As the state’s second fiscal year without a budget draws to an end and a special budget session of the General Assembly comes to a head, both Governor Bruce Rauner and House Speaker Michael Madigan have shifted slightly to accommodate each other.
Rauner has dropped a few items from his call for cuts in workers’ compensation. Madigan has backed a version of Rauner’s call for a property tax freeze, though with significant exemptions.
A four-year property tax freeze and cuts in workers’ comp are two of the remaining items from Rauner’s agenda for increasing the state’s economic competitiveness. The sad fact is, neither of these proposals will do anything to accomplish that goal.
(On Wednesday the House passed a Democratic version of workers’ comp reform, but failed to muster the higher threshold of votes needed to pass a Democratic version of a property tax freeze. Republicans opposed both measures.)
As an analysis from the Center for Tax and Budget Accountability makes clear, a property tax freeze amounts to no more than a cut in funding for K-12 education. A two-year property tax freeze – like the one passed this year by the State Senate – would cost local school districts between $430 million and $840 million, according to the CTBA.
But Rauner’s now insisting on a four-year property tax freeze. A bill introduced by a Madigan ally would freeze property taxes for four years but exclude pension and debt service from the freeze and exempt school districts on the state’s financial watch list.
“That would still mean cuts to a lot of school districts,” said CTBA analyst Daniel Kaye Hertz. “The bottom line is, any property tax freeze that doesn’t provide replacement funds from the state is a cut to K-12 education, period.”
It comes on top of $1 billion in state cuts (in inflation-adjusted dollars) to local schools over the past 15 years, he said. And it does nothing to address the state’s disgraceful legacy of being virtually rock-bottom in the nation in the proportion of school funding coming from the state.
Hertz is blunt: The idea that cutting funding for local schools would increase the state’s competitiveness is “pretty dumb.”
As far as workers’ comp, Hertz studied that issue earlier this year and found the notion that cutting benefits for injured workers helps encourage job growth to be more ideology than economics.
Rauner has scaled back his plan to focus on reducing reimbursements to medical providers, while Democrats have backed legislation regulating what insurance companies charge employers.
Hertz found, first of all, that reducing benefits does little to reduce employers’ costs. Illinois cut workers’ comp benefits in 2011, and benefits fell by 20 percent between 2010 and 2014 while employers’ costs fell by only 4.4 percent, he found. Nationally, with an employer-driven campaign reducing payments in state after state, benefits fell by 10 percent during that period while employers’ costs actually increased by 8 percent.
Beyond that, Hertz reports, studies by economists of the impact of workers’ compensation costs on employment levels have found little to no relationship. Employers are much more interested in factors like education and transportation – precisely the areas where Illinois is now falling behind.
The biggest beneficiary of workers’ comp cuts appear to be insurance companies, which are pocketing the lion’s share of the savings.
It’s plain to see that Illinois needs a budget. It’s hard to see why it needs to cut local funding for schools or benefits for injured workers.
Meanwhile, Madigan and Rauner each have major conditions for a deal. Madigan says Rauner has to agree to sign a school funding reform measure that includes pension relief for Chicago. Rauner says he’ll sign an income tax increase – which everyone from the Civic Federation to the Chamber of Commerce recognizes as necessary – only if it’s limited to four years.
Rauner and the Republicans say the pension assistance for Chicago is a “bailout,” although Chicago taxpayers subsidize school pensions around the state, but the state contributes nothing to Chicago teachers’ pensions. This week, CTBA issued an analysis of state support for school pensions, and found that outside Chicago, the state pays an average of $2,500 per student for pension costs. (State payments range from $1,900 per student downstate to $2,810 per student in DuPage County.)
The bill passed by Democrats would provide $215 million for Chicago Public Schools’ pension costs. With about 380,000 students, that comes out to $565 per student. Far from a bailout, it’s barely a down payment on equity.
Finally, Rauner’s demand that an income tax hike be sunsetted after four years recalls the definition of insanity – doing the same thing and expecting a different outcome. We just went through a temporary tax increase, and the result is the situation we now face: the state’s bond rating on the verge of junk status, a $15 billion backlog of bills, state universities facing accreditation issues, social service agencies closing.
Of all the bad ideas being entertained in Springfield, that one might be the worst.