Lots of gnashing of teeth over the failure of the legislature to “do something” about pension reform.

Some sensible sorts point out we’re probably better off without the plan put forward in the House, which would have been challenged in court and almost certainly found unconstitutional, since the vast bulk of its savings came from reducing the benefits of current state workers and retirees.

In Arizona, which has a constitutional provision like Illinois’s barring any diminishment of pension benefits, a recent reform plan was found unconstitutional – and the state was ordered to pay workers back with interest, points out Ralph Martire of the Center for Tax and Budget Accountability.

If there’s one thing we’ve seen this week it’s the wisdom of the 1970 Constitutional Convention in protecting state workers from lying, thieving politicians — and from honest, well-intentioned ones who try to fix their messes without seeing the big picture.

All the plans on the table are focusing on the wrong area of the problem, Martire says.  “We don’t have a benefits crisis, we have a debt crisis.” It’s the predictable result of the 1995 “reform,” which pushed the problem down the road by steeply backloading pension fund payments.

Stabilize the debt

CTBA has proposed amortizing the pension debt over 45 years, which would head off steep pension contribution increases now facing the state — and in fact reduce pension costs over time.

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While releasing a new report showing Chicago among the top cities in the nation for African American unemployment, the Center for Tax and Budget Accountability is urging the state to avail itself of new federal funding for “wage-sharing” programs that reduce layoffs.

The Chicago area had the third highest African American unemployment rate in the nation last year, according to a new report by the Economic Policy Institute released here by CTBA.  While unemployment among African Americans fell in most metropolitan areas last year, in Chicago it increased by 1.7 percent to 22.6 percent.

In 2010, five other metropolitan areas had higher black unemployment rates than Chicago; last year only Los Angeles and Las Vegas did.

St. Louis, Atlanta, Memphis, New York, Philadelphia, Baltimore, Houston, Dallas/Fort Worth, Washington and Richmond had black unemployment rates that were below the national average of 15.9 percent, according to the report.

Chicago is also near the top in the ratio of black to white unemployment, with African Americans here 2.5 times more likely to be unemployed.

One significant factor could be heavy cuts in public service jobs, which disproportionately impact the black community, said Ron Baiman of CTBA.

Federal funds for wage-sharing

A new initiative could help keep those numbers from rising further. Baiman said the federal government recently issued regulations for a provision in the jobs bill passed in February, under which the federal government will provide 100 percent funding for wage-sharing programs.  (See CTBA’s fact sheet on the program.)

Under such programs, workers receive partial unemployment benefits to cover lost wages when their employers reduce their hours in order to prevent layoffs.  Currently 21 states have wage-sharing programs.

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Illinois leads the nation in states tax revenue lost from diversions to retailers to compensate for collection costs, according to a new study by Good Jobs First.

The state loses an estimated $126 million a year to retailer compensation — far more than any other state — and it also leads the nation in sales tax subsidies as part of economic development packages for Wal-Mart.

Nationally, of 45 states which collect sales tax, 19 provide no compensation for collection costs; of 26 that do, 13 of them cap compensation amounts, most of them below $10,000. Good Jobs First estimates that states lose $1 billion a year through sales tax diversions — $70 million of which goes to Wal-Mart.

Vendor compensation allowances, instituted before computerization brought down accounting costs, create “a windfall for giant retailers like Wal-Mart,” according to GJF’s Phil Mattera. GJF urges retail compensation be modernized in light of technological advances.

GJF cites a study that found that sales tax collection costs range from 13.5 percent for small retailers to 2 percent for large retailers.

“It is frustrating that when our state’s huge, ongoing deficits have forced cuts to human service programs used by the most vulnerable members of society, Illinois continues to lose so much revenue to this practice,” commented Ralph Martire of the Center for Tax and Budget Accountability.

Illinois leads on Wal-Mart breaks

Looking at diversion of sales tax revenues to economic development projects, GJF found that Illinois by far leads the states in sales tax rebates for new Wal-Marts, with $41 million going to eleven Wal-Mart developments over the past decade. In addition, a Wal-Mart in Collinsville received $9.5 million in sales tax increment financing in 2004.

The total for Illinois is more than a third of the $130 million in development-related sales tax subsidies that GFJ estimates Wal-Mart has received nationally over the past decade.

Last year Good Jobs First reported that Illinois leads other states by a wide margin in public subsidies to Wal-Marts — including subsidies for new stores in Orland Hills, Belleville and Collinsville that replaced existing Wal-Marts (see June 2007 Newstip).

The group calls for reasonable limits on retailer compensation and for restricting economic development subsidies to bringing basic necessities to underserved areas.

Personalty conflict is a big part of the state’s budget impasse — but for the major media it’s the only story, and that’s part of the problem.

Take funding for the state’s desperately needed capital budget.  It’s presented largely as a problem between the governor and the mayor over how much the city will pay for a casino franchise.

There’s a lot more to the story, according to Ralph Martire of the Center for Tax and Budget Accountability – a reality that is largely separate from the rhetoric, which is all that seems to get covered.

The vast majority of gaming is in-state, Martire said, and it’s a substitute expenditure — money spent in casinos is not spent at dry cleaners or shoe stores.  But because the majority of casino owners are out-of-state, the profits don’t go back into the local economy, the way money spent at the dry cleaners does.

Compared to public expenditures, which have a large multiplier effect on the local economy — teachers salaries are spent in ways that produce more jobs here — spending on gaming has a significant negative multiplier effect, he said.

Compared to a direct tax — where a dollar for the state costs a taxpayer a dollar — every dollar in gaming revenues for the state costs an Illinois resident five dollars in gambling losses.  And the people providing the revenues are not the wealthiest by far  — they’re low and middle income.

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A new national study offers support for local reformers’ arguments that Illinois’ “antiquated” tax system could be a drag on the state’s economy.

The failure of state tax systems to keep up with fundamental shifts in the economy — including the shift away from manufacturing –   is fueling revenue and public investment shortfalls that undermine economic growth, according to an analysis released in early January by the Pew Center on the States, a program of the Pew Charitable Trusts.

“Antiquated tax structures result in lost revenue, an environment that is inefficient and inhospitable to business, and inequitable taxes on some segments of the economy at the expense of others,” said director Susan Urahn in a statement on the report from the Pew Center.

Mary Jo Waits of the Pew Center will be among national experts joining the Center for Tax and Budget Accountability‘s annual fiscal symposium Tuesday, as the CTBA shifts its focus beyond Illinois to consider what other states are doing to address slowing revenues and rising demands for services, said Ralph Martire.  Illinois comptroller Dan Hynes and treasurer Alexi Giannoulias will also participate.

Martire and CTBA have longed criticized the Illinois tax system for instability and unfairness, with “structural mismatches” guaranteeing growing deficits because state revenue sources don’t capture economic growth.

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With a proposal to triple Cook County’s sales tax reportedly under consideration, the county has failed to collect tens of millions of dollars in federal reimbursements for Medicaid and Medicare patients, according to a new report detailing the county’s “structural deficit.”

The failure of the Bureau of Health Services to establish a billing system has cost the county at least $40 million a year, said Heather O’Donnell of the Center for Tax and Budget Accountability, co-author of a new analysis of Cook County’s revenue system.

The report offers a big-picture view of budget issues in order to advance discussion of long-term solutions, “rather than just putting another finger in the dike,” O’Donnell said.

Deficits Loom

Despite being constitutionally required to have a balanced budget, Cook County has run annual deficits for several years, according to the report — over $200 million in fiscal year 2002 and $479 million in fiscal year 2006.

Even with severe cuts in this year’s budget, a deficit over $120 million is expected, the report said. At current levels of services and revenue growth, the report projects annual shortfalls of a half billion dollars by 2010 and a $1.5 billion in ten years.

The county has been plugging budget gaps for years without addressing the basic problem: the revenue system doesn’t grow with the economy, while many costs of essential county services outpace inflation, O’Donnell said.

Property taxes, which provide a quarter of the county’s $2.8 billion operating budget, have been capped at $720 million for the past ten years; the second largest tax source, the sales tax (providing 13 percent of revenues), “only partially grows with the economy” because Illinois law excludes consumer services, the largest and fastest growing segment of the state’s economy, according to the report.

Medicaid Cuts

Meanwhile federal Medicaid cuts have reduced reimbursements by $139 million in the last two years. Medicaid funds now provide just half of the $810 million health budget, down from 65 percent three years ago, according to the report. And new federal regulations mean the county will get $500 million less in Medicaid funds in the next five years.

At the same time health care costs are increasing sharply, and demand for public health services is rising steadily.

The first step in addressing revenue issues is to begin collecting federal and state Medicaid and Medicare funds that are being lost because “the county doesn’t have a billing system in place to collect those dollars,” O’Donnell said.

Leaving Money on the Table

“It’s unconscionable that you have a public health system that is hanging by a thread, and they are leaving money on the table,” she said. Earlier this year the county “closed clinics and laid off doctors and nurses — and if nothing is done they are going to have another round of cuts next year,” she noted.

While the county needs to find revenue sources that grow with the economy, “they can’t ask taxpayers to pony up with higher tax rates when there are federal dollars they could go after if they had a billing system in place,” O’Donnell said. “They have a public duty to collect the revenue that is due to them” from other agencies.

CBTA expects to release a second report analyzing revenue alternatives for the county in coming weeks.