If you have been reading Wirepoints like I have, you always new the situation in Illinois was dire. Political reporters in every newspaper ignored the fiscal crisis. It goes against their belief in a lot of cases. But, Illinois is striving to prove Margaret Thatcher’s dictum that “the problem with socialism is sooner or later you run out of other people’s money.” Fiscal problems like this will bleed into communities that think they are immune from it-like trading or small entrepreneurial companies.
Here are the real numbers, just released on how bad of fiscal shape Illinois is in. Quoting from the report.
The term “legacy costs” is sometimes used to describe obligations to pay for services purchased by the state in previous years. Figure 1 shows that the state of Illinois has run deficits in every fiscal year since 2001. A portion of these shortfalls were covered by asset sales and other one-time revenue sources, but most were covered by some form of borrowing. We look first at the total value of these legacy costs in Illinois, separated by type:
Pension obligation bonds.
Illinois issued bonds in FY 2003, 2010 and 2011 to cover scheduled contributions to its pension funds. At the end of FY 2015, the remaining principal on these bonds will be $12.7 billion.
Unfunded liabilities for pensions.
As of the end of FY 2014, the state of Illinois’ ve retirement systems had assets to cover only 42.9 percent of liabilities, leaving an unfunded liability of $104.6 billion.
Unfunded liabilities for retiree health costs
. As of the end of FY 2013, the state had unfunded liabilities for retiree health costs of $34.5 billion.
Short-term inter-fund borrowing in FY 2015.
Authorizing legislation for FY 2015 permits the General Funds to borrow $650 million from other funds to be paid back within 18 months.
Unpaid bills
As of December 2014, unpaid bills for services already provided to the state totaled $6.5 billion.
The total value of these obligations to pay for past deficits is $159 billion. Or, $12,630 per person. That includes people that are being born today. This is just the state deficit. I am quite sure the city of Chicago and the county of Cook have papered over their own financial missteps.
Governor Bruce Rauner has his work cut out for him. Let’s hope the citizens of Illinois help him hold legislators feet to the fire.
Most sane people would say, “cut the budget”. Two problems with that. First, Democrats don’t want to. The second reason is in the report.
How much would need to be cut? What can and cannot be cut?Again, we use $9 billion—the approximate size of the deficit projected for FY 2016 to 2022—as the target number for the size of the deficit that needs to be closed. Projected Total Spending in FY 2016 is $74 billion, but not all types of spending should be, or can be, cut.Debt service spending is a contractual obligation andcannot be cut without the state defaulting on its bonds.Scheduled payments to the pension funds should not be cut, because reducing these payments would increase unfunded liabilities. Furthermore, cuts in some types ofspending will lead to corresponding cuts in matchingrevenue from the federal government. The FiscalFutures Model includes offsetting adjustments for three types of revenue—federal Medicaid matching grants, healthcare provider assessments, and federal transportation matching grants. Allowing for the revenue offsets included in the model,it would take across-the-board cuts of 19 percent in all spending (excluding debt service and pension) to close a$9 billion deficit. It follows that if allowance could be made for the unknown amount of other spending that cannot be cut at the state’s discretion and the many smaller programs with revenue offsets, it would take across-the-board cuts well in excess of 20 percent to eliminate the deficit.”
There is zero chance that legislators will cut the budget by 20% across the board. Democrats will want to raise taxes. But, Illinois has some of the highest taxes in the US when it comes to property taxes and sales taxes. Employment taxes are high here as well. Rauner ran on lowering taxes, and he aims to do that. During the campaign he called out for pension reform. It’s the only way out.
Illinois can “grow” its way out. It has several economic engines. But in order to unleash those engines, the shackles of regulation and taxes will have to be removed. Additionally, the federal government imposes its own discipline. Illinois is powerless to do anything with coal thanks to the EPA and a President that isn’t interested in creating traditional energy jobs.
Wirepoints, Reboot Illinois, the Illinois Policy Institute, and Illinois is Broke all have sounded the alarm long before the fire was out of control. Liberals have said that those publications aren’t telling the truth. They have responded by saying those publications were out of step with social issues. Well, it turns out they were a bit wrong. Most of them understated the true unfunded liability of Illinois because the numbers weren’t transparent enough. Those that vote for social issues first might feel differently when there isn’t any money to pay for any of them. Gay marriage, abortion and other issues are hardly important when no one can get a job. We will be lucky if the fiscal fire gets under control.