While the attention of the world is on the collapsing European welfare states, let us not lose sight of the collapsing welfare states here at home. Such as Illinois. The Chicago Tribune ran a bracing editorial about the fiscal situation yesterday:
Goodbye to Illinois’ $130 billion pension hole. Now it’s $133 billion. And getting deeper.
For several years we’ve cited the figure of $130 billion to represent Illinois’ estimated unfunded pension liability. Never mind that number, it was $133 billion as of June 2018 — and it’s getting worse — according to a new state report. The Commission on Government Forecasting and Accountability estimates the shortfall in commitments to future retirees will deepen to nearly $137 billion in the current July-to-June year, and to $139 billion in fiscal 2020. . .
Now a choice word or several: Fitch Ratings in a new report says Illinois has exhibited a “lack of coherent fiscal policymaking over many years” and is guilty of “irresolute fiscal decision-making.” Over the years, lawmakers skimped on payments into the retirement kitty, or avoided making payments altogether, rather than being disciplined about putting enough money into the funds to pay for all the benefits they had promised.
Today, Fitch says, Illinois’ net pension liability plus other long-term debt represent 29 percent of the state’s personal income, the highest of any state (our emphasis) and well above the 50-state median of 6 percent. Oh yes, the annual operating budget — an astonishing one-fourth of which goes to pensions — is also a wreck: Fitch reminds us that about $2 billion of the $38 billion budget revenue is either unlikely to be realized or one-time in nature. Irresolute, indeed.
The costs of lawmakers’ recklessness are borne in many ways. Springfield raised the state income tax by 32 percent in 2017, and still Illinois can’t keep a balanced budget. The current fiscal year is about $1.2 billion out of whack. And despite issuing bonds to pay some unpaid bills, there’s still a backlog of about $7 billion in, yes, unpaid bills. The state is making payments to the pension system, although not as much as actuaries say is necessary, so the shortfall rises. The pension system, which includes government workers and many of the state’s teachers, should be 90 percent funded. Instead, it’s about 40 percent funded.
There’s more, but this is enough! It’s so bad that even outgoing Chicago Mayor Rahm Emanuel (big week for failing politicians named “Emanuel,” regardless of exact spelling or order of the name) is calling for the Illinois state constitution to be amended to address the pension crisis (the Illinois Supreme Court ruled that the state legislature cannot touch existing pensions):
Emanuel to Push for Constitutional Amendment to Solve Pension Crisis
Mayor Rahm Emanuel on Wednesday will put his waning — but still formidable — political muscle behind a constitutional amendment to ease a $1 billion spike in pension payments that will confront his successor.
Sources said Emanuel will also urge the City Council to start debate on his stalled plan to borrow $10 billion to fund pensions — by setting up the legal structure that will allow bonds to be sold if aldermen decide the move could minimize the need for another punishing round of post-election tax increases.
Standard & Poor’s has warned that pension obligation bonds “in environments of fiscal distress or as a mechanism for short-term budget relief” could threaten Chicago’s BBB+ bond rating. . .
The Illinois Constitution’s pension protection clause states those benefits “shall not be diminished or impaired.” It’s why the Illinois Supreme Court overturned Emanuel’s plan to save two of four city employee pension funds.
Good luck with that Illinois.
But of course we Californians shouldn’t gloat. Although there is a budget surplus right now, incoming governor Gavin Newsom no doubt has plans for spending every single one of those dollars several times over, yet the state’s fiscal structure is so lopsided—nearly a third of the state’s personal income tax revenue comes from capital gains taxes from the endless parade of Silicon Valley zillionaires cashing out—that the next stock market break or recession will plunge the state deeply into the red. So much so that even Jerry Brown is warning about it: Jerry Brown: Democrats Becoming Too Radical for Majority of Voters.
So what is California’s stand-by plan? Millennials will love this:
OMG! Now California wants to tax text-messaging?
State regulators have been ginning up a scheme to charge a fee for text messaging on mobile phones to help support programs that make phone service accessible to the poor. The wireless industry and business groups have been working to defeat the proposal, now scheduled for a vote next month by the California Public Utilities Commission. . .
Business groups, including the Bay Area Council, California Chamber of Commerce and Silicon Valley Leadership Group and others opposing the idea, calculated the new charges for wireless consumers could total about $44.5 million a year.
But they add that under the regulators’ proposal the charge could be applied retroactively for five years — which they call “an alarming precedent” — and could amount to a bill of more than $220 million for California consumers.
Please do this California government. It just might make millennial start to vote Republican.
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