“We cannot solve our problems with the same thinking we used when we created them.” – Albert Einstein

Posted on by Steve Reick | 1 Comment

The Difference Between Genius and Stupidity is That Genius Has Its Limits

IgnoranceToday’s lesson is about what the newly-elected members of Congress from the 6th and 14th Districts of Illinois don’t know about their jobs.

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It begins with a headline in the Northwest Herald that says: “Underwood, Casten Call for IRS to Help With Local Tax Burden.” The article goes on to say:

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“Rep. Lauren Underwood, D-Naperville, and Rep. Sean Casten, D-Downers Grove, are urging the IRS to address what they call the disproportionate tax burden on Illinois taxpayers because of the changes in the law, which limit the state and local tax deduction.”

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The pair wrote a letter to IRS Commissioner Charles Rettig expressing their concerns about IRS efforts to alleviate the burden of the new rules as being “insufficient”:

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“We are concerned that the Internal Revenue Service’s (IRS) current efforts may be insufficient to alleviate these burdens…Illinoisans are already facing higher federal taxes due to the Republican tax law, which places a uniquely large burden on middle-class families in the Illinois 6th and 14th Congressional Districts. Working families are being unfairly double-taxed, This law limited the state and local tax (SALT) deduction to just $10,000 for individuals and families—a devastating financial blow to many of the nearly two million Illinois households that claim the deduction. SALT taxes allow our communities to pay law enforcement and first responders, offer high-quality public education, and provide a multitude of other services that contribute to the well-being of our communities. We urge your attention to this important matter and request an update in writing on the IRS’s actions to address these burdens on Illinois taxpayers no later than February 12, 2019,”

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The fundamental ignorance on display in the letter these two sent beggars the imagination. If they don’t understand that the IRS is simply an administrative body empowered to enforce the laws passed by Congress, and has no authority whatsoever to “address the disproportionate tax burden on Illinois taxpayers because of the changes in the law” then what else don’t they know about the responsibilities of the office to which they’ve been elected?

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It says right there in Article I, Section 8 of the U.S. Constitution, that document they swore an oath to uphold, but probably haven’t taken the time to read:

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“The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States…”

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Nowhere in the Constitution does it say that members of Congress can run to the IRS, of all places, to “alleviate the burden placed on the citizens of Illinois by limiting the deduction for state and local taxes.” If they don’t like the tax bill that was passed in the last Congress, the proper remedy for what they’re trying to do is (wait for it!): pass a law! It’s in all the civics books, or at least it used to be.

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Of course, they aren’t the only Democrats trying to alleviate the tax burden of the very people they’re generally busy trying to gouge. Last year we had a group in the Illinois legislature that tried to change taxes into charitable contributions so as to get around the SALT limitation. That idiotic scheme met the same fate as the appeal to the IRS will have.

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So, class, this is what you should take away from today’s lesson:

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If you live in the 6th or 14th Congressional Districts of Illinois and you voted for Sean Casten or Lauren Underwood as a way to send a message to Donald Trump, you brought this vacuous nonsense upon yourselves, but unfortunately you brought it upon the rest of us, as well. As Ed Koch famously said after losing his mayoral bid: “The people have spoken, and they must be punished.”

Posted in 2018 Election, Taxes | Tagged , , , | 2 Comments

Debt Option #3: Bankruptcy

BANKRUPT: bank·rupt  /ˈbaNGkˌrəpt/

adjective: bankrupt

  1. (of a person or organization) declared in law unable to pay outstanding debts.

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By all conventional measures, Illinois is bankrupt. The State Supreme Court would disagree, having said in its decision to strike down the 2013 pension law:

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“The General Assembly understood that the provisions would be subject to the pension protection clause. In addition, the law was clear that the promised benefits would therefore have to be paid, and that the responsibility for providing the State’s share of the necessary funding fell squarely on the legislature’s shoulders. The General Assembly may find itself in crisis, but it… is a crisis for which the General Assembly itself is largely responsible.”

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The shorthand version of the above statement is that so long as the state has the ability to tax, there is no crisis deep enough to strike down the pension guarantee clause of the Illinois Constitution, thus the suggestion that unless we choose to tax our way out of this mess, there needs to be a pathway for states to file for bankruptcy.

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Let me say at the outset that I’m not saying that if Illinois were to be given the option of filing for bankruptcy that it should do it. What I am saying is that, unless the option is hanging over everyone’s head like the Sword of Damocles, there will be no incentive to sit down and come to a sensible solution to this problem. Imminent danger tends to focus the mind.

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States cannot now file for bankruptcy for two reasons:

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First, the federal bankruptcy code has never allowed state governments to declare bankruptcy. Since 1937, municipalities have been able to declare bankruptcy, but the term ‘municipality’ is defined as a ‘political subdivision or public agency or instrumentality of a state.’ This definition is broad enough to include cities, counties, townships, school districts and public improvement districts, as well as entities that provide services which are paid for by user fees. Congress would need to pass legislation to allow it.

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The second reason stems is found in the “Contracts Clause” (Article I, Section 10, Clause 1) of the U.S. Constitution, which prohibits state governments from ‘impairing the obligation of contracts.’ As originally understood and enforced, this clause prohibited state legislatures from passing any laws to relieve either private debt or the state government’s own debt. Beginning in 1934, however, the Supreme Court began to interpret the contracts clause as not being an absolute bar to state debt relief laws, though in 1977 and 1978 , it ruled that ‘a state cannot refuse to meet its legitimate financial obligations simply because it would prefer to spend the money (on something else.)’.

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Thus, were Congress to amend the federal bankruptcy code to authorize states to repudiate debt (which is the whole rationale for bankruptcy in the first place), the Supreme Court would then need to rule that state bankruptcy would not violate the Contracts Clause.

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In United States v. Bekins (304 U.S. 27 (1938)) as in cases that preceded and followed it, the Constitutional limit seems to some degree based on necessity and the absence of any reasonable alternative.

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Governor, Let’s Work Together On Controlling the Cost of Government

In his very first Executive Order, Governor Pritzker instructed that:

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“Every State Agency shall, within 60 days of the effective date of this Executive Order, conduct a review of (a) all statutory obligations, and (b) all audit findings within the last four years and provide a plan to the Office of the Governor detailing steps to ensure statutory compliance and to address audit findings.”

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This call for an examination of the processes of State agencies is a good start in trying to regain the trust of people whose toleration of State government is stretching very thin. I’m fully on board with the idea of taking a deep look at how we spend the money that we take from taxpayers.

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My colleague Dan Swanson has spent some time rummaging through Auditor General reports to see how well agencies are measuring up to their statutory obligations, their compliance and steps to address audit findings. The short answer is: “not very well”. Some of them are shown here:

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Auditor Findings

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Mind you, these are repeated findings by the Auditor General, and the original finding dates are shown on the right of the chart. Many of these go back a lot more than 4 years, and they are just a few of the hundreds of audit reports that can be found online. They all pretty much tell the same story. If agencies have been repeatedly failing to correct audit findings that have been repeatedly issued for years, I doubt an Executive Order mandating that they do so within 60 days will carry much weight.

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Everyone tends to roll their eyes when public officials promise to eliminate “waste, fraud and abuse”. But nobody denies that those things exist. The trick is to figure out what can be done to eliminate it.

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It’s with that in mind that I’ve introduced House Joint Resolution 6 and a House Bill 275 which is modeled on President Reagan’s 1982 Executive Order establishing a private-sector cost study of the agencies of the Federal government, which resulted in the issuance of the 1984 “Grace Report”. In the report, the Grace Commission offered up 2,487 separate recommendations for streamlining government agencies which it estimated would have saved $424 billion over a 3-year period (and that’s in 1984 dollars).

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H.B. 275 creates the Commission on Fiscal Responsibility and Reform, which is a private sector panel authorized to undertake a thorough review of Illinois agencies and provide recommendations for improvement. Its goal is to identify inefficiencies, redundancies and insufficient control over the operations of state agencies which result in inadequate services being provided at too high a cost.  It would be charged with recommending improvements that would increase efficiency, reduce costs, enhance accountability and improve administrative control, and would also provide opportunities for managerial improvements over the short and long term, suggesting specific areas where further study could result in additional savings.

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Like the Grace Commission, this Commission will be privately funded by soliciting contributions to be made to a 501(c)(4) social welfare organization as called for in the bill. Commission members would not be paid, and would be charged to present their findings to the Governor and the General Assembly by October 1, 2020.

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Cleaning up audit findings isn’t enough; we must do this deep dive into our agency operations with a focus on finding where outdated and redundant processes can be eliminated or combined. We must also set policies in place which demand greater accountability from those stakeholders which come to the state asking for appropriation of taxpayer money. It’s time for them to show us how well they’ve spent the money we’ve given them before we give them more. In my first term, I was a member of the K-12 Appropriations Committee. I’ve seen firsthand that it’s not now being done.

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This is not an attempt to fix blame or to point fingers at any agency or person. Every organization, public or private, needs a periodic review to find ways to improve its operations. Otherwise it grows sclerotic and gets in the way of its own purpose. But it’s obvious that something more robust than a mere audit is needed. It’s time for the Governor’s office and the General Assembly to step in and shine a light on what’s been allowed to languish for far too long. It’s what we’ve been elected to do.

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Nor is this an attempt to “privatize” our state agencies. We’ve all seen what happens when people run for office pledging to run government “like a business”. Government isn’t a business, it’s the contract we make with ourselves to do the things we can’t do for ourselves. Its purpose is to provide such public services as are necessary to ensure that every person in Illinois can maximize his or her own potential and to provide such services as are required to ensure that the most unfortunate among us can live in dignity and safety.

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For too long the default message from Springfield is to ask the taxpayers for more money, but before taxpayers can be asked for more, we have an obligation to show them that State government is operating as efficiently and effectively as possible. The failure over decades to examine measures to control costs has contributed to ever-increasing demands for more tax revenue, and we’ve reached the point where productive, taxpaying Illinoisans are saying “I’ve had enough,” and are leaving the state to find better opportunities elsewhere.

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I offer this bill to Governor Pritzker as a sign of good faith: a bipartisan attempt to help him in the unenviable task that lays before him, and which lays before all of us charged with the unenviable task of governing Illinois.

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Watch Out, Mr. Pritzker. Paying Staff From Your Own Pocket Raises Some Issues.

It’s been reported that J.B. Pritzker is going to double the salaries of his senior staff out of his own pocket. My initial reaction is to say that it’s his money, and if the process is transparent and fully reported, who cares? However, after thinking about it, I’m not so sure. There are some questions that I’d like to see answered:

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  • The staff’s primary job is to give advice to the Governor. There are going to be times when their job will be to look the Governor in the eye and tell him “no”. How likely will they be to do that when they know that half their pay is coming directly from him?
  • He seems to be doubling down on the 15% pay increase for agency heads that passed during lame duck (which I voted against). What are we going to do about the mid-level staffers who do so much of the work yet haven’t had a pay raise for years? How much resentment is there going to be there? He’s creating a second floor full of haves and have-nots.
  • I think it’s an implicit acknowledgement by Pritzker, not that state employees aren’t paid enough, but that Illinois can’t afford the talent it truly needs to run a $50 billion enterprise like state government. He seems to be taking the easy road: writing a check to cover up a problem he knows we can’t fix. If we weren’t so deep in debt, we’d be able to attract top talent and pay them what they’re really worth. What’s his plan to fix that?
  • It sends a signal that he thinks there’s nothing you can’t do if you have enough money. It’s one thing to do this when it’s his own money, what’s his attitude about doing things like this with the taxpayers’ money?

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He’s being somewhat tone-deaf, and could be setting himself up to have every rent-seeker in the state come directly to him, thinking that with his wealth, he can write them a check and not miss it. It doesn’t send a good message for when it comes time to do a budget.

Posted in Cost of Government, State Government | Tagged , , | 1 Comment

Debt Option #2: Amend the Constitution

The previous post dealt with a proposal to address the issue of our debt, laying out a “front-loaded” increase in payments to our pension debt so as to avoid ever-increasing payments due in future years. That post was written under the assumption that there’s no way we’ll ever be able to change the level of benefits already accrued and payable.

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This post deals with the major sticking point that prevents us from having a serious discussion about pension reform, that is, the guarantee of benefits contained in Article XIII, Section 5 of the Illinois Constitution:

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“Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”

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This clause isn’t about debt; it’s about benefits and what we’re going to do about them going forward. It’s the clause that every state worker points to when somebody tries to bring up the suggestion that maybe they ought to pitch in and do something about our fiscal mess.

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They’ll say “but I paid my fair share, now you want me to actually give something back?” Actually, they haven’t paid their “fair share”, they’ve paid what their unions negotiated for them, and it’s utterly insufficient to pay them what they’ll receive upon retirement.

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The Supreme Court has consistently ruled that the pension guarantee clause means just what it says, so all of those sweeteners added onto public pensions (i.e.: guaranteed 3% COLA) can’t be taken away once they’re given. So we’re going to have to amend the Constitution if we want to get around the pension guarantee clause.

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Good luck with that. The unions that wield the whip hand here in Illinois would never let the Legislature come close to putting that on the ballot. Arizona recently amended its Constitution to limit pension benefits, but the circumstances that allowed that to happen are vastly different than they are here, so don’t hold your breath. You may ask about calling a convention to rewrite the Illinois Constitution, which was last done in 1970. Since 2008 there have been over 400 resolutions to do just that, but of course they went nowhere.

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But before we move on to the next possible means of fixing this mess, let’s have a moment of honesty, shall we?

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To the extent the Legislature failed to pay its required contribution into the funds over the years, it’s clear that it bears much, if not the lion’s share of the blame. It quietly acquiesced to unrealistic investment return estimates so as to keep the amount it did pay into the plans to an absolute minimum. The Blagojevich pension holiday of 2004 and 2005 didn’t help, and neither did the crash of 2008.

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However, there are other players in our little drama who’ve not been exactly blameless, among them:

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  • School Districts: Since 2005, if a school district gave a pay increase in excess of 6% (since reduced to 3%) to an employee within the last several years before retirement, the district was forced to pay a “penalty” to the Teachers’ Retirement System (TRS) to offset the additional pension costs that increase would create. The penalty wasn’t enough to fully deter them from giving out massive pay raises to administrators in the final years leading up to retirement. Two things are notable about this “reform”:
    • Once the employee retired, the entire payroll cost for that employee goes off the district’s books, so why should the district care? The State’s now on the hook for the entire pension cost, calculated on the higher final average earnings.
    • It also created higher property tax bills to pay the additional salary and penalty plus the additional pension cost to the State.
  • Union Employees: Every time the subject of pensions is brought up, the first people we hear from are the rank and file, who point out that they’ve paid in every cent they were supposed to, that none of this is their fault. Wrong. Public union employees bear the responsibility for the leadership they elect. The membership sat idly by when those same leaders went to Springfield and told legislators that it was OK to not fund the pension plan if the money would go into the education budget. They knew what was going on and said nothing, figuring that the State would have to come up with the money somewhere. To now say that they’re entitled to collect from the taxpayers that which their own leadership bargained away is hypocrisy. To the extent members of the other unions sat on their hands while their representatives bargained away their pensions, they don’t have any cause to complain now, either.
  • An Apathetic Public: Pensions are negotiated between the unions and the people of this state through their representatives, both state and local. Like it or not, the people of Illinois are a party to this transaction, and if they don’t care enough to get rid of those who are supposed to be representing them at that table, they’ve got no more right to complain than the union members.

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So it’s clear that nobody’s coming to the table with clean hands. But try using that as an appeal to reason.

Posted in Cost of Government, Illinois Budget, Illinois Constitution, Public Pensions | Tagged , , , | 1 Comment