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Quinn wants federal government pension bailout guarantee

Illinois is one of the public union states that will one day need a federal bailout because of their pension shortfalls. Governor Quinn has now made that official by pointing out in his budget proposal that, “significant long-term improvements” in that debt will come from “seeking a federal guarantee of the debt.”

Excerpt:

Now that Chicago’s children have returned to not learning in school, we can all move on to the next crisis in Illinois public finance: unfunded public pensions. Readers who live in the other 49 states will be pleased to learn that Governor Pat Quinn’s 2012 budget proposal already floated the idea of a federal guarantee of its pension debt. Think Germany and eurobonds for Greece, Italy and Spain.

Sooner or later, we knew it would come to this since the Democrats who are running Illinois into the ground can’t bring themselves to oppose union demands. Illinois now has some $8 billion in current debts outstanding and taxpayers are on the hook for more than $200 billion in unfunded retirement costs for government workers. By some estimates, the system could be the first in the nation to go broke, as early as 2018.

Wonder how the governors of other states that have taken fiscal responsibility for their spending or “right to work” states will enjoy subsidizing undisciplined public union states like Illinois and California?

For years, states like Illinois have used ficticious discount rates like 7% to 8% to calculate future pension liabilities. Know where you can find investments that return these rates in todays economy?

These intentional miscalculations of the state pension’s ultimate liability are made to continue to kick the can down the road, falsifying the amount of money that will be available in the pensions for future retirements of public union members – just like the lies of federal officials that there is a Social Security Trust fund.

Further downgrades of Illinois debt by Moody’s and other bond rating organizations, who know that this level of discount rates are unrealistic, may render Illinois’ ability to borrow even more money to cover their overspending impossible and the state will appeal to their Democratic counterparts at the federal level, who share their propensity to overspend.

Excerpt:

Look no further than the recent Chicago teachers strike. The city is already facing upwards of a $1 billion deficit next year with hundreds of millions of dollars in annual pension costs for retired teachers coming due. But despite the fiscal imperatives, the negotiation didn’t even discuss pensions. The final deal gave unions a more than 17% raise over four years, while they keep benefits and pensions that workers in the wealth-creating private economy can only imagine.

Some conservatives in Washington, realizing that states like Illinois may demand bailouts for their underfunded pensions, have offered a resolution opposing such bailouts. These fiscally irresponsible states should pay for their own mess.

 

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4 Comments

  1. Actually it is the Fed that is killing the gov’t pension plans. By keeping interest rates low, the returns on many of these funds low-risk assets, such as bonds, will be kept low for years. The only way for the pension fund to achieve their 7% – 8% return is by taking on large amounts of risk.

    • Ted Biondo

      You are correct in that regard, Terry. The state pensions have a large portion of their investments in equities and even some in foreign investments where interest rates are higher – a very risky choice of investments for a pension system!

      However, the politicians have only funded the plans at about a 40% level – they didn’t invested the amount of funds they were supposed to for the benefits they promised nor did they cut the benefits that they could not afford – they just borrowed more money and used the 67% increase in state income tax last year – all for the pension funds – nothing else!

      The Fed’s low interest rates are killing the people who are already retired on a fixed pension with nowhere to place their investments except higher and higher risk options and alternatives. Everyone could lose a lot of their retirement income with no chance to recover it in the time left in their life.

  2. But, if those interest rates increase, our Federal debt will increase even more dramatically that it already is, by increasing the cost of borrowing that $.40 of every $1.40 the government spends. We may yet become the 21st Century version of the Weimar Republic, if Obama is re-elected.
    See: http://www.johndclare.net/Weimar_hyperinflation.htm

  3. SNuss,

    And thus is the condundrum that President “I increased the debt by $5.4 Trillion” has put us in. Now for every 100 basis point increase in interest rates, it cost the country $160 billion. Also, Obama in order to try and keep the deficit low has used short-term borrowing instead of borrowing long and locking in these long-term low interest rates.

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