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Illinois Debt Hole Just Gets Deeper and Deeper; Owes $111 Billion Just on Pension Obligation (as one of the five largest states by population, a financial collapse by Illinois would greatly affect entire nation)

Fifteen days after being elected governor of Illinois last month, Republican newcomer Bruce Rauner got a rude comeuppance when a Sangamon County Circuit judge ruled the state’s pension reform law was unconstitutional.

Welcome to the big leagues of political dysfunction, Mr. Rauner. You spent $28 million of your money to grapple with problems like this:

  • Illinois is $111 billion in debt on its pension liability.
  • It has the worst credit rating among the 50 states.
  • It spends 25 cents of every tax dollar it collects on retirement benefits.
  • More money from the general fund is spent on pensions than on K-12 education.
  • Last year, to make ends meet, the state deferred $7 billion in bills it owed contractors and vendors. They’re now demanding to be paid.

This week, after meeting with lawmakers and budget experts in Springfield, Mr. Rauner admitted things were even worse than he thought. ”Every time we look under the hood, look at different departments, look at different issues, the problems, the deficits, the overspending is more significant than has been discussed in the past,” he said.

Even worse, Democratic politicians raised income taxes by 67 percent and corporate taxes by 30 percent just three years ago. The idea was to try to fix the financial mess created over decades in which state employees and teachers paid what they were supposed to into the public-employee pension systems, but the state’s politicians failed to hold up their end of the bargain.

Instead, they spent money on other things that benefited the people of Illinois, such as roads and education. To meet the state’s constitutional obligation to the five public pension programs, the lawmakers borrowed more money. The extra debt and interest costs deepened the problem.

The fiscal mess doesn’t have a donkey or an elephant attached. It’s an Illinois problem that will require sacrifice all around. Businesses will have to pay more. Pensioners will have to take less. Legislators will have to forgo the bacon, both bringing it back to their districts and enjoying it while they’re in Springfield.

It’s going to be a rough ride ahead but that was bound to happen after 25 years of binge-spending by lawmakers and governors intent on pleasing unions and business owners, special interests and friends.

Since roughly 1989, under then-Gov. Jim Thompson, a Republican, governors and lawmakers from both sides of the aisle shortchanged the pension system. It continued during the administrations of Republicans Gov. Jim Edgar and George Ryan and Democrats Rod Blagojevich and Pat Quinn. During most of these years, the Legislature was in Democratic control.

The lawmakers skipped payments, carved out sweetheart deals and improved already-rich benefits without the money to back them up. At the same time, the state was seeing lower-than-expected investment returns on the system’s assets and life expectancies for public employee retirees kept increasing.

It was easier to keep saying yes and playing Santa while the economy was thriving and no one was calling in the debt. But then the bottom dropped out of the national economy and Santa’s sack wasn’t full enough for Illinois.

After the state’s credit rating was repeatedly downgraded due to the pension crisis, politicians finally stopped saying yes and began looking for a solution. The first effort to fix the fund came in 2010 when the Legislature reformed the pension benefits for new public employee hires.

That was a good start, but lawmakers failed to reform future retirement benefits for public employees who were — and are — still working. That would have left the benefits already earned by those workers untouched, but would have trimmed their future benefits.

State budget experts say that would have gone a long way toward putting the public pension systems on a path to long-term fiscal stability. But the state constitution says pension benefits cannot be “diminished” in any way. Courts consistently have ruled against changing benefits for current employees.

Last year, Mr. Quinn and the Legislature tried to craft changes that would satisfy a judge. The retirement age for younger workers was increased on a graduated scale, with workers now in their 20s being allowed to retire at age 60 with pensions approximating nearly 75 percent of their salaries.

The proposal attempted to shut down the gravy train for politically connected people who managed to get into the pension system through various associations, such as school administration groups and the state’s Special Olympics.

But on Nov. 19, Sangamon County Circuit Court Judge John Belz ruled that any pension trim was a violation of the state Constitution. Illinois Attorney General Lisa Madigan has said she will appeal the ruling, asking the court for time to let lawmakers come up with a solution. Even if the Supreme Court lets that happen, the Legislature’s veto session is due to end today. That means nothing can happen until next year.

A potent factor in the mix is Ms. Madigan’s father, Mike Madigan, a Democrat and longtime speaker of the Illinois House. He’s a tough and savvy dealmaker who managed to keep his party’s veto-proof majority in the House, despite Republican efforts to cut into it. Mr. Madigan, also the state party chairman, has only lost control of his chamber for one term since first capturing the majority in 1982.

Mr. Rauner campaigned on his successful business career, vowing to “shake up Springfield” and bring public employee unions to heel. That worked well in the election, but it might not work so well with a Democratic Legislature that owes allegiance to the unions. For the good of the state, all sides need to dial down the rhetoric and dial up the cooperation.

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Illinois Debt Hole Just Gets Deeper and Deeper; Owes $111 Billion Just on Pension Obligation (as one of the five largest states by population, a financial collapse by Illinois would greatly affect entire nation)

 

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