Illinois State Government Faces Insolvency

Will Americans be forced by more federal government indebtedness to  bailout Illinois or California and (?) just like Germany is browbeaten by the Eurozone to bailout Greece and... ???? Can't the Greeks or Germans spell S-E-C-E-S-S-I-O-N?

By Mike Shedlock On October 26, 2012 

I just finished slogging through a 69 page PDF by the State Budget Crisis Task Force outlining the dire state of affairs in Illinois.

I knew in advance that pension funding is the biggest issue facing Illinois. The task force shows exactly that. Here is a summary.


Pension Funding Levels

• Teachers Retirement System (TRS) – 46.1%
• State University Employees Retirement System (SURS) – 45.3%
• State Employees Retirement System (SERS) – 34.9%
• General Assembly Retirement System (GARS) – 20.2%
• Judicial Retirement System (JRS) – 31.0%

Those funding levels assume 8% returns going forward, something that is not going to happen. So as bad as the above looks, the true pension underfunding is even worse.

Illinois’ infrastructure is in bad shape, and the report has the details.

There were many things in the report that I did not know about including the loopholes that let legislators pretend Illinois’ budget is balanced when it’s not.

Here is a surprising fact: Illinois has more governmental taxing agencies than any other state including California, a grand total of nearly 7,000 taxing bodies!

Here’s a juicy tidbit on infrastructure “Nearly two-thirds of Metra and CTA passenger rail cars were in a marginal state. Nearly half of Metra and CTA train stations were past their useful life, and about one-third of CTA and Pace buses were in the last quarter (or less) of their useful life.”

The report finished with “recommendations” but they were broad stroke, budgetary meaningless things like timely reporting, long-term planning, accrual planning, etc.

I am in favor of most of the report recommendations, but they will not solve a single problem.

Here is the scariest single sentence in the report “If the projected deficits were paid for by borrowing, debt service costs would grow to consume all sales tax and income tax collections in just five years.”

Illinois is insolvent, but what can be done about it?

Six-Point Proposal to Save Illinois

1. Immediately end all defined-benefit pension plans
2. Default on pension obligations in the fairest possible manner (cap benefits)
3. End collective bargaining of public unions
4. Eliminate prevailing wage laws that are murder on local budgets
5. Lower corporate income taxes to attract business
6. Eliminate property taxes as the primary method of funding schools

Point number two is against the constitution but I believe it could be accomplished by taxing all benefits above a certain amount at 100%. The alternative is also simple. If the money is not there (the pension plan is bankrupt) all payouts will cease.

The way to win approval from the unions is to set the cap high enough so that the majority of union members get 100% of their benefits.

State Task Force Report

Everything that follows is from the report. It is lengthy and will be easier to read if it is not in blockquotes as per my usual format. Emphasis is generally, but not necessarily mine.

“What Would It Take” Calculations
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