What’s your #IllinoisExodus Plan?

moving van

Readers, I have been frustrated by the Illinois end-of-session legislative frenzy since it became clear that this frenzy was indeed underway.  In the first paragraph of a recent Forbes article, I wrote:

Illinois readers will already be aware of the flurry of activity due to a May 31 deadline for the regular legislative session in Illinois: legalizing potpassing a budget, and funding a massive infrastructure construction plan with tax boosts and a near-doubling of gambling positions in the state, along with some 300 other bills that sailed under the radar in the last days of the session.  And — sadly, but not surprisingly — the details of these bills were largely hammered out in backroom deals, without any transparency.  It’s a discouraging story, and readers elsewhere can choose whether to take this as a cautionary tale or revel in schadenfreude.

Now, part of my initial frustration was due to the funding side of things:  the fact that there was no reporting, that I could tell, on how revenues from pot and gambling increases were being calculated, and there appears to be a dearth of analysis on the impact of pot and gambling on those Illinoisans who are already living paycheck-to-paycheck, other than a repeated assertion that people are already going to Indiana to gamble so we might as well keep the revenue in-state.

But it was proving difficult to comment on the state’s actual spending plans for the $45 billion in “capital” spending.  Is it legitimate infrastructure spending, with allocations made by experts to get the most bang for the buck in terms of long-term benefit to the state commensurate with the long-term borrowing to fund it?  Or is it pork?

Turns out, it’s pork.

Here are some excerpts from the Chicago Tribune‘s reporting:

How much each rank-and-file lawmaker gets to claim for his or her district is a bit of a moving target, but several Senate Democrats said they were allotted about $6 million each for what’s euphemistically called “member initiatives.” Several House Democrats said they received about $3 million each from a program their party’s rookie governor had pushed for months. . . .

Speaker Madigan played a big role in carving up the pork-barrel spending. Included in the bill is $50 million for grants to be doled out by the Illinois Arts Council, which is chaired by Shirley Madigan, the speaker’s wife.

Steve Brown, a spokesman for the speaker, said many lawmakers have long shown support for the art group’s initiatives.

Madigan’s 13th Ward in Chicago also will benefit. There’s $9 million for upgrades to Hancock College Preparatory High School, where city Public Building Commission records show a replacement school with a capacity of 1,080 students is moving forward just south of Midway Airport. Brown noted there’s a “lot of overcrowding” in area schools.

Also falling within Madigan’s sphere of influence on the Southwest Side is a $31 million grant for a new building for the Academy for Global Citizenship, an independently operated charter school in the Chicago Public Schools system. It’s slated for construction at 44th Street and Laporte Avenue, which is represented in the House by freshman Democratic Rep. Aaron Ortiz of Chicago, who did not return messages seeking comment. . . .

The capital spending plan lists millions of dollars for baseball, football and soccer fields, basketball and tennis courts, playgrounds, bike paths and other recreational venues throughout the state. In Springfield, that’s known as “spork” — sports-related pork.

Standing to benefit is pickleball, a fledgling sport that’s part tennis, part badminton and part pingpong. Democratic Sen. Terry Link of Vernon Hills tucked in $100,000 for the Buffalo Grove Park District for pickleball courts and other renovations.

The Park District plans to seal coat eight new courts at Mike Rylko Community Park because the paddle sport has “really taken off,” said Ryan Risinger, the district’s executive director. The new courts would replace rarely used sand volleyball courts, he said. . . .

The spending plan also includes plenty of money to make sure the family dog is well-exercised — $400,000 is set aside for dog parks. . . .

South Side Democratic Sen. Jacqueline Collins said she secured $370,000 for the Inner City Muslim Action Network to help with renovations of a building at 63rd and Racine Avenue to provide a grocery store for healthy food. . . .

North Side lawmakers are influential in the legislature, and the capital spending bill reflects that.

The plan includes nearly $1.5 million for an AIDS Garden to memorialize Chicago’s fight against HIV and AIDS. . . .

Rep. Mary Flowers said fellow House Democrats each were allotted $3 million to $4 million to spread around their districts to fill requests for schools, roads, bridges and other projects. . . .

“Everybody was kind of happy about being able to bring something home,” she said.

And, remember, this is not “free money”; Illinois is not so prosperous that it can merrily dole out extras just for fun.  As of today, the state has an unpaid bills backlog of $6.8 billion; this is money owed to contractors/vendors who will get paid when the state is good and ready to pay them.  (Who are these vendors?  Lots of human service providers.)  Money that’s being spent on parks or other amenities in politically-favored legislators’ districts could have gone to pay down this backlog.   And, incidentally, Buffalo Grove is not a suburb that’s struggling financially.

And the GOP?  They played the “if you can’t beat them, join them” game.  While they don’t appear to have been sharing in the pork largesse, they are touting their success at getting tax breaks.  Not at producing structural reform.  Not at negotiating a pairing of the upcoming graduated income tax amendment on the 2020 ballot with an amendment to enable pension reform.  Just tax breaks, mostly for their favored business-constituents.

Back in the fall, I wrote a series of articles at Forbes about multi-employer pensions.  It’s a topic that I’m overdue in revisiting, because, for the “red zone” plans, the longer Congress delays in providing its fix, the worse it’ll be.  But here’s something that I haven’t shared with readers before:  I made some connections to folks trying to come up with solutions in that space.  I even experienced what seemed like a small success when an expert group, testifying before Congress in the winter, used some of my ideas.  (OK, fine, that may have been coincidence, but I’m still chalking that up as a win.)

Separately, there are serious conversations around Social Security and retirement.

But in Illinois?  My efforts at writing about the pension funding crisis at the state and city (Chicago) level leave me more discouraged than ever — there is no serious effort to solve this; instead we’ve got Pritzker’s “let’s sell assets” proposal and Lightfoot’s apparent expectation that gambling and pot will pay for pensions.  And it’s not just pensions, but the fact that those in power in city and state like to talk about “sacrifice” but still promise that their constituents will be happy recipients of tax cuts and government money, thanks to either a magic money tree and/or Bad People paying more.

Is there a path forward, a way in which concerned Illinoisans can say, “it’s time to fix this”?  Here in my suburb, voters, by a narrow margin, chose a Democratic State Senator over the Republican incumbent in a pitched battle with multiple daily mailers and robocalls; on her website, she applauds herself for voting for the budget and for pot legalization but says nothing about the capital bill.  Likewise, the Democratic State Representative in the district a half-mile over also is a first-time legislator who won in an open district formerly occupied by a Republican; he promotes his votes for the so-called “Fair Tax” as well as his vote for the budget on his webpage.  (My own district is Republican-held after, again, a close vote and endless mailers.)  Yes, former governor Rauner’s unpopularity, as well as the Trump-caused dislike of the GOP in general meant that their candidates were seriously disadvantaged, but the Democrats now hold such a majority that the Democratic leadership — Madigan, Cullerton, Pritzker — have, near as I can tell, unchecked power, and every intention to use that power to implement policies coming from a conviction that what ails Illinois is a failure to spend enough state money, paired with what appear to be declarations of prosperity, in the form of a massive statewide minimum wage hike and a new law fixing the minimum salary for a teacher at $40,000 statewide, with no apparent aid for the small-town and rural school districts whose starting salary begins below this threshold (except insofar as teacher salaries are an input into existing state aid).  And this even as the state, year after year, loses residents.

I know it seems unwarranted to say, “we can’t do anything about this,” given that we do have free and fair elections in Illinois, but the groundswell of opposition that it would require to get Republicans elected in contested districts, when the Democrats’ war chest is so large, or to get an anti-Madigan Democrat on the ballot at the primary stage, would be so massive that it simply does not seem like a feasible endeavor, relative to the alternate approach of identifying a state to which to relocate, in our case, after the youngest is out of school.

So, readers, which state do you recommend?

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Another Infrastructure Bill? Lawmakers, Take A Pledge!

It is wasteful and irresponsible to fund infrastructure through grand capital bills.

Consider what happens in your local town, if yours is anything like mine.

City thoroughfares are evaluated from time to time and resurfaced, maybe with state or federal funds, maybe without.  Neighborhood street resurfacing happens each summer, and it’s not a particularly big deal, but just considered to be a routine part of city responsibilities.  Then again, there’s no ribbon-cutting, nothing to be named after a local politician.

Or here’s the example of my local park district.

My suburb had a period of rapid growth in the 1950s and ’60s and, rather than building a single massive community center as would be the case now, they kept their existing pool and rec center as-is and built 5 new sites throughout the village, each with a pool (in one case, indoor), classrooms (in some) and a half-size gym, ball diamonds and athletic fields, playgrounds, and so on. Subsequently, in the late 1990s, following the trend to add zero-depth and spray features to pools, one of the pools was rebuilt in this fashion, which proved to be immensely popular and led to voters approving a bond issue in 2000 for a reconstruction of the remaining pools in similar fashion.

Then the park district tried the same approach with the buildings itself, tearing down and wholly reconstructing one of the buildings with more classrooms, a full-size gym and a more modern design, then asking voters to approve a bond issue for a similar remodel of the remaining buildings, dangling even more goodies like an elevated walking track, a fitness center, and the like.  They used the usual pitches of how comparatively small the increase would be for a house of $X value.  They talked about how super-old all the buildings were.  And they said, “if you voters don’t approve the bond issue, we’ll only have enough funds from our regular tax revenue to rebuild one of these every 10 years.”  To which my reaction — and that presumably of all the other voters unwilling to approve the bonds — was, “good!”  That seems far more responsible, to have, in the long term, buildings that are a mix of ages, rather than leveling and rebuilding everything once every 50 years, then waiting a further 50 years for the next rebuild.  That also means that, whatever the next fashion in rec centers might be, the park district can accommodate that, at least in part, rather than saying, “hey, we just rebuilt everything, you’ll have to tough it out.”

This should be obvious, shouldn’t it?  Have a long-term plan in which you keep your infrastructure maintained over the long term and with adequate spacing and funding that’s appropriate for the long-term pacing?

And I acknowledge that that’s not the way infrastructure spending works at the state level, at least in Illinois.  Here in Illinois, infrastructure spending is accomplished through big spending bills, the total costs of which are inflated by the desire of each state legislator to have something to show his or her district, a ribbon-cutting to attend and, if they’re lucky, a building named after them.

This time around, Gov. Pritzker has proposed a massive $41.5 billion infrastructure plan he’s calling “Rebuild Illinois.”  According to the Chicago Tribune,

Pritzker’s outline includes doubling the state gas tax to 38 cents per gallon from 19 cents; tiered increases in vehicle registration fees based on the vehicle’s age; a $250 annual registration fee for electric vehicles; a $1-per-ride tax on ride sharing; and a 7% state tax on cable, satellite and streaming service.

Other taxes being discussed include a new 6% tax on daily and hourly garage parking, a 9% tax on monthly and annual garage parking, and an increase in taxes on manufacturers and importing distributors of beer, wine and spirits. . . .

Of the proposed $41.5 billion in spending, $28.6 billion would be devoted to transportation projects, including $23 billion for roads and bridges and $3.4 billion for mass transit. The plan also calls for spending $5.9 billion on repair and building projects at schools, universities and community colleges. Another $4.4 billion would go to state facilities.

The largest share of the program, $17.8 billion, would be funded through state bonds, while more than $7 billion would come from regular revenue. The plan counts on more than $10 billion in federal funding and $6.6 billion from local governments and private sources.

And, yes, it appears to be conventional wisdom that Pritzker will win the votes for his graduated-tax plan (see, for instance, this Daily Herald column) and marijuana-legalization plan from recalcitrant legislators by means of constituent-pleasing goodies in the infrastructure plan — political benefits that simply wouldn’t exist if the state had long-term infrastructure maintenance plans rather than periodic big spending bills.

And, what, by the way, happened to prior infrastructure plans?

In 2009, under Gov. Quinn, Illinois passed the “Illinois Jobs Now!” plan — yes, the exclamation point is part of the title.  This was a $31 billion spending plan, though much of the money came from federal matching funds, leaving $13 billion to be funded by 20-year bonds, which were themselves to be paid for by a variety of tax and fee increases as well as video game expansion.  (Fun fact:  among these tax hikes were the expansion of the sales tax to include “hygiene products” — in other words, the now-nefarious “tampon tax,” which was subsequently re-excluded in 2016.)  But this didn’t quite work out as planned, since the revenues from video poker fell far short of projections, requiring the state to use General Funds for debt service instead.

What’s more, the Civic Federation reports that this plan fell short in terms of planning:

IJN’s second flaw [in addition to failed revenue projections] was the lack of a comprehensive plan to prioritize projects and ensure that funds were being spent efficiently and with maximal impact on Illinois’ economy. While Governor Pat Quinn’s office released a list of projects to be included in the plan, it offered no explanation of how they were selected. The last ten years of capital budgets have similarly included project lists, as well as some emphasis on various priorities. But they have fallen far short of offering a comprehensive assessment of capital needs or a clear understanding of how each project fits into the whole plan.

Prior to this plan was Gov. Ryan’s “Illinois FIRST” infrastructure plan of 1999, which set records at the time at $12 billion and which contained provisions explicitly allocating “member initiative grants” totaling $1.5 billion out of that $12 billion and which were wholly controlled by the legislators, to be doled out within their districts so that they would benefit from plaudits from beneficiaries in their communities.  A subsequent scholarly analysis confirmed that exactly what you’d expect, occurred:

Among Illinois’s 118 House districts we show that member initiative monies distributed in the year and a half prior to the 2000 general election were disproportionately allocated to districts that were politically competitive, to districts represented by House legislative leaders, and to districts represented by relatively moderate legislators. We also find evidence that member initiative funds were channeled to quickly growing Illinois House districts.

All of which comes down to this:

if legislators are not willing to establish a long-term infrastructure-funding process to eliminate the need for periodic big-money bill such as these, then I call upon them to pledge that:

  • they will condition their support of the bill on a provision that no construction projects be named after themselves or any other politician,
  • they will ensure that all fund-allocation is based on outside experts’ evaluation of needs and assessment of the need for repair vs. new construction without regard for the political appeal of naming and credit-taking for new construction, or political power of individual lawmakers,
  • they will reject any provision that allows individual legislators any discretion in where money is spent, and
  • they will refuse any invitations to ribbon-cutting ceremonies or other thank-you’s honoring them for bacon they’ve brought home.

Yes, these are low expectations.  But better this than nothing!


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What about a Post Office Bank?

So over the past couple days we’ve been getting ourselves in a tizzy about the Bernie Sanders/Alexandria Ocasio-Cortez proposal for a cap on interest rates of 15%, which is intended to be paired with the (re)introduction of a “post office bank” which will, in addition to other hoped-for benefits, also lend at lower rates than traditional credit cards and fill in gaps in the market if they cease lending with these limits.  (The bill’s draft text, is limited only to the 15% interest cap but the “white paper” – a medium blog post – suggest that the post office would provide checking accounts and low interest loans.)

Now, however tempting it is to decry this as an outrage (“I already stand in long enough lines already, and AOC and Sanders want to make the post office lines even longer!” or “those employees are incompetent enough already and you want them to be bank tellers, too!” or “if you get the government into the retail banking business, next thing you know, they’ll be demanding government subsidies or loan forgiveness for people defaulting on their Post Office loans”) it is already the case that the Post Office is a hybrid sort of critter, with a  monopoly on first-class mail delivery to ensure that residents of rural areas receive the same service at the same price as city folk, while trying to compete on package delivery with UPS and FedEx, and all with prices and suchlike fixed by Congress.

And that makes it at least something to consider with an open mind, whether this mandate to deliver mail while not necessarily turning a profit, but in the most cost-effective manner possible, covers whatever ancillary services can make productive use of the postal service’s existing network of facilities so as to benefit from the overhead costs already there due to the provision of mail services.  If, for instance, the lines at the post office are due to small numbers of windows being open (presumably because the employees are hired on a full-time basis and if they hired to accommodate the rush hour periods at lunch and late afternoon, they’d have workers sitting around at other times?), but if having more customers simply meant opening up another window, it could be a win.

Luckily, there are two documents put together by the Post Office’s Office of Inspector General that assess the feasibility with an eye toward addressing whether there were services that could feasibly provided, not as a “welfare benefit” for the poor but as a reasonable business model:  “Providing Non-Bank Financial Services for the Underserved” from January of 2014 and “The Road Ahead for Postal Financial Services,” from May of 2015.  (There may be others, but this is what I am aware of.)

So here’s a quick read of these two proposals because I think it matters to understand this as context — and to remember, again, that the Post Office is already a hybrid governmental body/service provider.

To begin with, they start with the question of the “un-” and “under-banked” — the former being those who have no bank account and the latter being those who have used some sort of “non-bank financial service” such as check cashing, money orders, or payday loans.  Now, I question some of this anxiety about “the underserved” since, as profiled in the 2017 book, The Unbanking of America, many users of these services do so because they provide certain advantages over traditional banks, and, at any rate, some of those classified as “unbanked” — reported to be 8% in the 2014 report — may be using prepaid debit cards which function in a meaningful way as substitute bank accounts.  But nonetheless the author, Lisa Servon, explains that if your credit rating is poor enough, not only will most banks charge you fees, but they may not even allow you a checking account in the first place (or charge higher fees – see my other old blog post), to avoid the hassle of continued overdrafts, however much they might charge in fees.

In any event, the 2014 report provides 4 guiding principles:  a proposed new product must fulfill an unmet market need, must be consistent with the Postal Service’s competencies and assets, must fulfill an important public purpose, and must cover its costs at full maturity.

It observes that the Post Office already has a 70% market share in the US domestic paper money order market, and also sells international money orders, though both these services are paper-based and the future of this product is electronic.  Local Post Offices also sell prepaid debit cards from American Express (as well as various gift cards from retailers, along side their greeting cards).  It would also be a significant revenue opportunity, although this would not be in competition with traditional banks but via partnerships with them.

Because 2006 legislation “prohibits the Postal Service from offering new nonpostal services” (p. 9) the report differentiates between services that would build on existing services and not need new authorization, and those which would be wholly new.  Among these:

  • A “Postal Card” — a reloadable prepaid card.  This appears to be similar to what already exists on the market, except with the convenience (for folks in underserved geographic areas) of being able to conduct transactions such as reloading, withdrawing cash, paying bills, or cashing checks, etc.  This would “likely [be] in partnership with banks” but would offer consumers “a more transparent, affordable option that is tied to a ubiquitous physical distribution network of Post Offices” (p. 11).  This doesn’t sound unreasonable as long as this is done in an unsubsidized manner.
  •  An “interest feature” on the Postal Card to encourage savings.  This sounds great in principle but a bit more questionable in practice, given how low actual interest rates are even at “real” banks.
  • Small loans:  these would be available only to those using a Postal Card and who have a paycheck (or Social Security or other recurring benefit) loaded onto their card; they would borrow up to 50% of their paycheck, and then 5% of their pay would be autodeducted until the loan is paid off.  Note, however, that in their hypothetical example, they would still charge $25 upfront and a 25% interest rate, which is higher than Bernie and AOC’s 15% cap though lower than a payday loan. In addition to the requirement for payroll deduction loan repayment, the Postal Card could be enabled to snag the tax refund of customers who default by removing the direct deposit (or losing their jobs).  (Note that there are a number of companies which low-wage employers use to provide paychecks on prepaid cards already, and presumably they could offer the same service, though I’ve never heard of it and presumably they can’t do it as easily without the pairing with retail locations.) Again, the Post Office might do this in partnership with banks or other financial institutions, not by being a bank itself.

So this doesn’t really sound that outlandish to me — but at the same time, nothing in this proposal is a replacement product for consumers who want to put their new TV on a credit card and pay it off over time; it’s very focused on a very small segment of the market.

At any rate, the follow-up 2015 paper tries to look at the issue with an eye more toward real-world implementation, rather than the focus on rationale of the first paper.  The paper begins by identifying “strategic advantages,” among these, that low-income prospective users viewed the Post Office (both as an institution and as a local office) favorably and were receptive to the idea and that postal clerks everyday work in their usual transactions would be easily transferable to new processes they would need to learn, with automated systems and partners handling more complex work (e.g., helping a consumer apply for a loan would be comparable to helping a consumer submit a passport application).

The 2015 report also addresses the question of which services the Post Office might need additional authorization to provide, rather than merely being an extension of existing sales of prepaid cards and money orders.  For instance, they might already be allowed to provide extended check cashing services but probably couldn’t provide direct deposit of checks into an account tied to a prepaid card; they could provide bill payment only “if determined to be ancillary to sending hardcopy bill payments through the mail.”

In addition, the report assesses financial feasibility of a range of actions from simply providing floorspace for sale of products to a full-blown Post Bank, and concludes that the full-blown Post Bank is “less viable than other approaches.”

So let’s compare this to the oft-touted “public option” for healthcare, in which proponents call for the government to, put charitably, run a nonprofit health insurance agency in which the government’s lack of profit motive and large customer base enables it to offer lower prices.  Why do I cringe at a “Medicare buy-in”?   First of all, because I assume that the government would dictate prices to providers in an unsustainable manner and do more harm than good, and, secondly, because it appears rather likely that the structure of any such program would, even so, be rather indifferent to the actual costs of the program and involve considerable government subsidies.

But if the Postal Service, which is already a hybrid agency, can make a true business case for expanding services in a way that neither requires government subsidies nor meddling with price controls, I’m good with evaluating it on its merits.

And, finally, none of this has anything to do with the Sanders/AOC proposal with its suggestions of checking accounts and “low interest loans.”

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What, actually, is a “fair tax”?

Not the Pritzker proposal for an Illinois tax hike, despite his and his supporters’ claims, actually.

After all, we intuitively know what’s fair and what’s not.  Rules which, in theory and in practice, treat everyone evenhandedly are fair.  Rules which are arbitrary, or penalize or advantage some people or groups over others, other than for appropriate reasons, are unfair, and all the more so when they are set by a minority without a democratic process (or subverting/manipulating a nominally-democratic process).

The pop tax?  Intuitively, it was clear that it was unfair.  One group of people (pop-drinkers) was asked to pay a disproportionate share of the county’s taxes, and within that group, some were burdened more than others — those without cars, without storage space, too far towards the center of the county, or otherwise less able to drive elsewhere to get their pop.  (Yes, at the time my husband worked in Lake County and until the tax was rescinded he bought the Family Pop Supply on his way home from work.  And, yes, if the tax was applied nationwide this specific complaint would be mitigated, but not that of the unfair targeting of pop-drinkers.)

Or consider the gas tax:  people are reasonably OK with it if it actually funds road repair.  But tell them that the gas tax is being used for entirely unrelated purposes that are nominally transportation-related (Cato reports that Kansas, Maryland, New Jersey, Minnesota, Connecticut, Texas, and Rhode Island each divert over 50% of these taxes in some fashion or another) and taxpayers are less happy.

So what of the Pritzker tax proposal?  (For a refresher on the particulars, see my prior article; the latest update on its status comes from today’s Tribune, which reports that the State Senate’s Executive Committee voted along party-lines to approve placing the tax-enabling amendment on the 2020 ballot.)  This proposal is being marketed as a “fair tax” to such a degree that the original language of the proposed amendment even used this phrasing.  It was cringeworthy:

There may be one tax on the income of individuals and corporations. This may be a fair tax where lower rates apply to lower income levels and higher rates apply to higher income levels.

(Thankfully, the proposal was amended to remove both the current constitution’s restriction on graduated income taxes and this new language about a “fair tax.”)

To begin with, there is nothing intrinsically fairer about a graduated income tax than a flat tax.

What’s more, specific elements in the tax as proposed tend to move it to the “unfair” category.  The lack of separate brackets for singles vs. married couples mean that a married couple at a certain income level will end up paying more in taxes than if they had not married.  The “millionaire’s tax” that applies for one’s entire income rather than at the margin means that anyone earning $1,000,001 will pay a patently unfair penalty for that last dollar in income.  (Comically, the original childish language about the “fair tax” would have prohibited this anyway.)  The very fact that the brackets are structured with a dramatic jump in rates, and with a nominal tax cut for moderate earners means that it is being promoted to voters not as the most appropriate way to solve Illinois’ perpetual finance woes, all things considered, but as a way to get something for nothing:  “you get all the state spending you want while we ensure that only a tiny minority of people will have to pay.”

I should add that I am increasingly having misgivings about the labelling of this sort of tax as “progressive” and the inevitable pairing with other types of taxes for which lower-income folk pay relatively more, as a share of their income, as “regressive,” because it is becoming clear that these are not descriptive, but are their own forms of value judgements.  And, while it might, generally speaking, for taxes to fall disproportionately on those who can better afford to bear their burden, tax terminology should be descriptive, not loaded.

On the other hand, strictly speaking, it might not even be accurate to call the Pritzker proposal a “graduated” tax at all.  There are functionally only two brackets, “somewhat less than 5%” and “somewhat less than 8%”, so that there isn’t anything gradual about it.  But, yes, that’s a nit-pick.

And practically speaking, I don’t know where the proposal is headed.  Certainly it’s not being rubber-stamped, or if it is headed toward such, the process is, at any rate, taking longer than for, say, the minimum wage hike, though it may be that this is just a matter of the lack of urgency (regardless of how quickly or slowly the bill passes, the election at which the amendment would be voted on would take place in 2020) rather than lack of votes.  Strategically, on the one hand, it seems a mistake to have a specific proposal rather than saying, “the Illinois constitution wrongly handicaps the state in making its determination of the best type of taxation at any given point in time.”  Yet the fact that our state government is so perpetually untrustworthy meant that, practically speaking, no voter in their right minds would accept a plea of “trust me.”

What’s the alternative?  Obviously, I’m in favor of a pension-related amendment, and pairing the two would have better enabled politicians to make the claim that these amendments are about long-term good governance rather than short-term coffer-filling.  The Tribune went a step further in an editorial today:

Today, a new world: Pritzker would “Let the people vote.”

So how about a package deal, Governor, of amendments or statutory changes: Let the people vote not just on taking more billions of dollars a year from wallets — an amount sure to grow and grow as tax rates rise and rise. Let the people also vote on rewriting the rigid pension clause of the constitution. Let the people vote on term limits. Let the people vote on creating a fair remap scheme.

The pension clause, manipulated by lawmakers eager to reward their cronies in public employee unions, has created much of the financial misery that confronts Pritzker. Lack of term limits has entrenched many of these same lawmakers. And the current remap scheme assures their re-election in perpetuity.

So we’re all agreed, Governor? Taxes, pension reform, term limits, a fair remap scheme. “Let the people vote.”

Sounds good to me!


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Not every disparity is discrimination, car insurance edition

Here’s a Pew report from back in February that I recently came across:  “What? Women Pay More Than Men for Auto Insurance? (Yup.)”  Here are some of the key bits:

It’s a widespread belief that men pay more for automobile insurance than women. But that’s only true for young adults.

Several studies in 2018 and 2017 revealed that women over 25, particularly those between 40 and 60, often pay more than men — not less — for auto insurance, all other rating criteria being equal. . . .

In an interview, [former California Insurance Commissioner Dave] Jones said it’s fair for insurance companies to set premiums based on a driver’s accident history, number of speeding tickets and other factors that are under the driver’s control. But using gender is unfair because a person has no control over that, he said.

What’s going on?  The report indicates that there was no seeming consistency across insurers.  It cites a 2017 Consumer Federation of America study, in which, among 60 year olds, differentials ranged from a premiums 4% higher for men at Liberty Mutual to a 12% higher for women at Geico.  For 40 year olds, the differences among 6 insurers studied were -1%, 0%, 5%, 8% and 16% higher premiums for women.  And, oddly, for 20 year olds, premiums were higher for men, ranging from a 5% to a 16% difference, except at Geico, again, where women had 6% higher premiums.

Is this discrimination?  Are women being charged more than men, for no particular reason except that rate-setters want to give advantages to men because of the patriarchy?  The Pew article suggests, in the midst of a broader discussion around rate-setting processes, that there’s something nefarious going on:

But a professor at University of Minnesota Law School, Daniel Schwarcz, said if companies are not allowed to use “outdated stereotypes based on generalities” about men and women, the insurers will have to consider “more directly” such measures as the actual number of miles driven, the number of years customers have been driving and where they live.

Really?  A lawyer is asserting that actuaries develop rate models which add in some sort of factor based on the “women are bad drivers” stereotype their fathers or grandfathers might have believed, and that’s worth referencing in an article put forth by an organization as respected as Pew?

It should go without saying that actuaries price insurance premiums based on the totality of the data available to them.  Price a rate too high for a given rate class (age, sex, residence, driving history, etc.) and you lose a sale.  Price a rate too low and you lose money on that sale.  Especially now when customers are able to comparison-shop far more easily, insurance companies’ actuarial departments want to get this right.  At the same time, I suppose, if a company has identified a demographic which it believes to be particularly susceptible to marketing and less likely to comparison-shop, they might focus more on marketing to that group and worry less about the competitiveness of their prices.  (Heck, are women less likely to comparison-shop insurance and more likely to choose a brand that gives them warm fuzzies?)  And all of the above is true even with the disparities in pricing among various insurers, simply because each of them will have different pricing models, and will have different claims experience even for the same demographic group (and an objectively similar demographic group could differ if different insurance companies attract different types of customers) — complexities of business operations which these companies are under no obligation to disclose to the general public any more than KFC must provide its secret recipe.

But the 2017 Consumer Federation of America study the Pew study references takes its claims even further, writing

The inconsistent pricing decisions of these insurance companies illustrates CFA’s concern that tying auto insurance rates to factors that a customer cannot control and have nothing to do with their driving safety record – such as one’s biological sex – leads to unfair discrimination and indefensible claims of actuarial soundness. . . .

“Every state but New Hampshire requires drivers, regardless of their sex, to buy auto insurance, so regulators and lawmakers have a special obligation to make sure coverage is priced fairly,” said CFA insurance consultant Douglas Heller, who conducted the study . . . . “What we have found is that insurance companies punish female drivers with perfect records more often than men, and far more often than we expected. We also found that the insurance companies’ use of sex as a rating factor does not seem to reveal much in the way of a consistent risk assessment, and regulators should reconsider allowing companies to continue using it at all.”

But let’s back up:  should insurance rates be only about those characteristics which customers can “control” — in this case, driving history and maybe residence?  Based on this rationale, there shouldn’t be any differentiation by age, either, but no one suggests that 16 year olds and 36 year olds should have the same rates, because it is generally acknowledged that teens, as new drivers, are less skilled, even though these are both items that cannot be “controlled.”  (And, quite honestly, I find it believable that men, once they outgrow their impulsive years, might be more likely to be better drivers; in terms of external factors, women might be more likely to be distracted by kids they’re transporting somewhere, and, besides, it is not out of the question that men could have a better awareness of their environment, spatial awareness, following distance, reaction time, whatever, in the way that there are simply differences between men and women.)

What if a state mandated that, since it’s unfair to charge young adults more for insurance when they can’t “help it” that they’re inexperienced drivers, insurers couldn’t differentiate but had to wait until a driver got into an accident or got a ticket?  (Yes, I know, exactly the demographic with the most political power would be disadvantaging itself, so it’s purely hypothetical.)  Would it be fair to say that any subsidies young people receive would be evened out by paying relatively more than otherwise when they get older?  After all, they’ll earn more then, too, on average.

But intuitively we know this is not actually fair. It is true that all drivers are required to have basic levels of insurance, but there is discretion in terms of the deductible amount and whether, in addition to state minimums, one elects collision/comprehensive insurance.  Plus, of course, drivers purchase the cars they do in part knowing that insurance premiums vary among cars (due to the age and cost of the car plus relative repair expenses and risks of theft).  What happens if these optional coverages become subsidized for some groups?

Now, that being said, it would genuinely be interesting to see what’s driving the rate disparities (no pun intended).  But suggesting directly or indirectly that insurance companies are anti-woman isn’t helpful.


Image: https://pixabay.com/photos/traffic-highway-car-driving-road-966701/