from Sen Mark Kirk's office.. Oct 11,2011
State’s Debt Rising, Credit Rating Declining, Illinois Communities Paying More Than Other States in Interest
Citizens Owe 2x More than People in Indiana, Iowa or Missouri and
3x more than people in Michigan or Wisconsin
Combined State, City, County Government Debts Load For Each Chicago Household: $78,000
CHICAGO - With reports that the State of Illinois faces debt concerns greater than any other state, U.S. Senator Mark Kirk (R-Ill.) today published the Report on Illinois Debt, advising citizens on how much their state owes and the danger of its mounting debt. The report was prepared in consultation with Senator Kirk’s Sovereign Debt Advisory Board, chaired by financial expert Henry Feinberg.
“If Illinois enters an unrecoverable debt spiral, there will be no federal bailout. Therefore, the people of Illinois need to know the dire financial position of our state and what we need to do to fix it ourselves,” said Senator Kirk.
This report shows Illinois directly owes over $30 billion, on top of unpaid bills that increased ten times in ten years. The state’s accumulated health and pension obligations total over $140 billion -- with less than 60% of these promises covered, representing the lowest percentage in the nation. Illinois has the worst credit rating of any state in America and ranks 48th out of 50 states in healthy business climate. By adding the debts owed to Illinois, Cook County and the City of Chicago, each Chicago household owes $78,000.
“Illinois is in a self-perpetuating, destructive cycle of debt resulting from increasingly mismatched revenue and obligations,” said Henry Feinberg, Chairman of Senator Kirk’s Sovereign Debt Advisory Board.
Illinois pays almost $3 billion annually for interest on the money it already borrowed. Spending on interest already totals four times the amount needed to erase the $700 million budget deficit of the Chicago Public School System. The debt picture is not improving because Illinois unemployment is rising. The state employed 190,000 more people in January, 2001, than it does today. For debts and unfunded liabilities, each person in Illinois owes twice as much to the state as people in Indiana, Iowa and Missouri and three times more than people in Wisconsin and Michigan.
Because Illinois has such a poor credit rating, local governments must pay higher interest rates than similar communities in better-run states. For example, Cook County School District 163 had to pay more in interest expenses than similar Midwestern creditors because it was in Illinois: $592,706 more than Brownsburg Redevelopment Authority, Indiana, $893,109 more than Waterloo, Iowa and $1,096,437 more than a school district in Randolph County, Missouri.
Prospects for repayment are difficult. Illinois lost over 190,000 jobs since January 2001. The City of Chicago lost over 200,000 people during the same period.
Lost population means the debts and unfunded liabilities must be repaid by taxpayers who remain in the state. If Illinois had the same population growth rate as Indiana, per household debt would be approximately $400 lower than it is today.
Illinois citizens face higher taxes and larger debts because so many of their fellow citizens have moved to other, more fiscally responsible states. The State lost over 85,000 net taxpayers between 1995 and 2007 to neighboring states. Taxpayer flight between 1995 and 2007 cost Illinois an estimated $2.4 billion in tax revenue.
While Illinois is an American state with substantially stronger institutions than Europe, its debt load per person is higher than for citizens in Spain, Portugal, Ireland or Greece.
While there are many solutions to this problem, knowledgeable Republican and Democratic state legislators joined the Civic Committee to focus on key pension reforms needed to improving the state’s dismal record with borrowed money.
Senator Kirk concluded, “The deteriorating credit rating of Illinois harms our state’s ability to attract new jobs and higher incomes. To maintain the federal credit rating, Congress cannot bailout a few spendthrift states. Therefore, our state’s leaders must focus on pension reform and other anti-spending measures to replicate the growing success of Indiana and other Midwestern states.”
Showing posts with label pensions. Show all posts
Showing posts with label pensions. Show all posts
Tuesday, October 11, 2011
Thursday, March 25, 2010
Gov Quinn Comments on Passage of Historic Pension Reform Bill
SPRINGFIELD – March 24, 2010. Governor Pat Quinn today issued a statement on the passage of Senate Bill 1946:
“The General Assembly tonight took an important and vital step toward rescuing Illinois from fiscal calamity by passing public pension reform. The legislation approved by the General Assembly will stabilize the public pension system, protect current state employees and provide attractive pension benefits to future state workers. I congratulate House Speaker Michael Madigan and Senate President John Cullerton for their leadership on this crucial issue. I also thank members of the General Assembly for their bi-partisan support and for bringing in a new era of greater fiscal responsibility and accountability to Illinois. I look forward to signing this important bill into law.”
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“The General Assembly tonight took an important and vital step toward rescuing Illinois from fiscal calamity by passing public pension reform. The legislation approved by the General Assembly will stabilize the public pension system, protect current state employees and provide attractive pension benefits to future state workers. I congratulate House Speaker Michael Madigan and Senate President John Cullerton for their leadership on this crucial issue. I also thank members of the General Assembly for their bi-partisan support and for bringing in a new era of greater fiscal responsibility and accountability to Illinois. I look forward to signing this important bill into law.”
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Friday, March 19, 2010
Alabama Shows How Illinois Can Turn Its Pensions Around?
As in any enterprise -- you've got to take some intelligent risk. You can't turn a failing system around merely by cutting costs. In this CNN report, we see how Alabama's Pension system turned itself around by raising money through smart investments.
Tuesday, March 16, 2010
Josh Barro: What's the Matter With Illinois?
By Josh Barro
Josh Barro is a Senior Fellow at the Manhattan Institute
Over the last two budget cycles, every state except North Dakota has had to close a budget gap. But a handful of states stand out for the depth of their fiscal problems. For 2010, seven states had budget gaps totaling more than 25% of general fund spending, as measured by the Center on Budget and Policy Priorities. Of these, six have a clear story about how they ended up in such a mess.
Nevada is battered by weak travel to Las Vegas, while California is heavily reliant on shrinking income tax revenues. Arizona, California and Nevada were all hit particularly hard by the burst of the property bubble. Alaska's odd finances are sensitive to falling oil prices. And New York and New Jersey are feeling the effects of fewer, and smaller, Wall Street bonuses.
The most puzzling member of the "over 25% club" is Illinois. Illinois did not see a particularly large bubble (or burst) in property prices, does not have outsize exposure to finance or tourism, and has a lower-than-normal reliance on its flat income tax. So how did the state achieve a staggering budget gap equaling 47% of its fiscal 2010 budget, second only to California?
The trouble is that Illinois did not enter the recession from a position of budget balance. While California's budget shenanigans have garnered national attention, Illinois' behavior has been similarly poor but less widely noticed. The Land of Lincoln has not truly balanced its budget since 2001, and its large structural deficit has it poised for fiscal ruin in the recession. While other states can blame external economic factors, the key cause of Illinois' budget crisis is legislative malfeasance.
Illinois has taken the budget gimmicks seen in many states to an extreme. Occasionally, states postpone payments during budget crises to close budget gaps. But for the last decade, Illinois has made a standard practice of delaying vendor payments -- even in good years -- and then periodically floating general obligation bonds to clear the backlog.
The state has also used its pension system as a venue for stealth borrowing. From 1996 to 2008, the state's unfunded pension liability grew by $36 billion -- and $19 billion of that growth was due to elected officials funding pensions below the actuarially required level. (Another $6 billion was attributable to benefit increases enacted ten years ago at the height of the dot-com stock market bubble.)
Even taking its aggressive investment assumptions at face value, Illinois' public employee retirement system has assets to cover only 54% of its accrued liabilities -- one of the country's worst ratios. When the state promises future benefits to employees without setting aside the cash to pay for them, it is effectively borrowing without reflecting bond debt on its balance sheet.
Meanwhile, when the state did make required pension contributions, it often did so by floating bonds -- over $13 billion in "pension obligation notes" over the last decade. It's no surprise that in 2008, the Pew Center on the States rated Illinois' money management the third worst in the country, behind only Rhode Island and California.
Unlike tax increases and spending cuts, these gap-closing strategies make future year deficits even worse -- the state spends over $1 billion a year just to service previously-issued pension obligation bonds. Having made no real progress on its structural deficit, Illinois faces a $13 billion gap in its $32 billion 2011 general fund.
Last week, Governor Patrick Quinn proposed his FY 2011 budget, and the contents are not inspiring. Quinn's proposed budget includes delaying over $6 billion in vendor payments to the next fiscal year, and raising the state's personal and corporate income taxes by a point each. (Last year, Quinn proposed raising the personal and corporate income taxes, but was thwarted by the Democratic-controlled legislature.) These measures would combine with spending cuts to close the gap.
Illinois' low income tax, with a flat rate of 3%, serves to offset high property taxes and high sales taxes, especially in Chicago. Overall, Illinois is not a low-tax state -- in fact, it already collects more state and local taxes per capita than any Midwestern state except Minnesota. Raising income taxes would deprive the state of its one key tax environment advantages compared to its neighbors, and is the wrong answer to close the gap.
What's the consequence of foregoing the tax hike? Governor Quinn has threatened that, if his income tax increase does not pass, he will be forced to cut $1.3 billion in state aid to school districts. Legislators should take the governor up on his threat, which would represent an approximately 5% cut in total education spending, and let school districts decide whether they wish to raise property taxes to cover the gap.
Beyond education, positive fiscal reform will require getting the expense side of the state's ledger under control, especially on employee compensation and pensions. The state's required pension plan contribution has exploded to over $4.1 billion for 2011 from $1.1 billion in 2000, accounting for more than 1/8 of general fund spending and crowding out other programs. This reflects the generosity and unsustainability of public employee benefits in Illinois.
The Illinois Policy Institute, a free-market think tank based in Chicago, has promoted a creative reform on public pensions, which combines a state expenditure limit with a commitment to direct all surplus revenues into the pension fund until adequate funding is reached. New employees would be shifted to a defined contribution retirement plan that would prevent future pension funding crises.
Meanwhile, the state and localities could freeze or even cut employee wages to offset the value of generous pensions. Fewer than 2% of state employees voluntarily left their jobs in 2008, a lower figure than in any other state, which suggests that Illinois could reduce employee compensation while continuing to retain talent. (Similarly, a wage freeze at the school district level would significantly reduce the pressure from state aid cuts.)
What Illinois cannot do is go on forever with a fiscal strategy of borrowing to finance current operations. The state already has one of the worst credit ratings in America (though still better than California), which will continue to deteriorate so long as the state's structural deficit and pension underfunding problems persist. If the state fails to control spending and fix its pension problem, it is poised to follow California off a fiscal cliff.
Josh Barro is a Senior Fellow at the Manhattan Institute
Over the last two budget cycles, every state except North Dakota has had to close a budget gap. But a handful of states stand out for the depth of their fiscal problems. For 2010, seven states had budget gaps totaling more than 25% of general fund spending, as measured by the Center on Budget and Policy Priorities. Of these, six have a clear story about how they ended up in such a mess.
Nevada is battered by weak travel to Las Vegas, while California is heavily reliant on shrinking income tax revenues. Arizona, California and Nevada were all hit particularly hard by the burst of the property bubble. Alaska's odd finances are sensitive to falling oil prices. And New York and New Jersey are feeling the effects of fewer, and smaller, Wall Street bonuses.
The most puzzling member of the "over 25% club" is Illinois. Illinois did not see a particularly large bubble (or burst) in property prices, does not have outsize exposure to finance or tourism, and has a lower-than-normal reliance on its flat income tax. So how did the state achieve a staggering budget gap equaling 47% of its fiscal 2010 budget, second only to California?
The trouble is that Illinois did not enter the recession from a position of budget balance. While California's budget shenanigans have garnered national attention, Illinois' behavior has been similarly poor but less widely noticed. The Land of Lincoln has not truly balanced its budget since 2001, and its large structural deficit has it poised for fiscal ruin in the recession. While other states can blame external economic factors, the key cause of Illinois' budget crisis is legislative malfeasance.
Illinois has taken the budget gimmicks seen in many states to an extreme. Occasionally, states postpone payments during budget crises to close budget gaps. But for the last decade, Illinois has made a standard practice of delaying vendor payments -- even in good years -- and then periodically floating general obligation bonds to clear the backlog.
The state has also used its pension system as a venue for stealth borrowing. From 1996 to 2008, the state's unfunded pension liability grew by $36 billion -- and $19 billion of that growth was due to elected officials funding pensions below the actuarially required level. (Another $6 billion was attributable to benefit increases enacted ten years ago at the height of the dot-com stock market bubble.)
Even taking its aggressive investment assumptions at face value, Illinois' public employee retirement system has assets to cover only 54% of its accrued liabilities -- one of the country's worst ratios. When the state promises future benefits to employees without setting aside the cash to pay for them, it is effectively borrowing without reflecting bond debt on its balance sheet.
Meanwhile, when the state did make required pension contributions, it often did so by floating bonds -- over $13 billion in "pension obligation notes" over the last decade. It's no surprise that in 2008, the Pew Center on the States rated Illinois' money management the third worst in the country, behind only Rhode Island and California.
Unlike tax increases and spending cuts, these gap-closing strategies make future year deficits even worse -- the state spends over $1 billion a year just to service previously-issued pension obligation bonds. Having made no real progress on its structural deficit, Illinois faces a $13 billion gap in its $32 billion 2011 general fund.
Last week, Governor Patrick Quinn proposed his FY 2011 budget, and the contents are not inspiring. Quinn's proposed budget includes delaying over $6 billion in vendor payments to the next fiscal year, and raising the state's personal and corporate income taxes by a point each. (Last year, Quinn proposed raising the personal and corporate income taxes, but was thwarted by the Democratic-controlled legislature.) These measures would combine with spending cuts to close the gap.
Illinois' low income tax, with a flat rate of 3%, serves to offset high property taxes and high sales taxes, especially in Chicago. Overall, Illinois is not a low-tax state -- in fact, it already collects more state and local taxes per capita than any Midwestern state except Minnesota. Raising income taxes would deprive the state of its one key tax environment advantages compared to its neighbors, and is the wrong answer to close the gap.
What's the consequence of foregoing the tax hike? Governor Quinn has threatened that, if his income tax increase does not pass, he will be forced to cut $1.3 billion in state aid to school districts. Legislators should take the governor up on his threat, which would represent an approximately 5% cut in total education spending, and let school districts decide whether they wish to raise property taxes to cover the gap.
Beyond education, positive fiscal reform will require getting the expense side of the state's ledger under control, especially on employee compensation and pensions. The state's required pension plan contribution has exploded to over $4.1 billion for 2011 from $1.1 billion in 2000, accounting for more than 1/8 of general fund spending and crowding out other programs. This reflects the generosity and unsustainability of public employee benefits in Illinois.
The Illinois Policy Institute, a free-market think tank based in Chicago, has promoted a creative reform on public pensions, which combines a state expenditure limit with a commitment to direct all surplus revenues into the pension fund until adequate funding is reached. New employees would be shifted to a defined contribution retirement plan that would prevent future pension funding crises.
Meanwhile, the state and localities could freeze or even cut employee wages to offset the value of generous pensions. Fewer than 2% of state employees voluntarily left their jobs in 2008, a lower figure than in any other state, which suggests that Illinois could reduce employee compensation while continuing to retain talent. (Similarly, a wage freeze at the school district level would significantly reduce the pressure from state aid cuts.)
What Illinois cannot do is go on forever with a fiscal strategy of borrowing to finance current operations. The state already has one of the worst credit ratings in America (though still better than California), which will continue to deteriorate so long as the state's structural deficit and pension underfunding problems persist. If the state fails to control spending and fix its pension problem, it is poised to follow California off a fiscal cliff.
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