The Policy Shop: AFSCME’s new contract worsens Illinois’ pension crisis

This edition of The Policy Shop was written by Bryce Hill, director of fiscal and economic research.

It’s a good month to be a state worker in Illinois. Gov. J.B. Pritzker has awarded the largest ever American Federation of State, County and Municipal Employees (AFSCME) contract, which includes 19% pay raises and a $1,200 signing bonus for members. The decision has spurred a fresh debate about the role of labor unions, state budgets and the economic realities facing Illinois.

Here’s a big one: How can the state afford this big of a payout? To us, enriching politically powerful unions on the backs of a shrinking tax base will only further the state’s fiscal decline.

Nothing fair about it. As of 2021 – the most recent year available – the average state government employee received compensation of $96,263, while the average private sector worker in Illinois received compensation worth just $65,057. Since 1998, state employee compensation has grown 37% faster than private sector compensation.

Understanding the numbers. The AFSCME contract, which covers state employees, impacts the lives of many Illinoisans, not just those directly receiving the payouts. With a whopping 19% raise, a clear message is sent: Pritzker stands firmly behind state workers. But with every major financial decision, there are ramifications.

The $1,200 signing bonus might be perceived as a cherry on top. It’s a lump sum that will no doubt bring short-term joy to the workers who receive it. But at what long-term cost?

Straining the budget. Look, the budget’s already in bad shape. Tacking on a new contract with raises worth $625 million is only going to squeeze Illinois’ finances further. Though state workers certainly deserve fair compensation for their roles, the sheer magnitude of this raise and bonus agreement raises eyebrows. Illinois already grapples with a tenuous budget situation, burdened by rising pension costs and debt. These new commitments could exacerbate financial constraints, leading to budget shortfalls elsewhere.

Illinois state lawmakers approved a record-high $50.6 billion spending plan for fiscal year 2024 at 2:30 a.m. on May 27, despite no Republican support and three Senate Democratic caucus members voting “no” on the bill.

Despite repeated claims by elected leaders that the budget is balanced, that claim ignores a massive unpaid bill: state pensions.

Appropriations to the five statewide pension funds will fall $4.1 billion below what the plans’ own actuaries have determined is required to actually begin paying off the state’s pension debt.

Government unions: The Power Players. There’s no denying the power of labor unions in the state of Illinois. This contract sets a new standard – and perhaps a new expectation – for future negotiations. But one has to wonder, in a state plagued by fiscal challenges, are these grand gestures sustainable? Or are they just political moves, designed to curry favor with influential groups?

The Larger Debate. Pritzker’s AFSCME contract does more than just adjust salaries and bonuses. It reignites a larger debate about the role of government, the influence of labor unions, and the responsibilities of elected officials to make fiscally sound decisions.

While supporting workers is noble, it shouldn’t come at the detriment of the larger state economy or the financial stability of its residents. Decisions like these need a more comprehensive outlook, with an eye on both current benefits and future repercussions.

What now? As state employee wages continue to far outpace the growth in private sector wages, Illinoisans can expect continued tax increases to pay for these costs. The latest pay raises will add an additional $625 million in costs – including $204 million in 2024 to state budgets according to the governor’s estimation, which some lawmakers claim was unaccounted for in the state’s most recent budget.

Government compensation decisions of this magnitude must be balanced and thoughtfully made, especially in a state like Illinois with its unique set of fiscal challenges. As we watch the ripple effects of this historic contract, let’s hope for prudent management and a sharp eye on the future. For the sake of all Illinoisans.