Tag Archives: Chicago Tribune

New video explores source of union influence in politics

The Moving Picture Institute and Reason TV have partnered on a new video that explores how public sector unions affect political outcomes. Many public sector employees are required to pay union dues, and these dues are in turn used to sway political outcomes.

As the video explains, teachers who want to teach in public schools often don’t have the option of keeping their union dues instead of funding political causes. This helps to explain the union’s incentive to grow the public sector workforce, even if the growth in spending does not result in improved outcomes for taxpayers.

The video does a clear job of explaining that the problem is not individual public employees, but rather the incentives facing the unions that they are required to belong to. This incentive structure at times leads union officials to support their own best interests even ahead of their members’. This was demonstrated in Chicago last fall when the Chicago Tribune revealed that 23 retired union officials receive benefits nearly three times greater than what the city’s typical retirees make, at the expense of not only taxpayers, but also the public employees they represent.

 

Potential Pension Cuts for Retired Teachers in Illinois

There was an interesting op-ed in the Chicago Tribune recently that points to the severity of Illinois’s pension mess. According to the Teachers’ Retirement System (TRS) in Illinois, if new revenues are not generated then benefits for current retirees may need to be cut via COLA reductions. This statement should not come as a surprise considering the state’s pension system is slated to run out of assets within the next decade.

As expected, however, teacher unions are unhappy with this discussion and have already deemed it unconstitutional. Unfortunately, because current benefits are protected in Illinois’s state constitution, this is a common fall back for nearly every argument against changes to the pension system.

Reducing COLA benefits may sound extreme but, as we already know, this type of reform was celebrated as a bipartisan success in Rhode Island last year. Unfortunately, during the same time, the Illinois TRS was releasing statements like this one:

The Tribune’s July 5 editorial ‘Rescuing public pensions’ is centered on the false premise that Illinois’ current pension plans for public employees are ‘doomed’ and unsustainable. The truth is that the state’s pension plans are sustainable.

One word comes to mind after reading that… scary. Illinois’s pension system is surely not sustainable. If the state continues to tell people that it is then the possibility for serious structural reform will become less likely. Reducing or suspending the COLA is one of many important steps that Illinois needs to consider.

The USPS: A Business or a Welfare Organization?

In our oped in the Chicago Tribune yesterday, Maurice McTigue and I argue that Congress needs to decide if it wants the USPS to be an independent business or a taxpayer-supported welfare organization.

Currently Congress wants to have its cake and eat it too – it wants to maintain the government controlled quasi-monopoly over postal delivery but it also wants USPS to operate as a profitable competitive organization. Striving to have the USPS operate in this sort of middle ground will simply not work.

From our oped:

In order for the USPS to operate as a business and become profitable, Congress needs to allow it to make the same decisions every private-sector business makes, which includes choosing the location of its assets, closing post offices, laying off workers and competitively pricing its services. This also means the USPS should not be allowed to borrow from the government or receive written guarantees.

Given the current fiscal problems stemming from the already overcommitted welfare system in the United States, creating another one is simply not an option. If instead, Congress were to remove the barriers to postal delivery, it would allow the USPS to restructure itself into a 21st century organization – an organization that could provide an improved quality of service at competitive prices.

 

Windfall for Chicago Union Leaders

In Chicago, teacher union leaders have won the lottery of municipal benefits. Twenty-three union leaders will be receiving a total of $56,000,000 in retirement. For most, these pension benefits will be greater than the salaries that they made while employed by the union. On the 1991 law that has secured these benefits, the Chicago Tribune reports:

All it took to give nearly two dozen labor leaders from Chicago a windfall worth millions was a few tweaks to a handful of sentences in the state’s lengthy pension code.

The changes became law with no public debate among state legislators and, more importantly, no cost analysis.

Because of the secrecy surrounding the collective bargaining process between policymakers and organized labor in Chicago, the article explains that it is difficult to determine the lawmakers responsible for this policy. The $56 million in pension benefits is a relative drop in the bucket at this point for the Chicago Teachers’ Pension Fund, which has been underfunded by $5 billion in the last 10 years.

However, the process by which union leaders secured these benefits is symptomatic of Illinois’ larger pension problems. Twenty years ago when lawmakers agreed to guarantee these benefits, they were not concerned about the long-term repercussions to the pension funds’ solvency, or for that matter what the size of the bill might be for future residents.

Lawmakers have the incorrect incentives to manage pension funds because they think in terms of election cycles, where strong union support can make sure they stay in office, rather than the long horizon over which taxpayers will be forced to fund these promises. Eileen Norcross documents this misalignment of incentives in a forthcoming we will be discussing further here.

Summer Games: The New Economic Stimulus?

The Chicago Tribune reports that Mayor Daley and the City Council have given unanimous support to fund any expense overruns should Chicago win its bid to host the 2016 Olympic games. This decision gives the city a fighting chance to be selected to host the games, keeping it in the running with Madrid, Rio de Janeiro, and Tokyo, all of which have secured similar financial guarantees.

Afterward, aldermen and Mayor Richard Daley gave themselves a standing ovation. The vote reauthorizes Daley to sign the Olympics host city contract in advance of the Oct. 2 vote in Copenhagen by the International Olympics Committee on which of four finalist cities gets the Summer Games in seven years.

This decision by the city’s leadership may not represent the desires of Chicago citizens who, a Tribune poll shows, have dwindling support for the city to host the games, largely because of concerns about taxpayer liability.

After the vote, many of the aldermen gave quotes to the press:

Ald. Ray Suarez (31st) said he initially “had some reservations.” But Suarez said he now feels the Olympics would bring jobs, housing and a new global reputation to Chicago.

“It will make Chicago a world-class city,” he said.

Of course, Chicago residents and leaders may have many reasons for wanting to host the 2016 Games, but it is uncertain that the event would be an economic boon to the city.  A study conducted to analyze the potential economic effects of the 2012 London Olympics found that historically while some host cities have benefited economically, others have suffered losses as tax dollars used to fund the games are not always recouped during the course of the event.

Adam Blake of the University of Nottingham Business School found that the event was likely to benefit London in 2012 and that increased growth is likely to last until 2016, but that in the years before and after this bracket the results are less certain.

Short-lived, costly events such as the Olympics often result in the construction of facilities that will have limited use after the games are over.  For example, the Bird’s Nest that became symbolic of the 2008 Beijing Olympics is today underutilized, making revenue today only from tourists who wish to see where the athletes competed.

A USA Today reporter speculates:

In other countries, the Bird’s Nest might be revealed as a white elephant — an expensive possession with little commercial value. But in China, the government and state-controlled media are unlikely to advertise the fact and citizens will never know the real cost.

Ex ante, we do not know if the 2016 games would benefit or harm Chicago in the long run, but looking to past cases gives reason to question whether or not host cities benefit in the long run.  Perhaps a more reliable policy to promote economic growth and tourism in the city would be to lower its notoriously high taxes. The Economist recently found that Chicago has the greatest tax burden for tourists of any American city.  The cities’ leadership would be wise to consider how this tax climate would impact potential visitors’ decisions to attend the games before speculating that increased tourism would certainly benefit residents.

The Tax Contract

When citizens pay taxes to their municipal, state, or federal government, they generally view the payment as upholding their end of a contract with their government. In return, they expect a certain level of services such as infrastructure, public safety, and education.

This model of taxation requires transparency in public spending and taxation, a transparency that can be obscured by fiscal gimmickry that is prevalent at all levels of government. One way that policy makers obfuscate the level of taxation is by creating complicated tax structures that levy high rates on certain goods, such as excise taxes. Constituents may not realize the full burden of these taxes until they reach high enough levels, as may be occurring in Chicago. A recent Chicago Tribune article explains:

Mayor Richard Daley’s budget includes dozens of new or higher taxes and fees to raise an extra $53 million.

[ . . . ]

The taxes and fees were part of what Ald. Robert Fioretti (2nd) calls a “nickel-and-dime” approach to balancing the city budget. Like nearly all his colleagues, Fioretti voted for them in late November, but this week he questioned whether city and county taxes and fees had reached a tipping point.

My constituents are saying they will have to move out of the city, and I’m hearing it also from suburbanites who say they can no longer afford to come into the city,” he said. “I’m concerned. I’m more than concerned at this point.”

When local tax rates reach a level that citizens feel far exceeds the level of services they receive in return, cities and states risk population loss or the type of citizen protest seen in Toms River, New Jersey. In theory, competition between localities should ensure that city and state governments do not allow their tax burdens to get out of line with the public services that they offer. However, if tax policy is difficult to decipher, residents may have a hard time keeping track of what they’re paying for.

This may lead to the conflicting opinions on Toronto’s tax levels.  As reported in the Toronto Sun:

Toronto residents may pay the lowest property taxes in the GTA, but the city’s true property tax rates are being masked by growing user fees, resident groups and council critics told the Sunday Sun.

At 0.85%, Toronto’s combined rate for city and education taxes is the lowest in the GTA. But when you combine other fees, such as garbage, a personal vehicle tax and the land transfer tax, homeowners are also feeling the pressure of being “taxed to death.”

However, a Toronto Star editorial argues that unlike in Chicago, Toronto residents do receive a level of public services that correlates to their tax burden:

You get what you pay for, of course, and despite what the right-wingers would have us believe, Torontonians have it relatively easy when it comes to municipal taxes.

As for the media, their response is as dumb as it is predictable. Mere mention of higher taxes sends the scribblers into paroxysms of outrage.

Get over it.

The Star’s flippant attitude toward the level of municipal taxes may be because the people of Toronto do, in fact, get what they pay for. Or it may perhaps be that the author, the Star‘s Christopher Hume, is a victim of fiscal illusion, unaware of the full amount he pays in taxes and fees.

Regardless, these two conflicting and subjective opinions draw attention to the important concept: all levels of government must honor the contract that they enter into with their citizens when they levy taxes. If this contract is breached, cities and states risk losing population to places that offer a higher value of services for taxes.