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 Illinois Gov. J.B. Pritzker signed a deal Aug. 23 with the
state’s largest public employee union that offers automatic 12% raises, a $2,500
bonus and will cost state taxpayers $3.6 billion more than was necessary.
A summary of the agreement produced by the American Federation of State, County
and Municipal Employees Council 31 details the $2,500-per-worker automatic
bonuses, automatic raises and taxpayer-subsidized platinum health insurance
benefits state workers will receive until the contract expires June 30, 2023.
The Illinois Policy Institute outlined possible savings under a fair contract in
Budget Solutions 2020, a five-year fiscal plan for the state of Illinois. The
new contract will cost $3.6 billion more than what taxpayers would have paid
under a taxpayer-friendly contract. Illinois state workers are among the highest
paid in the nation, and make significantly more than the private-sector workers
asked to support them.
The contract includes a number of questionable provisions, which include making
it more difficult for employees to learn about their rights under the U.S.
Supreme Court’s Janus v. AFSCME decision and weakening management rights to
require overtime work.
However, the costliest provisions for taxpayers and the state budget relate to
pay increases and health insurance.
Automatic raises, backpay and a new bonus for the nation’s second-highest paid
state workers
Illinois state workers are already the second-highest paid in the nation, after
adjusting for regional costs of living, according to the most recent data from
the federal Bureau of Economic Analysis.
Also, total compensation for Illinois state workers, including
both wages and benefits, is much higher than the average compensation of private
sector workers and is growing faster. From 1998 to 2017, average state worker
compensation grew 70% faster than Illinois’ average private sector wages.
Despite these facts, the new contract includes the following:
• $2,500 bonuses as compensation for the “hardship” of working for the state
under former Gov. Bruce Rauner. Multiplied by the more than 35,000 AFSCME
employees working for the state in 2018, these bonuses could cost taxpayers up
to $88 million.
• Annual raises to employees’ base pay for four years starting at 1.5% in
January, going up to 2.1% in July and then by 3.95% each July thereafter. For
the average AFSCME employee, this will raise their base pay from $63,025 to
$70,575. Contract raises will cost up to $266 million.
• Resumption of automatic raises based on years of service, known as “step
increases.” The Governor’s Office of Management and Budget estimated the cost of
these raises at more than $200 million per year.
• Earlier step increases will also receive a $25-per-month bump for three years,
which when fully implemented will raise the annual value of these steps by $900.
Pritzker had already agreed to pay “backpay” for missed step increases from the
four-year wage freeze imposed by Rauner. After the state’s last contract with
AFSCME ended on June 30, 2015, while the Rauner administration and AFSCME were
still negotiating a new agreement, the parties disagreed over whether step
increases should continue to be paid. As reported by the State Journal-Register,
litigation between the two parties led to a court order in AFSCME’s favor that
required the Illinois Labor Relations Board to settle the dispute.
However, the Rauner administration continued to maintain that step increases
were not due after the parties reached an impasse in negotiations in January
2016. By limiting backpay to a roughly six-month period, rather than four years,
the state would have significantly reduced its liability.
Pritzker’s decision to agree to AFSCME’s demands on step increases for 2016-2019
made the dispute moot, and the fiscal year 2020 spending plan budgeted $410
million for AFSCME backpay.
Under the new contract, Illinois state workers will continue to be paid far more
than the private sector workers who fund government spending and will continue
to be among the highest paid in the nation.
Platinum-level health insurance at 80% discount
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State workers currently receive platinum level
health insurance benefits at heavy taxpayer expense. Pritzker’s
contract continues that practice with negligible changes. The most
recent data available, received pursuant to a Freedom of Information
Act request, show state workers paid just 20% of the cost of their
own health care in fiscal year 2018. This data
reflects both premiums and out-of-pocket expenses, such as
deductibles and co-pays, to present a comprehensive picture of
taxpayer costs.
By contrast, the average private-sector employee pays more than
double what AFSCME pays – 43% – according to the 2018 Milliman
Medical Index. That means the average taxpayer who funds AFSCME
benefits is subsidizing a benefit they almost certainly don’t enjoy
at their job. Moreover, platinum level coverage is not even
available for Illinoisans purchasing health insurance on the
individual market exchanges.
The state’s final offer to AFSCME before Pritzker’s election would
have right-sized group employee health insurance costs by bringing
them more in line with the private sector. The plan would have
created three tiers of insurance: one with higher premiums, one with
higher out-of-pocket costs and a mixed plan. Each of the plans would
have increased the total employee share to 40% on average, with a
mix of higher out-of-pocket or higher premium costs, depending on
the plan selected.
Compared to Pritzker’s offer, this plan would have saved just over
$2 billion during the contract. Pritzker’s AFSCME
contract does include small increases in premium costs for employees
and small increases in deductibles and co-pays. Premium costs would
go up by $35 for employees making more than $125,000 on Jan. 1. For
all employees, premium contributions will increase on Jan. 1 by $13
per month for the employee and $18 per month for dependents, with
increases on July 1 of subsequent fiscal years for the term of the
contract.
This represents a 9% average increase in employee premiums and a 10%
average increase in dependent premiums. Had these changes been
implemented in fiscal year 2018, the state would have saved just
$9.7 million on group health insurance costs. These savings are more
than wiped out by salary increases and bonuses in the new contract.
With the 12-month inflation rate for health insurance recently
topping 10.7%, the increase in employee premiums secured by Pritzker
is likely to be largely offset by increasing costs for health
insurance, negating taxpayer savings.
Pritzker’s expensive AFSCME contract increases need for meaningful
pension reform
As a result of the newly signed contract, taxpayers will be on the
hook for $3.6 billion more than they would have been under a
taxpayer friendly contract. Locking the state into paying for this
expensive contract will make it significantly more difficult to
repair Illinois’ worst-in-the-nation fiscal crisis without
economically harmful tax increases.
To protect taxpayers, balance budgets and free up resources to pay
off high-interest debt on the state’s $6.4 billion bill backlog,
Illinois must pursue meaningful pension reform.
For the fiscal year 2020 budget, Illinois will pay $10.2 billion
towards pension costs. This figure includes:
• Direct contributions to the five state systems of $9.225 billion
• Debt service on pension obligation bonds worth $674.5 million
• The state’s contribution to Chicago Teachers’ Pension Fund normal
costs (the employer share of pension costs created by an additional
year of work) of $245.5 million
• $92 million in new debt service costs for pension buyout bonds
Compared with the state’s new revenue projection of $40.2 billion,
this means more than a quarter of money taxpayers send to
Springfield is going to pension-related costs.
A constitutional amendment allowing for reductions in the growth
rate of pension benefits, while still protecting benefits already
earned by workers and retirees, can save between $1 billion and $2
billion annually while fully funding the state’s struggling pension
funds by 2045.
With Pritzker foregoing other options for reducing spending, the
case for real pension reform has never been stronger.
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