In yet another twist in the Chicago pension saga, Illinois lawmakers voted to override a veto by Governor Bruce Rauner and allow the city to defer payments to fund pensions.
The Senate voted 39-19 and the House voted 72-43 in to overturn the veto, in what is seen as a stunning result in Chicago's bid to reduce payment amounts into public safety workers' pensions. At the heart of the matter is a 2010 state law was requiring Chicago to have its public safety workers' pensions 90 percent funded by 2040, and under that law Chicago's contribution would jump to nearly $834 million in 2016 from $290.4 million in 2015. The new legislation will now alter that law, and according to Reuters, reduce the 2016 payment to $619 million and allows for smaller increases through 2020, while pushing the timeline for police and fire funds to become 90 percent funded out to 2055. The police and fire funds are only 26 percent and 23 percent funded respectively.
Chicago mayor Rahm Emanuel had argued that if Governor Bruce Rauner's veto wasn't overturned, a $300 million property tax hike for city property owners would have had to taken place, something Emanuel had branded the "Rauner Tax". Rauner had called the bill a "terrible policy" and said in a statement that the measure would end up costing Chicago taxpayers $18.6 billion over time.
Confirming how tense in the state are, House speaker Michael Madigan told reporters after the vote "I think it was interesting the governor had nothing to say about the override. I was raised not to cause embarrassment for people so I didn't raise it."
In context, as we discussed previously, the unfunded liabilities for Illinois were head and shoulders above other cities and will eventually need to lead to higher tax increases as part of any workable solution that is able to be put together - if any. Raising debt will also be more difficult after Moody's downgrading of Chicago to Ba1.
With millionaires fleeing Chicago as it is and decreasing the tax base, lawmakers know that more than just a property tax is going to have to take place to solve these stunning deficits. Operating without a budget for 11 months and poised to end the fiscal year on June 30 with a $6.2 billion shortfall to add to a stack of unpaid bills in the amount of $6.8 billion, lawmakers are revisiting an old idea: a tax on trading.
A bill is in its early stages that would target trades on the CME, CBOE, and other markets based in the state according Bloomberg reports. The proposal would impose a tax of $1 per contract for transactions where an agriculture product is the underlying commodity, and $2 per contract for everything else including futures and options. The bill exempts trades in retirement accounts and those involving a mutual fund.
At a hearing last Thursday in Springfield, CME Group Executive Chairman Terry Duffy said a financial transaction tax would be a disaster for the state's economy.
Speaking at the event, CME Group Inc. Executive Chairman Terry Duffy said a financial transaction tax would be a disaster for the state’s economy. His Chicago-based company, which owns the Chicago Mercantile Exchange, handles futures contracts linked to everything from key stock indexes to agricultural commodities and interest rates.
“CME Group and our colleagues in the industry are engines of job creation and economic opportunity for the state,” Duffy said at an Illinois House Revenue and Finance Committee hearing. “If a financial transaction tax is enacted in Illinois, our customers will leave our markets, and we will be forced to consider alternatives to remain competitive in our global industry.”
The bill does have a bit of support, as Richard Whitney, an attorney from Carbondale, Illinois spoke on the behalf of a state alliance supporting the bill saying that a "speculation tax" would help resolve the state's budget deficit.
“The single most dramatic, single-bullet solution would be what is sometimes called a financial transactions tax, or more specifically I think what we’re talking about here, a speculation sales tax,” Whitney said at the hearing.
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What comes of the latest "single-bullet solution" plan to solve decade's worth of complete fiscal irresponsibility and bloated entitlements is unknown, but CME Group's Terry Duffy revealed what the response would be for the CME if such a tax was passed:
"This is an 800 percent increase on the traders that trade on our exchange today. Would they move their business? Absolutely. If we need to leave Illinois because of any irrational decisions coming out of the state legislature that could affect our business, we have 29 data centers to choose from."