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  • How To Fix the State of Illinois

    Posted by Carl from Chicago on January 19th, 2015 (All posts by )

    In a previous post I discussed the high probability of there being some sort of major fiscal calamity in Illinois in the next two years. Here I propose how to solve the issues in the state. I realize that the chance of any or all of these solutions to be put into place is near zero without unthinkable changes, but in fact they are all obvious and will likely be part of the ultimate solution.

    Consolidate Governmental Entities – Illinois has over 8400 governmental entities, the highest in the USA. These entities need to be drastically curtailed and likely should number in the hundreds, and each should have professional management, strict caps on borrowing capabilities, and an inability to sign up for long term unfunded obligations (pensions, retiree health, etc…) without stringent oversight.

    Eliminate Pensions and Defined Benefit Plans and Move to Defined Contribution Plans – Illinois’s pension and benefits woes are myriad and well documented and extend through every city and county due to firefighters and policemen and governmental workers. Regardless of the one time pain, strikes, protests, and society-shaking impacts of these moves, these unfunded obligations are an impossible burden on the state and it must move to a 401k-like plan (similar to what Nebraska did)

    Reduce State and Local Employee Compensation Pay by 25% or More – The government faces a simple choice between paying its employees what they think they deserve (ever more) and the government’s obligation to provide services to its citizens at a price that does not drive excessive taxation. This deal is broken and a large part of the burden will have to rest on governmental employees. If they do not like this solution they will be free to find employment in the private sector where it is unlikely that they will be able to match the same package of benefits and compensation. We will know that the model is in balance when the turnover rate of government is equal to that of the private sector.

    Outsource 33% or More of Governmental Jobs – There are large opportunities for efficiencies in the governmental sector, through use of the Internet, changes in processes, and injection of competition into areas traditionally done by the government. Even within areas that are generally governmental functions (like the police), a significant portion of the functions such as administration could be done by third-party or online vendors.

    Reform Purchasing By Use of Modern Techniques and Focus on Outcomes Not Political Concerns – Our procurement systems in Illinois are riddled with favoritism, opaque decision methods, and a focus on aiding politically connected firms. In addition, payment of vendors is very slow which rules out many smaller and less capitalized vendors. We need to focus on market based outcomes (quality of service, cost reduction, speed to market), and reward vendors with consistent and timely payments rather than focusing on political connections and long term relationships which favor a few incumbents.

    Consolidate Debt and Plan and Execute In a Strategic Manner – At some point our debt of various entities needs to be straightened out and managed in a consistent and optimized way. This can only occur when the various entities are under central control and their power to create their own obligations has been eliminated, and would be tied with various structural reforms or one-time haircuts to get the situation in line with our taxing capabilities.

    Streamline Our Tax Systems and Make the Results Transparent – Illinois is heavily reliant on our property taxes, although the process is particularly opaque in Chicago because of various TIF incentives that steer development to certain areas and political favorites. We also have punishing cigarette and sin taxes which reduce revenues while encouraging smuggling. Our sales tax is also punitive and among the highest in the nation. One of our few positive elements is the lack of a progressive income tax, which is something that many are continuously attempting to overturn.

    Stop Capital Projects and Repair Existing Infrastructure – When the financial crisis hits we will need to defer incremental capital projects (which are very costly and require ongoing support), and attempt to shore up some of our existing infrastructure which is in crisis such as these El Tracks in River North and bridges and roads everywhere in the state.

    Eliminate Business Barriers and Favoritism to Cronies – A friend of mine who moved here from California was astonished that he had to bring a lawyer to the closing of his house purchase; who could imagine that Speaker of the House Madigan is partner in a legal firm that engages in property tax appeals. Our liquor and beverage empires are also politically connected, as well as our ever continuing subsidies to horse race track owners and similar state subsidized businesses. Our rules and regulations should be transparent and fair and open to competition.

    Make Illinois a Right To Work State – Our adjacent states have gone right-to-work and they have seen an uptick in interest in the type of manufacturing work that would be hard pressed to consider Illinois. We need to level the playing field and work to retain our manufacturing base.

    Stop Gerrymandering the State – Our state is gerrymandered at the Federal and State level, which is tied to a lack of interest and trust in politicians. As part of the housecleaning a serious default on debt obligations is likely (whether it is official or not it would need to be a restructuring). Elected officials would need to increase transparency and trust among voters, and an important way to do this would be to create logically organized districts so that officials could be accountable to their constituents.

    In general none of these types of items would make sense individually because any one of these efforts would require an incredible effort and be fought tooth and nail by those entities that profit from the status quo. In the end, however, some sort of serious financial crisis would cause the state to look at the roots of our over-spending and our lack of competitiveness (growth is an important part of the equation), as well as the lack of trust in institutions by voters, since you’d have to ask for more in terms of funding to tackle the mess that’s accumulated after all these years.

    Cross posted at LITGM

     

    15 Responses to “How To Fix the State of Illinois”

    1. Dan from Madison Says:

      “In addition, payment to vendors is very slow…” – we stopped doing business with the state of Illinois many years ago when they went to six months terms. I imagine they are a year plus by now. This quickly reduces the number of vendors who can or will do business with Illinois and the ones who are left are simply marking up prices or cheapening products to pay for the delay. Paying vendors in a timely fashion would instantly save hundreds of millions of dollars by opening up competition.

      It also may create efficiency on the backside by introducing vendors who have incentives to deliver products of higher quality, on time and who would like to partner with the state to come up with more good solutions.

    2. Lexington Green Says:

      Excellent list of reform proposals.

      Now the question is: How much can Rauner do with a Democrat super-majority in the legislature.

      The way I see it, Rauner needs to spend the next two years doing all he can by executive action, and whatever cooperative action he can get from the Democrat legislature.

      But he also has to propose reforms that the Democrats will refuse to enact and spend the next two years, in effect running the 2016 mid-term legislative campaign starting immediately.

      It took decades to do this much damage. It will take multiple election cycles to even get reforms started.

    3. Mike K Says:

      “A friend of mine who moved here from California was astonished that he had to bring a lawyer to the closing of his house purchase;”

      California is an escrow state and lawyers are not needed but there are a few areas suitable for corruption. I bought a house in 2010 and the agent did not disclose to me that she was actually representing the seller, not me. That is contrary to law and was finally disclosed the week escrow closed. I could, and should, have walked away from the deal but didn’t and it cost me about $100,000 two years later.

      Medicaid (MediCal in California) was about two years behind in paying medical claims. That was when I retired and it is probably worse now with Obamacare (Covered California here). Many doctors where I practiced, an affluent county, did not even bill MediCal as it was not worth the trouble. My office staff convinced me to stop accepting MediCal when they told me we lost about $20 on every varicose vein injection. At the time I was the only vascular surgeon accepting MediCal.

      Another favorite tactic is MediCal saying the claim was not filed before the “deadline for filing” but when we tried using registered mail, they would not accept it.

      Your reforms will have no chance until bankruptcy. California is still boasting about its financial condition but the pension overhang is ignored and it is completely dependent on Silicone Valley tax receipts. If Silicone Valley gets a cold (as they used to say about Boeing in Washington), California gets pneumonia.

    4. Gringo Says:

      Make Illinois a Right To Work State – our adjacent states have gone right to work and they have seen an uptick in interest in the type of manufacturing work that would be hard pressed to consider Illinois. We need to level the playing field and work to retain our manufacturing base.

      If Illinois cannot vastly reduce the power of the its public sector units, it will not be able to enact the above reforms.

    5. Mike K Says:

      “If Illinois cannot vastly reduce the power of the its public sector units,”

      It can’t and neither can California. Michigan had the Detroit BK and everybody with a job had moved out of Detroit and voted in other districts.

      Indiana has always been more conservative than Illinois. When I was a kid I knew many people who registered their cars in Indiana to avoid Chicago taxes. Of course, you had to have a garage to do that.

      Walker has done wonders in Wisconsin and I suspect that the rest of the state outside Milwaukee and Madison is pretty conservative.

      Illinois has Chicago like California has Los Angeles and San Francisco. The rest of California is actually purple to red.

    6. Robert Schwartz Says:

      I assume that the odds against anything like your proposals being adopted are about the same as the odds of getting struck by lightning while indoors.

    7. Mike K Says:

      “the odds against anything like your proposals being adopted”

      After the BK. Then all bets are off. Cities in California are going BK, like San Bernardino but CalPERS is trying to stem the tide.

      The same judge who OK’d the Stockton exit plan, however, ruled cities could indeed roll bank pensions in bankruptcy if they chose to do so. But Stockton passed on the opportunity, and San Bernardino now has passed, also. But that’s not the end of the story.

      San Bernardino’s decision “doesn’t mean anything,” said Marcia Fritz, alongtime pension-reform activist. These cities were too far down the bankruptcy path to change course, she added, but the next bankrupt city will know it can now reduce pensions.

      The light at the end of the tunnel is coming and it is not friendly.

    8. dearieme Says:

      “Silicone Valley”: what a brilliant typo. You should copyright it.

    9. DirtyJobsGuy Says:

      Years ago when I was in Engineering school, one of my friends father talked to us about working for the State of New York. He was a civil engineer in the highway system. He said you made about 15% less than a private sector job but had good job security and benefits. I didn’t go that way but the deal seemed reasonable. Now the pay is at par or greater and the benefits are astronomical. The whole unionization of public sector workers and the relaxation on bans for political activism by the civil service are at fault.

    10. JohnTyler Says:

      The counties outside of Cook County should secede from Illinois and form the State of Southern Illinois.
      Nothing will ever change unless the criminal, corrupt , gangster run Chicago and its adjacent environs are EJECTED by the other counties.

      NY State, California, Wasington State, Oregon, Pennsylvania – just to cite a few others – need to split up as well.

    11. Gringo Says:

      “If Illinois cannot vastly reduce the power of the its public sector units,”

      That should haves been “If Illinois cannot vastly reduce the power of the its public sector unions.”

    12. Mike K Says:

      ““Silicone Valley”: what a brilliant typo. You should copyright it.”

      Why a typo ? The French say, “We have a Silicone Valley but it is in the Thames Estuary.”

    13. Phil Ossiferz Stone Says:

      Wow. And I thought my rapidly-failing state of California was FUBAR.

    14. RonaldF Says:

      Northwest Indiana is stocked full of the professional classes deserting Illinois. It is a shame and I fear that Chicago may go the way of Detroit, though it is one of the last large cities to retain its beauty and functionality. I would require every immigrant, from Illinois, to grow corn for one year, as that is what they think of Hoosiers.

    15. Mike K Says:

      “Northwest Indiana is stocked full of the professional classes deserting Illinois.”

      I read a couple of years ago about an OB GYN who moved across the state line to avoid Illinois’ legal climate. Most of his patients agreed to drive the 60 miles to his new practice.