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posted: 6/27/2014 5:01 AM

Target overly generous state salaries to cut budget

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  • Paul Kersey

      Paul Kersey

 
By Paul Kersey

Citizens and politicians agree: Illinois' budget is a mess. Yet nothing ever seems to be done about it. Why not? Because one-third of the state's spending -- employee compensation -- is off the table. Until Illinois politicians have the courage to take a scalpel to government employee wages and benefits, Illinois' budget will continue to be unmanageable. But doing so means challenging Illinois' most deeply entrenched special interest: government unions.

Many government employees are overpaid. According to the state comptroller, Illinois pays its 156 janitors more than $48,000 per year on average. But according to the U.S. Bureau of Economic Analysis, the typical janitor in the private sector makes just over $26,000. On average, the 22 barbers hired by the state make twice as much as the $35,340 that an average barber earns in Illinois.

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Not all government employees are so grossly overpaid compared with their peers in the private sector, so a big, across-the-board pay cut probably isn't necessary. Instead, the state should take an intensive look at state employee salaries and normalize them so that they are roughly equivalent to wages in the regular economy. Illinois taxpayers spend $3 billion on base salaries annually. If state government reduced base salaries by 10 percent -- again, reducing labor costs, not instituting an across-the-board pay cut of 10 percent -- state government could reduce its spending by $300 million. Matching state government's salary schedule to the private market would be a good way to start.

More important is getting state retiree health care benefits under control: Retirees of Illinois state government receive very generous health care benefits, with state taxpayers picking up most of the insurance premium itself. This perk is almost unheard of in the private sector. But if Illinois merely asked retirees pick up about half the tab for premiums -- which is what most other states do -- taxpayers could save $800 million per year.

If lawmakers did just these two things, they would save taxpayers $1.1 billion -- more than half of the $1.8 billion shortfall that Illinois is expected to face in 2015 as the state's income tax rate falls from 5 percent to 3.75 percent.

Theses two cost-saving measures are things state government can do immediately. But state government also sends billions of dollars each year to subsidize local governments and local schools. Imagine the savings the state could experience if local governments and schools streamlined their budgets and requested less from the state.

Local government and school district employees outnumber state employees by more than four to one. Just as in state government, many local government employees have overly generous pay and benefits compared with the private sector, or even other governments. If these were brought back in line, the savings for taxpayers would be tremendous. The state of Illinois could adjust its revenue sharing with local governments and aid to school districts accordingly, offering relief to taxpayers across the state.

This is precisely how Gov. Scott Walker tamed Wisconsin's budget problem, turning a $2 billion deficit into a $1 billion surplus and offering Wisconsinites $500 million in tax cuts. It was hard for the general public to understand at the time his reforms were implemented, but what Walker did was make strong labor law reforms that resulted in unprecedented tax cuts. Those reforms made it possible for local governments to employ public workers without paying a premium. Local employees, in turn, were no longer forced to pay union dues as a condition of employment. For those who never wished to belong to a union in the first place, the option to quit the union and keep more of their paychecks at least partly made up for any adjustments in their compensation.

It is government unions that force the state and local governments to pay extremely high wages. Recalibrating Illinois' public employee compensation would make a huge difference in the state's spending. That will mean challenging government unions -- a tough fight not all politicians are willing to take on. But until our elected officials take on the unions, there's really no other way to balance the state budget and provide relief to taxpayers while preserving essential services Illinoisans rely on.

• Paul Kersey is director of Labor Reform at the Illinois Policy Institute, a taxpayer watchdog group.

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