Amendment 1 would grant government unions unprecedented bargaining powers as a “fundamental right,” including the power to override voters and state lawmakers. Proponents are selling it as a constitutional ban on passing right-to-work laws – laws that protect employees’ rights to keep their jobs without having to pay fees to a union. Illinois is not among the 28 states that currently have right-to-work laws, so that aspect has little meaning.
The amendment does include three other provisions that together would severely weaken taxpayers’ voices in state government and make it easier for government union bosses to make unaffordable demands in collective bargaining contracts. First, virtually anyone would have a fundamental right to collective bargaining if they could be considered an employee in any context, including even prisoners. Second, bargaining would be expanded beyond just wages, hours and working conditions to include broad new subjects covering public policy decisions or how to run a businesses. Third, the amendment prevents lawmakers from ever limiting or scaling back on these rights in any way.
Even without these provisions, powerful government unions helped public sector wages grow 60% faster than the private sector in Illinois from 1998 to 2019.
Peer-reviewed research shows stronger government worker unions cause the cost of government to increase, with powerful unions putting even more upward pressure on benefits than on wages. Government worker retirement benefits, which flow mostly to government union workers, have left Illinois local governments with $75 billion in pension debt and are already the primary cause of rising property taxes. Government unions helped Illinois politicians build the state and local pension crisis by supporting both unaffordable benefits as well as irresponsible funding games that pushed costs into the future.
Nationwide data from 2010 to 2019 show a significant statistical association between the percentage of government workers who are members of a government worker union and each state’s average effective property tax rate.
Chicago residential property tax collections across all units of government in the city were up 164% from 2000 to 2019.
Property taxes paid by homeowners within the city grew nearly 30% faster than property taxes in suburban Cook County during those 20 years. Suburban residential property taxes grew 116% while total residential property tax collections county-wide grew 133%.
While some of Chicago’s increase was driven by new property or growth in existing property tax values, the average homeowner still saw an 85% increase in their bill from 2000 to 2019. Since the record-setting 2015 property tax hike to pay for pension debt, the average Chicago bill has risen 27%. Prior to that hike, property taxes were on a lower trend from 2011 to 2014.
Spending in the state budget actually has increased – significantly – under Gov. J.B. Pritzker relative to baseline expectations in the state budget. Even if lawmakers and the governor make no further increases to spending in the fiscal year 2023 budget, which is unlikely given that Pritzker has proposed spending increases in each February budget address of his term, then total spending during Pritzker’s first term will be up nearly $5 billion, or 3% higher than when he took office.
It is bad Illinois has the nation’s worst pension crisis, but state politicians have made it worse by using risky debt to delay the day of reckoning, and done so to the point that Illinois now owes 30% of the nation’s pension obligation bonds.
Pension obligation bonds are a form of debt used by state or local governments to fund their pension deficits. Illinois holds $21.6 billion of the nation’s $72 billion pension obligation bond debt.
The theory behind the bonds is that if a pension system can borrow money at a lower rate by selling bonds and earn a higher percentage from investing those funds, then it has realized a net gain using them. The issue is the gamble rarely works out that way, as the Government Finance Officers’ Association points out. Pension obligation bonds place taxpayer money at risk and often leave governments saddled with more debt rather than less. They often do not achieve a high enough return to justify their use.
Illinois’ five statewide retirement systems hold $144 billion in debt, according to official state reporting based on optimistic investment estimates. But Moody’s Investors Service says the true debt is $317 billion, which it calculates using more accurate methods common in the private sector.
Less well known is the nearly $75 billion of pension debt held by local governments in Illinois, which is the primary reason for Illinois’ second-highest in the nation property taxes. Combined with the state’s pension debt, politicians who mismanaged the pension system dug a $219 billion hole.
In Danville, the average household owns nearly $40,000 in state and local pension debt, with over $10,000 of that debt stemming from local systems for police, firefighters and municipal workers. To pay off that pension debt, a Danville household would have to give up 110% of an entire year’s $36,172 median annual income.
Because the state systemically underestimates its pension debt, it also underestimates the taxpayer contributions necessary to keep the debt from growing each year. During the past decade, officially-reported growth in pension debt outpaced the state’s initial projections by $24 billion. Growth in annual taxpayer contributions exceeded state estimates by about 15% per year on average, causing taxpayers to contribute $7.6 billion more than projected during the decade. Still, that extra money has not slowed a mushrooming pension debt. The state’s regular upward revisions demonstrate Moody’s method, which is more in line with private sector standards, is more accurate.
Because employee contributions to the pension funds and benefits paid out are both fixed by state law, taxpayers must make up for any shortfall caused when investment returns miss rosy targets. For example, the largest of Illinois’ five state pension systems, the Teachers’ Retirement System, reported a 0.52% return on investment in fiscal year 2020, which included the first four months of the COVID-19 pandemic. That was far short of the TRS’s 7% return target and helped grow the debt.
Pension costs are already eating away at Illinois government services. The ballooning costs caused a nearly one-third cut since 2000 in core services such as child protection, state police, mental health and college money for low-income students.
Pension contributions accounted for less than 4% of Illinois’ general funds budget from 1990 through 1997 but have grown to consume 28.5% of the budget. Still, the pension debt has mushroomed to $144.4 billion by the state’s estimates, which more realistically was at an all-time high of $261 billion at the end of fiscal year 2020 according to Moody’s Investors Service calculations using more realistic assumptions. In any case, public pension debt is eating a larger chunk of Illinois’ gross domestic product than anywhere else.
Because of a pension sweetener for politicians that Madigan helped create, the former speaker’s pension will spike more than $66,000 the year after his first full year of retirement, then grow 3% each year thereafter.
Former Illinois House Speaker Michael J. Madigan will start receiving $7,100 in monthly pension benefits starting in March, but just more than a year later his benefits jump 78% to $12,600 per month.
Pension debt increased $7.1 billion to $144.4 billion in fiscal year 2020, according to the Commission on Government Forecasting and Accountability, or COGFA, the fiscal analysis unit for the General Assembly. The total cost of that debt burden to taxpayers in fiscal year 2022 will be nearly $11.6 billion, including:
$9.4 billion in direct contributions from general revenue sources
$1.1 billion in “other state funds”
$797.9 million in debt service costs on previously issued pension obligation bonds
Pensions will consume 28.5% of the budget. That is based on $38.5 billion in expected general revenue for fiscal year 2022, adding in that $1.1 billion from “other state funds” – which would go to critical programs were it not being used for pension debt.