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Wisconsin is winning border budget war

By   /   January 31, 2013  /   2 Comments

By Bob Williams | State Budget Solutions

The border between Illinois and Wisconsin is more than just a boundary between Bears fans and Packers fans, or a line of demarcation between those who will and will not qualify as true Cheeseheads.

MAKING PROGRESS: Wisconsin is faring better than its southern neighbor, Illinois, in reforming public pensions.

The state line also is the difference between a sound approach to state public pensions and a failure to act on a public pension crisis that worsens by the day.

In this tale of two states, Illinois is the neighbor that has failed to tend to its financial house. It is in the middle of a big, ugly mess. The Economist  said the Land of Lincoln is “the most blatant example of state finances gone awry” and said, its “ballooning pension system is to blame.”

Illinois’ public pension systems were in very sorry shape at the start of 2013. Then the future became even bleaker when audits of the five state-funded systems released earlier this month revealed a nearly $1.5 billion drop in net assets during the budget year that ended June 30, 2012. The Teachers’ Retirement System (suffered the worst blow, with its net assets dropping by $954 million. The TRS investments earned just 0.76 percent on its investments last fiscal year. Auditors said the systems ended the fiscal year with a 39 percent funding ratio, down from 43.3 percent the prior year.

Facing unfunded pension liabilities of at least $192 billion, and Gov. Pat Quinn warned that this figure is now growing by $17 million each day. Facing state debt of at least $271 billion, including those liabilities, Illinois is in serious trouble. The debt per capita is more than $21,000 per capita. Given that figure, Illinois cannot solve its problems through taxation alone. Cuts are needed, as is pension reform.

In a lame-duck session earlier this month, lawmakers considered and failed to pass pension reform. Illinois’ finances are going in the wrong direction, and lawmakers are doing nothing to stop the downhill slide.

Wisconsin, on the other hand, has worked to keep its house in order. Lawmakers in the Badger State have made reforms to its system for salary, pensions, and health care of government workers. With state debt of approximately $79 billion, the state is far from perfect. But its unfunded pension liabilities are less than one-third of that in Illinois.

The public pension system investments in Wisconsin are far outperforming those in the state to the south. The $6 billion Variable Fund, an all-stock mix of domestic and international equities, was up 16.9 percent. About 18 percent of participants in the Wisconsin Retirement System elect to put some of their money there in addition to the Core Fund. Those impressive returns solid returns are factored into the complicated “smoothing” mechanism built into the system, and are helping the state is still paying off losses from the 2008 market plunge that sent the Core Fund down 26.2 percent.

All Illinois has to show for its pension reform efforts is Squeezy, the pension python, which the governor introduced as a mascot for the state’s pension problems. In contrast, Wisconsin skipped the cartoons and mascots and instead opted for smart decisions. Let’s hope Illinois lawmakers soon get the hint and follow the example of their neighbors. Illinois lawmakers need to reform the broken system and start making the state’s required contribution to the public pension system. Lawmakers need to do so not just to keep up with the neighbors, but also to ensure a secure future for citizens and future generations.

Bob Williams is President of State Budget Solutions, a non-partisan organization advocating for fundamental reform and REAL solutions to the state budget and pension crises. He is a former state legislator, gubernatorial candidate and official with the General Accountability Office. He is a national expert on fiscal and tax policies, election reform and disaster preparedness.

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  • http://www.facebook.com/billy.bolt.14 Billy Bolt

    The Wisconsin legislature last year 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.

    But the real difference is that the State of Wisconsin as employer made all of its pension contributions each year rather than skipping them many years like Illinois did. And how did Wisconsin have enough money to make those payments?

    Individual income tax rates:

    Illinois: 5% (after being 3% 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.

  • http://www.facebook.com/profile.php?id=220400655 Michael Price

    also do the individual school districts in WI contribute to their employee’s pensions, or does the State, like here in IL? Billy Bolt, you hit it right on the head with your comment….

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