The Problem
Illinois’s state budget is billions of dollars in the hole, but that didn’t stop Illinois government from handing out pay increases to 46,000 state workers on July 1, 2010. Indeed, Governor Pat Quinn has handed out 43 raises (averaging 11.4 percent to his staff) since he took the oath of office. All areas of government spending—including labor costs—must be carefully reviewed for potential savings.

One out of every four dollars from general funds is spent on public employee compensation.

In fiscal year 2010, Illinois spent $26.3 billion on regular appropriations from general funds. Subtracting $400 million in unspent appropriations and adding in $3.2 billion in transfers out and $4 billion for the state’s annual pension contribution (most of which was borrowed), general fund spending comes in around $33 billion. From this, $9.2 billion went toward the salaries, benefits, and pensions of state employees.

Without action, Illinois can expect labor costs to increase. Employee headcount is up: Illinois’s full time equivalent employee total rose from 53,227 in fiscal year 2009 to 55,497 in fiscal year 2010 (this number is expected to increase again in 2011). Raises and cost of living adjustments continue. Pension funding is growing rapidly: Required pension contributions from the state have grown 300 percent since fiscal year 2000. Health care costs are on the rise: The cost per participant in the state’s group health insurance program increased by 72 percent between fiscal year 2003 and fiscal year 2011, going from $3,735 to $6,449 per person (of which the state covers most of the cost).

Better controlling public employee compensation costs will be key to ensuring that other areas of government spending are not disproportionately targeted for budget balancing reductions, while also helping taxpayers to avoid shouldering an even higher tax burden.

Our Solution
Across the country, private businesses and state and local governments—from Caterpillar to Sangamon County to the State of New Jersey—are taking steps to reduce payroll costs in the face of acute and continuing economic troubles. Illinois should follow their lead in making sensible reductions.

Illinois policy makers have a variety of tools for right-sizing the state’s labor costs, including:

• Reducing the number of full-time equivalent jobs funded by the state;
• Addressing pay disparities between public sector and private sector jobs;
• Reforming pension benefits for current employees’ future service;
• Implementing pension funding reform along the lines of the Pension Funding & Fairness Act;
• Pursuing consumer-driven health care insurance options;
• Eliminating programs that benefit a narrow group of workers at the expense of taxpayers, such as the Upward Mobility program;
• Adopting the suggestions of a Sunshine Reform Commission to eliminate duplicative and ineffective programs; and
• Using a Council on Efficient Government to streamline state operations.

Why This Works
The State of Illinois spends revenues on a variety of areas, including direct programmatic and grant outlays, transfers to other government entities and funds, debt payback, and labor costs.

With one out of every four general fund dollars going toward public employee compensation, solving the state’s budget crisis will necessarily involve tackling labor costs. Sealing off labor costs from deficit reduction measures would place an unfair burden on other recipients of government payments. The expectations of state workers should be balanced with other groups that rely on government spending, including welfare beneficiaries, contractors, service provides, and the state’s creditors, as well as the taxpayers who pay the bills.

Right-sizing the state’s compensation costs will help balance the budget, maintain funding for core government services, and protect overburdened taxpayers.