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.”
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.
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.