their paychecks more than they do hidden benefits, and districts should make conscious efforts to slow this change and put more money directly into teachers’ pockets.

Investor's: Texas, Red States Beat Blue States On Jobs, Growth

Texas outperformed every other state in the nation on jobs and growth over the past decade, according to the latest annual report on state economic performance released Thursday by the American Legislative Exchange Council. Michigan came in dead last.

The rankings are based on state GDP growth, population shifts, and changes in non-farm payroll jobs between 2001 and 2011.

The ALEC report also finds that Utah has the best economic outlook this year, and Vermont the worst.

That outlook ranking is based on more than a dozen public policies that the authors say are closely related to economic growth — including various tax rates, workers compensation costs, minimum wage laws, right to work laws, government jobs as a share of the workforce, and debt service as a share of tax revenues.

In addition, an IBD analysis of the data finds that conservative, Republican states vastly outperformed liberal, Democratic states over the past decade on jobs and economic growth, and attracted more people to their states.

In fact, of the 10 states that had the best economic performance over the past decade, all but two — Nevada and Washington — are solid red states, based on the past four presidential elections. Other top economic performers include Utah, Wyoming, North Dakota, Idaho and Arizona.

At the other end of the spectrum, all but two of the worst-performing states are solidly blue. In addition to Michigan, bottom-dwelling states include New Jersey, Illinois, Connecticut and Massachusetts. The only non-blue states in the bottom 10 were Ohio and Missouri.

CBS Chicago: Chicago Slowest Growing Big City In U.S.

Chicago gained nearly 10,000 people from July 2011 to July 2012, but was the slowest-growing major city in the country according to U.S. Census Bureau estimates released Thursday.

It was the second year in a row that population grew here, but the increase so far shows no signs of making up for the loss of 200,000 people over the previous decade, according to a report in the Chicago Sun-Times.

The growth here reflects a recession-driven trend of fewer people moving out of urban centers, said demographer Ken Johnson of the University of New Hampshire.

“The recession has frozen the population into place, so it can’t move,” Johnson said. “Places like Chicago or the inner suburbs which were losing so many migrants just aren’t losing them anymore at the same rate.”

Like Chicago, suburbs in Cook County also grew slightly, adding about 7,600 people in contrast to losses from 2000-2010.

And because more people are staying put, towns in formerly fast-growing Will and Kendall Counties aren’t growing as fast as they used to, Johnson said.

Among cities with more than one million people, sun-belt metropolises like Dallas, San Antonio, Phoenix, Houston and San Diego all posted gains of more than 1.3 percent, while Chicago grew by little more than one-third of 1 percent.

With a total estimated population of 2,714,856. Chicago held on to its spot as the third largest city. But the two largest cities padded their leads, with New York City adding 67,000 in 2012 and No. 2 Los Angeles gaining 34,000 people.

Financial Times: Labor Regulation Seen Driving Spanish Unemployment to 30%

Is it only going to get worse before it gets better?

Societe Generale think so: as the chart says, they’re expecting it to reach 30 per cent in 2015 (from an already-awful and record-breaking 27.2 per cent, at last count). The country’s unemployment rate has historically tended to be high — only falling below 8 per cent right at the peak of the boom. Michala Marcussen says Spain’s particular problem is its gap in conditions for permanent and contract staff:

"In our opinion, much of this is attributable to the dualism that results from the very large dismissal cost gap between permanent and temporary job contracts. Successive reforms have sought to reduce this gap, but even after the latest reform it remains too high."

Muniland: Municipalities try to throw off pension plans

Two California cities, Pacific Grove and Canyon Lake, are trying to end their participation in CalPERS – the statewide public pension plan. The communities are unable to bear the cost increases in their retirement systems, which they are unable to control today. Now we hear news of another community and a non-profit group on the other side of the country that are trying to untangle themselves from established pension plans.

Ted Nesi, reporting for WPRI, details Coventry, Rhode Island officials who are trying to walk away from a non-teacher school worker pension plan:

Elected officials in Coventry have taken an apparently unprecedented step by washing their hands of responsibility for one of their employee pension plans, saying taxpayers have no obligation to come up with enough money to stop it from running out of cash within 12 years.

The decision about retirement funding for the town’s 349 non-teacher school workers and retirees has shocked members of a state commission tasked with overseeing local pension plans, and they’ve summoned Coventry leaders to a special meeting in Providence next week to defend it.

How much money is involved? (emphasis mine)

The pension plan for Coventry schools’ support personnel was created in 1977 by the School Committee and the town teachers’ union. It has less than $11 million in assets to cover a $35 million liability and is on track to run out of money to pay retirees by 2025, according to actuarial projections.

The pension plan paid retirees nearly $1.4 million in benefits in 2011-12, and the tab is set to double over the next decade. The School Committee contributed $600,630 to the plan that year, far less than the $2.4 million its actuary said was required. Eligible employees put 8 percent of their paychecks in, for a total of $364,300 in 2011-12.

A Kentucky pension consultant Chris Tobe pointed me to a story about the non-profit group, Seven Counties, which was a member of the state Kentucky Retirement System, but declared bankruptcy in an effort to escape from the plan. The Courier-Journal reports:

Seven Counties, Louisville’s community mental health center, filed for bankruptcy protection in April, seeking relief from escalating pension costs that center officials say could drive the group into financial ruin within 18 months.

The bankruptcy case of Seven Counties Services will — at least initially — hinge on whether the group qualifies as a governmental agency and how it might affect the state pension system if allowed to leave, attorneys indicated Tuesday.

Tobe says that over 30 percent of the Kentucky Retirement System liabilities are related to non-governmental groups that include a credit union and an insurance company. The Kentucky state plan is the worst-funded state plan in the country (worse than any single Illinois plan) at 27 percent. So it’s no wonder that a non-profit agency is trying to escape the state plan.

These are just a handful of stories, but I imagine that more are brewing as public officials with weak pension systems seek ways to escape their fiscal burdens. Stay tuned.


CARTOON OF THE DAY

Hilary Gowins
Editor

For the last several years, gas prices have remained stubbornly high at $3 or more a gallon nationwide — and customers have felt the pinch.

Though prices remain high throughout the nation, they’ve mostly held steady since last year. The national average price per gallon decreased by $0.02 from this time last year, and now sits at $3.66 a gallon.

But Illinoisans consistently pay much more than the national average.

Chicagoans pay almost $0.80 more per gallon. Overall, Illinoisans pay $0.40 more per gallon than the national average.

Motorists in the Prairie State are now paying $4.06 per gallon, according to AAA.

And even though Chicago’s sales tax went down slightly, average gas prices in the city are now $4.42 per gallon. Last year, motorists were paying $4.29.

And it’s not gas prices that are to blame. One of the major reasons why Illinois’ prices are so high is because of the state’s additional gas sales tax burden.

Traditional gas taxes such as “motor fuel taxes” are a fixed amount per gallon. These taxes generally pay for road maintenance and other transportation expenses — and motorists in all states pay these taxes. Combined, the federal, state, county and Chicago motor fuel taxes total $0.48 per gallon.

But not only does Illinois have the nation’s fifth-highest state excise tax rates — it also is one of only seven states to apply an additional sales tax onto gas purchases.

These taxes don’t show up on your receipt — they’re hidden by being built into the price per gallon advertised along the roadways. Even worse, unlike the motor fuel taxes — which are a fixed amount per gallon — the sales taxes are set as percentage rates.

As the price of gas goes up in Illinois, so does the amount you pay in taxes.

These additional taxes add $0.33 per gallon.

The state’s 6.25% sales tax adds $0.22 per gallon to the price of gasoline in Chicago. The county and city sales taxes add an additional $0.11 per gallon to the price.

And unlike most states, whose gas-tax dollars fund roads and transportation services, the revenue generated by state sales taxes goes to the state’s general fund. That means Illinois is pouring gas-tax dollars into various government spending, including pensions and human services.

Illinois needs to stop punishing customers at the pump. The first step is to end double taxation in the form of additional state and local sales taxes. 

Here is an example of a gasoline receipt is taxes were transparent and not hidden:

Paul Kersey
Director of Labor Policy

In governments all across the country, there’s a need to open up collective bargaining to more public scrutiny. Union contracts in particular need to be released to the public before they are ratified. But even when you have the contract in hand, you don’t necessarily know everything you need to know.

The dirty little secret of collective bargaining is it doesn’t take a hiatus between contracts – any new contract still has to be implemented. And sometimes there are little arrangements that occur in the middle of a contract implementation, such as the Memorandum of Understanding that Springfield Police Chief Robert Williams made with Local 5 of the Policemen’s Benevolent Labor Committee last month. Roberts and the union agreed between themselves that police disciplinary reports, which under the existing contract were supposed to remain on file for five years, could be removed and destroyed. The Springfield Journal-Register reported that 30 disciplinary files were destroyed. It appears there was a Freedom of Information Act request on file that called for the production of some of the documents in the destroyed files.

This kind of issue creates problems that go well beyond labor relations. As enforcers of the law, the men and women of the police force have the authority to investigate, arrest and use force – sometimes even deadly force. We expect them to follow the law and the orders set by their superiors, both on the police force and in government itself. The public should be able to rely on police who are disciplined and a police department that can instill that discipline. It’s a tough job, and all of us should recognize the demands; but when an officer breaks the rules it shouldn’t be swept under the rug. The union and the police chief may have colluded to do just that. Even the appearance of such a thing should not be accepted.

The public deserves a government that is accountable and transparent, and nowhere is that more important than in law enforcement. The Illinois Policy Institute has supported legislation that would open tentative contracts up to public review and even proposed allowing the public in on bargaining sessions. But even that isn’t necessarily enough; the entire relationship between unions and government should be as transparent as possible.