The sclerosis in Illinois is perhaps best illustrated by Gov. Bruce Rauner’s attempt to fix up the state’s executive mansion, a brick Italianate tourist attraction that dates to the 1850s and badly needs repair.
Mr. Rauner, a self-made multimillionaire, offered to raise private money for the renovation, but he was told that donations could not be accepted for a state building. “I said, ‘I’m trying to save the taxpayers millions of dollars,’ ” he tells me. “ ‘Why can’t I put in some money? The roof, the basement, the elevator—I’ll fix it.’ They said no.” By the same token, when Mr. Rauner informed the bureaucrats in Springfield upon his election that he didn’t intend to take a salary as governor, he says he was told, “we have to send you a salary, and you can send it back.”
In the end, Mr. Rauner wrangled approval for the mansion renovation but was told that the work, even if privately funded, had to follow the state’s prevailing-wage laws, which restrict competitive bidding and can raise costs 20% or more. This set the governor to thinking about how much these prevailing-wage laws waste statewide. “If we spend, take a number, $10 billion on infrastructure in the coming years,” he says, if a big percentage “of that is unnecessarily costly, think how many billions we could save, and keep in taxpayers pockets or do more schools, more upgrades to the classrooms, more bridges and roads.”
Welcome to government in Illinois, the worst-managed state in the country. The Land of Lincoln is buried under staggering debts, including a projected $6.7 billion operating gap for the next fiscal year and an $111 billion unfunded pension liability. Government unions and politicians engage in legal collusion that fleeces taxpayers. Between 2002 and 2014, 86% of Illinois state lawmakers received union contributions, according to the Illinois Policy Institute.
All of this takes an already chilly business climate down another few notches. Over the past five years Illinois lost 41,000 manufacturing jobs while Indiana gained 51,000 according to the Bureau of Labor Statistics. As Illinois has economically trailed its neighbors in the past dozen years, 277,000 people have left the state, according to the Census Bureau.
Even the liberal-leaning electorate in Illinois sees the need for change. Last year voters elected Mr. Rauner, a political newcomer, to serve as their first Republican governor in more than a decade. Now they will find out whether he is up to the task of saving the state from economic ruin.
When we meet, the governor is coming off his Feb. 18 budget address, in which he laid out a slate of tough-love reforms: cuts to state transfers to local governments, adjustments to government employees’ health plans, and structural changes to public-union pensions. The howling from Democrats has been fierce, but Mr. Rauner isn’t backing down. “I’ve been involved in a lot of turnarounds,” he says. “A key lesson in a turnaround is go big, go strong, go fast early. You don’t wait around; you don’t think about it; you don’t wonder.”
The challenge will be working the gears in Springfield. Democrats control supermajorities in the legislature, and they have already criticized Mr. Rauner’s budget as unbalanced because, ahem, they have no intention of passing his pension reforms. Senate President John Cullerton said that the governor’s plan includes “phantom savings,” and that it will leave a gap in the budget because the pension plan “may fail key legislative and judicial tests.” This is the same problem faced by other Republican governors in blue and purple states, who came into office with guns blazing and then found their agendas ambushed in legislatures. Chris Christie in New Jersey comes to mind.
We meet on a Sunday morning in the state’s downtown Chicago offices, a sprawling red and gray modernist complex called the Thompson Center. The building is locked and dark, but Mr. Rauner, sitting in a government-issue barrel back chair, is smartly dressed in a business suit and striped tie.
His confidence that his agenda will not stall in the legislature comes in many parts. “I’ve got a very good working relationship with Democratic leaders in the state,” he says. “Number one, I’ve worked very hard on personal relationship-building. There’s mutual respect. There’s mutual trust that has not existed from prior governors.” Unlike his predecessors, Mr. Rauner, a Chicagoan born on the city’s north side, near Wrigley Field, is living in downstate Springfield.
Second, though Illinois is a deep-blue state, Mr. Rauner feels he has a mandate. He won every area of the state except urban Cook County, and he says even liberals see the need to cut spending and reform the bloated pension system. “Everywhere I go, people run up to me and say, ‘I’m a Democrat. You’re saying stuff that needs to be said. Hang in there,’ ” he says. “See, my wife is a Democrat. She’s troubled . . . because every dollar that gets spent beyond what’s really necessary—and it’s in a special insider deal—every dollar is a dollar that can’t go to help a truly disadvantaged person.”
Third, the budget mess is so acute, Mr. Rauner says, that the legislature simply must act. Here the governor does something that might surprise: He quotes Rahm Emanuel, Chicago’s Democratic mayor and President Obama’s former chief of staff. “Who was it that said, ‘Never let a crisis go to waste’?” Mr. Rauner asks. “It creates the opportunity to bring people together to do things that they might otherwise not be inclined to do.”
That doesn’t mean the governor’s proposals have landed without controversy. One involves changing the future pensions of government employees, who would very much like to keep the generous current terms. Under Mr. Rauner’s plan, benefits for current retirees would be maintained, but today’s workers would be given the option of a buyout—a lump sum that the state would deposit into a new 401(k)-style account. Employees who don’t take the buyout would have future benefits modestly reduced, though the portion of their pensions that has already been earned would be protected.
Democrats and unions say the proposal violates language in the Illinois Constitution that ensures public pensions “shall not be diminished or impaired.” But the governor says that the restriction doesn’t prevent creating a new additional pension system for the future. “I love the pressure I’m putting on them. We’re going to pass that,” he says. “It’s common sense and it’s totally constitutional.”
The state Supreme Court might decide otherwise. This month justices will hear arguments on whether a 2013 law cutting retirees’ annual cost-of-living adjustments passes constitutional muster. Whatever the justices decide, Mr. Rauner says, his plan will go forward, even if he has to pass a constitutional amendment by referendum to allow the changes. “I don’t have a Plan B,” he says. “I have a Plan A.”
Equally controversial have been the governor’s plans to reform government-union rules. A full 93% of the state’s government workers are unionized (the highest rate in the country, Mr. Rauner notes), guaranteeing a stream of dues money to Democratic politicians. “Everywhere I look inside state government, the unions have been running the process, dictating the terms, setting the work rules and setting the agenda inside government,” Mr. Rauner says. “The taxpayers, school children, businesses, homeowners, small business owners have been abused and left out of the process.”
One of his first moves was signing an executive order banning public unions from collecting mandatory fees from workers who don’t want to join the union. Federal courts will ultimately determine the constitutionality of the move, so the governor then filed a lawsuit arguing that the fees violate workers’ First Amendment rights to freedom of speech and association. The suit will probably take years to wend through the legal system, but it is aimed squarely at overturning the U.S. Supreme Court’s precedent in the 1977 case Abood v. Detroit Board of Education.
Mr. Rauner has also proposed banning campaign contributions from government unions. “It’s already illegal today in Illinois for businesses or individuals who contract with the state to make campaign contributions to state politicians,” he says, but “it’s perfectly legal for government union leaders. Why?” Given that the proposal might spook legislators who rely on union contributions to get elected, Mr. Rauner wants to offer an alternative source of money. He has set up a $20 million political-action committee—funded by Mr. Rauner, businessman Dick Uihlein and Citadel CEO Ken Griffin—to back politicians who side with the governor when his budget reforms head to the Statehouse. The implied threat is that legislators who don’t may face well-funded challengers.
His reform proposals have earned Mr. Rauner comparison to Wisconsin Gov. Scott Walker, who in 2011 pushed through limits on public-union collective bargaining. Mr. Rauner hasn’t gone that far for state workers, but he has offered a plan to let local voters determine what the workers they employ can and can’t bargain for. “I want them to decide if they want forced unionization in their government entities and their schools,” he says.
Mr. Rauner also wants to let local governments decide on what would essentially be local right-to-work zones. Illinois is surrounded by right-to-work states, including Indiana, Michigan and Iowa. Wisconsin passed its own right-to-work law on Friday and Mr. Walker’s office has said he will sign it on Monday. Mr. Rauner says Illinois needs to take comparable action to remain competitive.
“Illinois, we’re the heart of the Midwest, we’re the economic muscle of the Midwest, and we’re sitting here with closed-shop restrictions,” he says. “If DuPage County wants to have closed shop in their county, keep it—terrific, no problem. But why should DuPage force Effingham County to be closed shop? If Effingham wants to compete with Indiana for a new business, and be on the list where companies will look for employment flexibility, why shouldn’t they be able to choose to do that?”
As the state’s annual budget debate gets under way, Democrats are pushing for tax hikes. Some of the legislators want higher fuel taxes. Michael Madigan, speaker of the state House of Representatives, is pushing for a 3% surcharge on millionaires. “Talk about a flow of job creators leaving the state if they put that in,” Mr. Rauner says.
The governor’s budget included no new taxes, but Mr. Rauner has said he would be open to broadening the state sales tax to include services such as haircuts and auto repairs that are now exempt. But the biggest—and first—priority, he insists, must be to change the way Illinois does business. “We’ve got massive debt, massive deficits, high unemployment,” he says. “People think, ‘just raise the income-tax rate.’ Guys, that is not going to fix our problem. We’ve gotta grow.”
