Pensions and Politics Fuel Crisis in Illinois

[Torie]

Illinois seems trapped by its own Constitution and the Illinois Supreme Court's expansive interpretation of the same. Muon2 back when told me he expected this disaster to probably happen, and that the revisions of the pension laws that the state legislature made, and the attendant savings, would be nixed, leaving the state in even worse shape fiscally. I assume that at some point, the Constitution will have to be amended and/or Illinois cities such as Chicago file bankruptcy. Sates can't go bankrupt under the US Bankruptcy laws, so for the state budget it's either amend the Constitution, or rather drastic tax increases and spending cuts, which would run the risk of even more businesses and people decamping from the state, which has been, and is, ongoing at this very moment.

[muon2]

The pension problem derives from decades of underfunding, followed by a back-loaded repayment plan put together by the Pubs in 1995. As the back-loading started to be felt in the 2000's, the Dems responded by shorting the funds and borrowing against them. In 2010 the legislature finally overhauled and reduced benefits for new workers consistent with the IL Constitution, but since only about 5% of the workforce changes any given year, the impact of those changes are only now beginning to be realized. If the state toughed it out for another 5 to 10 years, the pension "crisis" will have passed through a combination of passing the peak of the loading on payments and the fact of the majority of the workforce would be on the reduced benefit plan.

The immediate problem is that the Dems set up an immediate time bomb last year for a potential incoming Pub gov by letting the temporary income tax hike drop off precipitously in one year. The expectation was that revenue would have to be raised somewhere to avert a wholesale reduction of services. The surprise for the Dems was that Rauner said sure, but only after a package of business-friendly reforms are enacted to staunch the bleeding of people and jobs (95K outmigration last year). Many of those reforms were anathema to labor and the trial lawyers who make up the core support for legislative Dems. Rauner expected negotiation this spring, but the Dems dug in instead. Hence the current stand off.

The key pressure point may not be at the state level, but with Chicago. They have a huge debt payment due at the end of June and need relief.

[Torie]

The pension problem derives from decades of underfunding, followed by a back-loaded repayment plan put together by the Pubs in 1995. As the back-loading started to be felt in the 2000's, the Dems responded by shorting the funds and borrowing against them. In 2010 the legislature finally overhauled and reduced benefits for new workers consistent with the IL Constitution, but since only about 5% of the workforce changes any given year, the impact of those changes are only now beginning to be realized. If the state toughed it out for another 5 to 10 years, the pension "crisis" will have passed through a combination of passing the peak of the loading on payments and the fact of the majority of the workforce would be on the reduced benefit plan.

The immediate problem is that the Dems set up an immediate time bomb last year for a potential incoming Pub gov by letting the temporary income tax hike drop off precipitously in one year. The expectation was that revenue would have to be raised somewhere to avert a wholesale reduction of services. The surprise for the Dems was that Rauner said sure, but only after a package of business-friendly reforms are enacted to staunch the bleeding of people and jobs (95K outmigration last year). Many of those reforms were anathema to labor and the trial lawyers who make up the core support for legislative Dems. Rauner expected negotiation this spring, but the Dems dug in instead. Hence the current stand off.

The key pressure point may not be at the state level, but with Chicago. They have a huge debt payment due at the end of June and need relief.

The Dems have the votes to override a Rauner veto, so if they stick together they can do anything they want, right? If they don't have that power with the budget, and/or don't stick together, and Chicago can't make its debt payment, what are the prospects that it will declare bankruptcy?

[Lief 🗽]

That's federalism for you. It's very stupid that states have control over their own budgets, and just leads to these sorts of problems. I'm glad that the Rauner administration looks to be a total disaster though.

[Torie]

That's federalism for you. It's very stupid that states have control over their own budgets, and just leads to these sorts of problems. I'm glad that the Rauner administration looks to be a total disaster though.

Just dissolve the states?  Not that I am a big fan of federalism myself, but ...

Illinois just has one of those attempts to force the other side to either 1) adopt my reforms, or 2) Chicago goes BK I guess. It's a risky game to play politically, as the Pubs found out in Congress when it played it with the debt ceiling. For Reiner to win it, his case for his reforms needs to be clear and convincing among the cognoscenti at least, and the optics devolve into the opposition are just a bunch of hacks bending over for their money pit, the public employee unions and trial lawyers. It will be interesting to see how this particular chess game plays out, and who moves just what pawn where, when.

[Lief 🗽]

That's federalism for you. It's very stupid that states have control over their own budgets, and just leads to these sorts of problems. I'm glad that the Rauner administration looks to be a total disaster though.

Because the Federal Government always runs a balanced budget...

The federal government doesn't need to run a balanced budget. The problem is that states do.

[Torie]

That's federalism for you. It's very stupid that states have control over their own budgets, and just leads to these sorts of problems. I'm glad that the Rauner administration looks to be a total disaster though.

Because the Federal Government always runs a balanced budget...

The federal government doesn't need to run a balanced budget. The problem is that states do.

Wait, so would you want them to not have a budget, and just fall under the Federal budget? That I might actually agree with. At first I thought you meant you wanted state budgets managed by the Federal government.

Yes, Lief essentially wants to dissolve the states.

[bedstuy]

There is a growing pension and local government finance crisis in America. 

The basic problem has been this, future people don't vote.  So, it's easier to commit future people to paying taxes than present day people.  Politicians also love to take credit for pensions and bonuses, but don't take the blame when they make decision that bite everyone in the tuchus 10, 20 or 30 years later. 

Politicians also love to cook the books instead of actually addressing fiscal imbalances.  But, you can only cook the books for so long.  Eventually, it catches up with you and the problems of fiscal mismanagement only compound. 

[© tweed]

feds loan the money under condition of privatizing x, y, and z.