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A tale of two states: Illinois vs. Wisconsin in the public pension debate

By   /   September 3, 2013  /   News  /   18 Comments

By Benjamin Yount and M.D. Kittle | Watchdog.org

SPRINGFIELD – The dividing line in the national debate over the future of public-sector unions can be found between the Land of Lincoln and its neighbor to the north.

The story of Illinois and Wisconsin is a tale of two very different states.

Wisconsin, led by Gov. Scott Walker and majority Republicans, took on public-sector unions and won in the pursuit of balancing a $3.6 billion state budget shortfall in 2011.

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PENSION TENSION: A large crowd of union members and the professionally outraged (kids and older people bussed to the rally) demonstrate last month in downtown Chicago.

Illinois, led by Democrats with a veto-proof supermajority in the Legislature and Democrat Pat Quinn in the governor’s mansion (at least occasionally), have long coddled the public unions to which they and their campaign war chests are beholden. Consequently, the state faces billions of dollars in unpaid bills and unfunded pension liabilities for current public employees of about $130 billion.

Wisconsin’s economic prospects have vastly improved. The state’s public pension system, while not perfect, is nearly funded – at least based on much more liberal accounting standards than market-based measures. The Badger State budget now boasts a surplus of $741 million, the vast majority of that targeted for tax cuts over the next two years.

Illinois, meanwhile, continues to be buried under a mountain of debt, a broken fiscal house that has taken the state’s credit rating with it.

Pension prison

Quinn is not in a union and the state’s 177 legislators are not in a union (at least not in a lawmakers’ union), but they are a rarity in a state packed with union-represented public servants.

If you want a picture of the power of labor in Illinois, you need only look as far as offices in the Illinois State Capitol.

Nearly 97 percent of Illinois’ state workforce belongs to a public employee union. In the early 2000s, public sector unions added 10,000 members as middle managers (and higher level employees) ran from the disastrous reign of former Gov. Rod Blagojevich.

Things got so expensive that Quinn, earlier this year, pushed a bill to forcibly expel a few thousand top managers from public-sector unions.

Paul Kersey, director of labor policy for the Illinois Policy Institute, said public employee unions wield too much power.

“Government unions have all this power, but they aren’t accountable to the public for how they use it. You can vote to replace the governor who vetoes a bill at the next election,” Kersey said. “But you can’t vote on the teacher’s union boss who uses the bargaining law to make it impossible to fire a bad teacher.”

Kersey knows those union leaders won’t give up that power without a huge battle.

“We won’t be able to get government budgets under control, or improve public schools, or a host of other things, without fighting government unions,” Kersey said.

Illinois taxpayers bear the burden of their leaders’ failure to rein in the exploding cost of pensions.

“(Pension) contributions now must escalate rapidly if Illinois is to honor promised benefits: by fiscal year 2015, pension costs (and related debt service) could take up one-fourth of the state’s resources,” according to the Illinois Report of the State Budget Crisis Task Force, prepared in collaboration with Richard Dye of the Institute of Government and Public Affairs at the University of Illinois.

“Illinois will not be able to fund other priorities unless it adopts serious pension reform,” the report states.

Fitch Ratings in June downgraded the state’s bond rating after pension debt-riddled Illinois again failed to reform its public retirement system.

“As I have repeatedly made clear to the General Assembly, this will continue to happen until legislators pass a comprehensive pension reform bill and put it on my desk,” Quinn said in a statement.

Fitch’s downgrade gives Illinois the lowest general obligation bond rating of any of the 50 states, according to Crain’s Chicago Business.

Reform spells relief?

Wisconsin has seen its deficit-heavy state budget of two years ago rebound, in large part due to legislative reforms that have effectively gutted collective bargaining for most public employees.

Act 10, led by Walker and passed into law by a GOP majority in 2011, holds wage negotiations to the rate of inflation and requires most public employees to pick up part of the tab for their state pensions and a greater share of their health insurance premiums, among other provisions.

Organized labor and Democrats hate the law and have waged a long legal fight to have it struck down.

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SIGNED, SEALED, DELIVERED: Gov. Scott Walker in 2011 signed the law that reformed public-sector collective bargaining in Wisconsin.

Two years after the law’s passage, public sector organized labor is reeling in the Badger State. For some unions, the effects of Act 10 may be fatal.

The U.S. Labor Department reports the membership of Wisconsin’s American Federation of State, County and Municipal Employees Council 40 dropped from 31,730 to 2011 to 20,488 this year.

The decline for AFSCME Council 48, which represents city and county workers in Milwaukee County, was even more dramatic — a 61-percent decline in membership over two years, from 9,043 members in 2011 to 3,498 now.

State Rep. Brett Hulsey, D-Madison, has pitched an amendment – now dead – that would have restored $330 million he said was “taken from 130,000 public servants” through Act 10.

It’s difficult to dismiss the fiscal impact the reforms have had on the state’s budget. Savings to state and local governments, by some estimates, are pegged at more than $1 billion so far.

In Milwaukee alone, the collective bargaining reforms have saved the city about $20 million, according to Mark Nicolini, the city’s budget director. Milwaukee Public Schools will see savings of more than $100 million per year, according to a report released earlier this summer by the Thomas B. Fordham Institute, a conservative-leaning education think tank.

Wisconsin public school districts, on average, have seen double-digit declines in insurance premiums since mid-2011, based on findings in First Years of Freedom: Wisconsin Schools Saving Millions on Health Insurance in the Act 10 Era,” an analysis of insurance costs by EAGnews.

Last month, the Federal Reserve Bank of Philadelphia released its July coincident economic indexes for states, showing Wisconsin has had the third best economic growth in the nation. July marked the second consecutive month that Wisconsin’s growth has outpaced the national average.

Walker isn’t shy about the fiscal differences between Illinois and Wisconsin and how the Badger State got there.

“Over the past several years, we have made tough, but prudent, decisions to get our fiscal house in order,” the governor said in a press release following word that state revenue was up $71 million more than expected.

“Unlike our neighbors to the south, we laid a strong foundation for future prosperity and ongoing stability,” Walker said in a recent radio address.

Contact Benjamin Yount at [email protected] and find him on Twitter @BenYount.

Contact M.D. Kittle at [email protected]

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M.D. Kittle is bureau chief of Wisconsin Watchdog and First Amendment Reporter for Watchdog.org. Kittle is a 25-year veteran of print, broadcast and online media. He is the recipient of several awards for journalism excellence from The Associated Press, Inland Press, the Wisconsin Broadcasters Association, and others. Kittle's extensive series on Wisconsin's unconstitutional John Doe investigations was the basis of a 2014 documentary on Glenn Beck's TheBlaze. His work has been featured in Town Hall, Fox News, NewsMax, and other national publications, and his reporting has been cited by news outlets nationwide. Kittle is a fill-in talk show host on the Jay Weber Show and the Vicki McKenna Show in Milwaukee and Madison. Contact Kittle at [email protected]

  • Billy Bolt

    Yes, Wisconsin does have the best funded state pension system out of all 50 states – despite the fact that their teachers and state employee have historically and currently contribute far less out of their paychecks than do their Illinois counterparts.

    The Wisconsin legislature in 2011 increased what public employees
    must pay toward their pensions. Before the law passed, workers paid less
    than 1 percent of their salaries –in some cases nothing – toward
    pensions. Under the new law, public employees pay 5.8 percent to 6.65
    percent. PENSION BENEFITS THEMSELVES WERE NOT CHANGED.

    Most Illinois public employees already pay more than that. Teachers
    contribute 9.4 percent to their pensions, state university employees pay
    8 percent, judges pay 11 percent and legislators pay 11.5 percent.
    State employees pay 4 percent if they also contribute to the Social
    Security system and 8 percent if they do not.

    The difference is that the State of Wisconsin as employer has always made its annual pension contribution, unlike the State of Illinois as employer that has modified or skipped a number of its annual pension payments. And how has Wisconsin had the money to always make its annual pension contributions?

    Individual state income tax rates:

    Illinois: 3% (after being 5% for 20 years)

    Wisconsin:
    — 4.6 percent on the first $10,070 of taxable income.
    — 6.15 percent on taxable income between $10,071 and $20,130.
    — 6.5 percent on taxable income between $20,131 and $151,000.
    — 6.75 percent on taxable income between $151,001 and $221,660.
    — 7.75 percent on taxable income of $221,661 and above.

    Yes, definitely a tale of two states.

  • tfraymond

    Which explains why people & corporations continue to flee Illinois as their overall debt balloons out of control? There are more taxes than state income tax, regulation, and a massive debt burden in Ill.

  • Chad

    Illinois state tax rate is 5% genius.

  • scanman

    Move to Illinois Billy – I’m sure you’d enjoy the “reduced” tax rates!

  • Commonsense

    It wasn’t Scott Walker that saved the Wis. State Pension, it was
    the State workers’ & Teacher’s Unions that saved it; back when the last
    Republican Governor (Tommy Thomson) was in office. Thompson tried raiding
    the pension monies, but a lawsuit by the workers, and a decision by the state
    Supreme Court stopped him and made him put it back. They were smarter
    than other states, where their workers rolled over and let the politicians take
    their retirement money without a fight! You make it sound like the
    workers never paid anything into the pension, that’s not true either.

    I was a Republican until Walker got into office.
    I even voted for him (boy are we sorry)! When he broke our
    Teacher’s Union’s Collective Bargaining
    rights, he took away our right to negotiate wages and benefits. My
    husband was in the Teacher’s union, as a Support-staff worker (a custodian). Their group gave up on monies in the form of
    raises in order to keep their Health Insurance the same. After Walker’s
    targeting of only the Teachers’ Union (not
    higher paid fire and police), it allowed the school board to drop our WEA Insurance
    and go to a terrible policy with a $6,000 deductible. Where our prescriptions had coverage with co-pays
    before, now they don’t meet coverage until the $6000 is met. Thank you Scott Walker!

    I find it funny that people with good wage contracts and
    retirement and health plans; point the
    finger on the lowest paid of the state workers and claim they make too
    much. Look in the mirror boys and girls.

  • Billy Bolt

    Typed too fast. Illinois individual tax rate:

    5% (after being 3% for 20 years)

  • Billy Bolt

    The Tax Foundation compares states’ corporate state income,
    individual state income, sales, property, and unemployment insurance tax rates to come up with state’s business climate.

    For 2013, Illinois comes out as the state with the 29th best business climate. Wisconsin comes out with the 43rd best business climate.

    http://taxfoundation.org/article/2013-state-business-tax-climate-index

  • Joe Melugins

    There are other important statistics in comparing the economy of states.

    Gross State Product per capita:
    Illinois: 15th best GSP per capita
    Wisconsin: 29th best GSP per capita

    Median Household Income:

    Illinois: $55,576

    Wisconsin: $52,192

    Individual per capita income:
    Illinois: $29,376
    Wisconsin: $27,192

    Furthermore, those incomes would generate a 5% state income tax rate in Illinois. They would generate a 6.5% state income tax rate in Wisconsin.

  • Larry Kiz

    Details Because
    of Gov. Scott Walker’s budgeting, a greater percentage of general fund
    tax dollars is “going to pay off debt than ever before in our history.”
    — Kathleen Vinehout
    Another of Walkers smoke screens and not telling the truth. Wisconsin balanced the budget on our Grandchildren’s backs.

  • MadisonSpock

    I suspect that the income tax will be on Walker’s next agenda. As for GSP, contrast that with all costs including State inflation and sales taxation. Overall, it comes out about even. The only difference is, Wisconsin doesn’t have a deep hole to dig out of.

  • Jr

    Which has dramatically improved since this article was written nearly a year ago.

  • parasitehost

    …and Illinois’ sales tax ranges from 6.25% up to 11.5% genius.

  • Candace Zingg

    Welcome to the private sector. That’s exactly what we pay in medical. I’m just thankful to have medical. On top of that, we pay half the premiums, not just a small percentage.

  • JG24fan

    The mirror of Snow White is now telling the truth. Welcome to the reality of about 89% of working Americans lives. I don’t expect my employer to pay for anything but my wage. That is why the extra the employer provides is called a benefit and that is the way the private sector works. Health insurance is one of those benefits, it is not a right.

  • Rival

    Looking at all the comparisons – Spock is right. The longer you live in debt the bigger the hole. Illinois will have to make some changes if they don’t want to implode. Even more interesting is that Chicago income is vastly different from rural Illinois. Many outside of the city don’t see the benefits of the city population, but certainly see similar taxation.

  • Matt Kaiser

    First of all….the IL income tax rate is at 5% (not 3%), as it went up in 2011 by 60% to deal with their issues. You’ve got it the wrong way around. Not sure about your tax comparisons…you might want to look at sales tax then too…Many suburban Chicago IL munipalities total over 10%. WI sales tax is at 5.5% max.

  • iamsurrounded

    Government workers should not be allowed to be in a union – period. Total conflict of interest and zero accountability to the taxpayer.

  • iamsurrounded

    Most of us in the real world don’t have a pension so as far as I’m concerned – they should contribute 100% to a 401K like we have to. Why am I paying for their retirement when I can’t pay for my own? Spread the wealth??? More like take the wealth from some and give it to others who vote for you.