Why Illinois is Going Bankrupt

Squeezy the Pension Python has its grip around the Land of Lincoln.

  • Share
  • Read Later
image: A cartoon snake named "Squeezy the Pension Python" coils around the State Capitol as part of Illinois Gov. Pat Quinn's new online campaign to get Illinoisans excited about pension reform.
Gov. Pat Quinn's office / AP

A cartoon snake named "Squeezy the Pension Python" coils around the State Capitol as part of Illinois Gov. Pat Quinn's new online campaign to get Illinoisans excited about pension reform.

It’s not quite fair to say that Illinois officials are doing nothing to defuse the most threatening pension time bomb in America. Darn close to nothing, that’s fair, which explains why the ratings agencies Fitch and Moody’s have put the state on their negative watch lists. The Land of Lincoln is heading toward yet another downgrade of its battered bond ratings if this near-paralysis keeps up. To say “nothing,” however, ignores Squeezy the Pension Python.

Squeezy is the cartoon co-star in a YouTube video featuring Illinois Gov. Pat Quinn. Hoping to raise awareness among voters and put pressure on the legislature, Quinn took to the ether last year to explain why underfunding the state pension system (the deficit is deepening by more than half a million bucks per hour) is not a good idea. When the state has to pay promised pensions even though the coffers are empty, said the governor, other priorities get squeezed—like schools, roads, and law enforcement.

Cue the snake.

It might be argued that Squeezy is too cute to set off alarm bells among fans of the Chicago Bears. More to the point: awareness of the pension mess is not really the problem in Illinois. Everyone has known for years that the state is a fiscal wreck, with Exhibit A being the smoking crater in the pension fund. Thanks in large part to the rapidly growing slice of state spending that goes to pensions, Illinois has gone ten years without a genuinely balanced budget, and the state was essentially broke even before the Great Recession hit. Now it is roughly 300 days behind in its payments to vendors—despite having tried every accounting trick in the book to hide the red ink. In fact, awareness of the problem inspired the state legislature to raise taxes and deposit some actual money in the pension fund last year, rather than toss in the usual IOUs.

(MORE: Why We Need Pension Reform)

The problem is … well, there are several problems, the first of which is leadership. Illinois did not have much during the period when former Gov. Rod Blagojevich followed his predecessor, former Gov. George Ryan, out of office and into federal prison on corruption charges. As the Chicago Tribune has amply documented, Illinois labor leaders, lobbyists, legislators, aldermen—even longtime Chicago Mayor Richard M. Daley—have been more likely to pad pensions than to properly manage them, starting with their own comfy retirement cushions.

Lawmakers promised more and more benefits to retired teachers, police officers, firefighters, and other government workers over the past decade; meanwhile, the pool of money to pay these pledges was neglected. The estimated shortfall of nearly $100 billion between now and 2045 is, believe it or not, a rosy scenario, given that a) it assumes robust investment returns and b) doesn’t include local pension disasters, like the estimated $20 billion hole in the City of Chicago system.

Quinn and Chicago Mayor Rahm Emanuel both urged the legislature to tackle the crisis during last year’s session. “The day of reckoning has arrived,” Emanuel warned. All sorts of repairs were floated: raising the retirement age for public employees, increasing employee contributions, freezing cost-of-living increases, shifting younger workers into 401-(k) style savings. Quinn even proposed that responsibility for teacher retirement plans should be shifted to local school boards.  You can guess what the locals thought about that.

(MORE: Fiscal Cliff Aftermath: New Option for 401(k) Savers)

Even after Squeezy’s debut, the result was nil. Public employee unions are a powerful force in heavily Democratic Illinois, and they have not only clout but the law on their side. The contracts that grant retirement benefits to public employees are guaranteed by the state constitution, the unions argue. Such promises must be kept. Stymied by so many unpleasant options, the legislature stalled during its regular session, dodged Quinn’s call for a special session, and punted during a lame-duck session that ended early this month.

So much for the day of reckoning.

The Pew Center on the States, which tracks the pension funding problem nationwide, says Illinois now faces the worst mess in the country, with less than half of its pension obligations currently covered. But other states are suffering from symptoms of the same disease. According to Pew, 34 states were short in 2010 of the recommended 80-percent funding level considered safe for pension systems. (That is the most recent year for which data is available; defenders of public pensions argue that 2010 figures exaggerate the problem because they  collected near the bottom of the bad economy.) In all, Pew estimates the total shortfall in state pensions to be $1.38 trillion.

Fixing problems of this scale, where the political price is immediate while the benefits are stretched out over decades, is never easy. The widely acclaimed reforms passed in Rhode Island last year are bogged down in litigation, as unions fight to preserve the deals they negotiated. But each day that passes without major reforms, the mathematics of the Illinois crisis grind on: ever more retirees, collecting steadily larger checks, as tumbling bond ratings make it more and more expensive to borrow money to mask the hole.

As a new legislature, dominated by Democratic supermajorities, takes another whack at the snake in the coming months, leaders in other states around the country should watch Springfield and heed the lesson: tempting though it is to do nothing, it only makes the problem worse.

MORE: How Bad Is America’s Pension Funding Problem?

389 comments
tornadofabric
tornadofabric

All public employees except the executive level of government and the military should save for their own retirements, just like everyone else....There is not a corporation in the world that pays out half its receivables towards retirement. 


It's the largest scam ever perpetrated on American society. These pensions are a joke and unsustainable.

drudown
drudown

"Reason can wrestle/ And overthrow terror." - Euripides

haxela03
haxela03

LIberalism and its insane policies destroyed Chicago, so what did America do?  We doubled down and elected one of Chicago's moonbat elite to occupy the White House.  Now Illinois can rest easy in the knowledge that not only are they headed down the drain but all of America is right behind you.

haxela03
haxela03

@drudown @haxela03 The EPA recently had a study done on fracking that they did not release to the public.  Wonder why this EPA Gestapo would not want Americans to see what was in that.  I'll bet you loved the Matt Damon movie about fracking.  Deregulating Wall Street had no bigger benefactor than the Glass-Steegle Act passed under Bill Clinton.  Has Barry put a stop to outsourcing?  I wasn't aware of that.  Alientating most trusted allies...you have got to be kidding on this one right?

drudown
drudown

@haxela03 @drudown

Spare me the conclusory statements. Argue the merits with evidence. Want some help as to how?

Let's review some basic civics and facts to dispassionately assess (1) which branch of government and (2) which political party caused the "shut down", shall we? Just this: the CONGRESS HAS PLENARY POWER AND THEREFORE LEGAL DUTY TO RAISE AND COLLECT TAXES OWED TO THE PEOPLE. The Congress cannot “opt out” of its job function any more than a US Postal Worker or Federal Judge or Navy SEAL can. So why should ANY voter “blame” President Obama for CONGRESS failing to promulgate a commercially reasonable Budget (as required by law) for his signature? Forget the “papers” you referenced. Read Article I, Section 8 and explain how the Congress can allow the government to “shut down” when the express language says RAISE REVENUE? It is called following the law. As such, no amount of “paid for” news or faux criticism you proffer purporting to “blame” President Obama for our fiscal state make any logical sense: the Legislative branch is the SOLE and EXCLUSIVE branch that can affect the debt or spending. Period. Again, all this is in the Constitution and any 1st year lawyer knows this. So why do you, GOP pundits or Faux News even suggest the President doesn’t have a Constitutional Duty to Faithfully Execute the Law as promulgated by Congress- that is, neither President Obama or ANY President EVER could exercise “discretion” as to “how much to spend”. Why? It’s called the Separation of Powers and the “grid lock” is just ONE branch NOT doing its job: the GOP-controlled part of Congress responsible for promulgating a Budget FOR THE PRESIDENT TO SIGN INTO LAW. 


Duh. 


That is not a “liberal bias” it is just the law, i.e., GOP “supporters” keep bringing up the President’s spending when the CONSTITUTION REQUIRES that Congress exercise PLENARY TAXING AND SPENDING POWER. As such, BECAUSE the issue is thus squarely the REFUSAL of THIS Congress to FOLLOW THE LAW, i.e., the express language of Article I, Section 8 is the controlling legal authority. Period. Speaking of the Constitution, where, pray tell, is the LAW that purportedly supports what Sen. Graham claims, i.e., that he (or any single member of the Senate) can arbitrarily “halt” or “limit” the Founding Fathers’ express Appointment Power reposed in the Executive branch for the People’s benefit because "he wants more answers on Benghazi"? What a joke the GOP has become. Just this: the plain meaning of the Constitution BINDS the Congress. They can't just "make up" their own "new" laws or "refuse to fund" whatever the latest “Congressional Decider” puppet decrees. This Unlawful State Action is NOT anything new- nor is any form of Tyranny, i.e., here, it is cloaked in Legislative Veto power. [see, INS v. Chadha, (1983) 462 U.S. 919]. Just this: Procedural Due Process is required for intentional acts of DEPRIVATION by the State and/or its employees [see, Davidson v. Cannon (1986) 474 U.S. 344]. It defies all credulity for ANY GOP pundit to even intimate Congress is absolved of DUTY to the constituents its serves. THAT is how blinded by greed the GOP is by its own misstatements of applicable law. The Due Process clause's VERY PURPOSE is to provide procedural safeguards against "arbitrary deprivation" by STATE ACTION. [see, 439 U.S. 438] How does cutting Social Security or even denying Medicaid Expansion that BENEFITS the CITIZENS of the Several States not suffice?

So spare me the feigned "doe out of the 'how can you blame the Congress for Congress' inaction" routine, much less your "missing evidence from the EPA refutes the evidence" just cited.

"Thy love afar is spite at home." - Emerson

haxela03
haxela03

@drudown @haxela03 and there are a hundred studies from non-liberal leaning organizations that say the exact opposite.  It's like telling providing information from the urban institute and asking me to take it seriously.

drudown
drudown

@haxela03 @drudown 

Cite the credible sources.

Is there glue in your keyboard?

Your excuses are as empty as tossing around the word "liberal" like the Nazi Ann Coulter. 

Or do want to deny Prescott Bush was a Nazi as well?

(see, e.g., documentary Dark Legacy)

haxela03
haxela03

@drudown @haxela03 you had to have all that tripe prepackaged to get it out that quick.  So much for thinking on your feet.  And stop with all the CAPS for heavens sake and the sarcasm.  Are you a grownup?

drudown
drudown

@haxela03 @drudown 

I am officer of court, you Tea Party Traitor.

Who are you to refute the law?

haxela03
haxela03

@drudown I won't deny that JFK's dad was a Nazi sympathizer...that's for sure.

haxela03
haxela03

@drudown @haxela03 no he was the one planning to take over the whole country with his nefarious, amoral minions and he succeeded.

drudown
drudown

@haxela03 @drudown 

Until you proffer a substantive rebuttal to the law cited, your subjective "opinions" are as immaterial as any other Tea Party wishful thinker trying to "reform" the US against its own interests.

Either the truth of the matter asserted is there, or it is not there. 

Enlist Ann Coulter as your proxy so I can mop her up like the rest of you chickens.

bok bok bok

All you have is insults. How sad.

haxela03
haxela03

@drudown I love it when liberals think they are winning an argument and puff their chest out in that "look at me fashion".  too funny

drudown
drudown

@haxela03 

That's funny, considering "non new taxes" is going to foreseeably bankrupt the US just as surely as "fracking" across the US will poison the People's potable drinking supply.

I guess PR robots like you want that.

Say, maybe you could just "cite" how GOP policies during W helped Americans?

Outsourcing?

$4 TRILLION war with Iraq?

Alienating most trusted Allies?

Deregulating Wall St?

Get real. Your "talking points" don't carry the day.

Gee, let me guess: "fracking" water is "totally safe" to drink, despite being radioactive?

Paulhaider74
Paulhaider74

As much as I hate to be Illinoising toward the religious nut-jobs out there, the best way to convert Illinois's debt into a surplus would be to eliminate the tax-exempt status of organized religion in the state of Illinois.  In addition to raising the taxes of anyone who earns more than $100,000 per year in salary ("The Six-Figure Tax"), we should also increase the total cost of guns ($10,000 per firearm) and bullets ($5,000) per bullet.  If there are two things that we need less of that do more harm than good in Illinois, the main culprits are guns/bullets (homicide and suicide rate are exorbitant) and religion (Catholic Church continues to abuse children and suppress the rights of women).  It is time to do something in Illinois that Abraham Lincoln would actually respect in its residents; we could embrace the rational and critical/independent thinking that was demonstrated by our nation's greatest Republican president (sorry, St. Raygun was way down on that list below both Dwight Eisenhower and Teddy Roosevelt; don't forget that Ronnie tripled the defict and claimed that pollution came from trees!).  Our state should embrace what we can do to serve as a model for the other 49 states, and sending Rob BlowDryAnItch to prison was a good start. 

Paul Haider, Chicago

drudown
drudown

As a 39 year old professional, the very premise of pensions reeks of inequity, i.e., the majority of those slated to receive this windfall advocate for a "no new taxes" policy and provide no new ideas (e.g., reorganization of municipal, state and federal debt) to grapple with reality. 

Recent college graduates struggle to find paying work; tell me, why should people get "compensated" for past work performed? Puzzling.

Nowhere1111
Nowhere1111

Private sector UNIONS?? The union is protecting people from greedy owners? Uh ... no. This union is making Illinois go bankrupt and not backing down!. Talk about greedy !!!

easyweblinx
easyweblinx

The US is bankrupt............


easynewslinx.com

TerryClifton
TerryClifton

Wisconsin used to have this problem until Scott Walker took on the mafia that was sinking is his state faster than the Titanic. The Illinois Governor probably can't tell the difference between the goons in Springfield and the goons in the public sector unions that have ran his state into the sewer. This has been a long time coming for Illinois, and now the people are going to be taxed into poverty to pay for it..Good luck with that..

FrankGoudy
FrankGoudy

By the way, why are we talking about gun control or Obama's virtues and faults on this particularly post?

CharlieMalone
CharlieMalone

Illinois taxpayers saved billions by the State of Illinois not having to pay the employer's 6.2%  into Social Security for the members of the five pension systems. (80% of the people in the 5 pensions are not covered by SS).   Illinois taxpayers also saved billions from the pension payments the State of Illinois skipped many years.   Illinois taxpayers also saved billions from the artificially low 3% tax rate Illinois had for 20 years - and the current 5% rate that is still way lower than the rates of most of its neighboring states.  The State was able to keep low tax rates by not paying into the pension systems like it was supposed to.  Now its getting time to pay up

FrankGoudy
FrankGoudy

This is typical of  journalists who have no knowledge of their topic.  Instead they rewrite other articles and contact only selected people.

The real reason for the Illinois pension crisis is that the state did not contribute its required funding over several decades.  They used the money for their own spending purposes.  The one public fund that was funded by the state is at 83% of actuarial liablity.  Not great, but not a real problem either. Of course, this is never pointed out by the politicians and a shallow writer will never search this out to report it.

An important factor in the Illinois budget crisis is Medicaid.  The liberal MSM will never mention this.  But in Illinois it has grown from $1 billion in 1980 to $6 billion in 2000 to over $14 billion today.  The Governor actually wants to expand the Medcaid roles by some 700,000 people trhough ACA/ObamaCare legislation.  Of course federal dollars are promised but no one knows in the long term what th financial implications will be.  Medicaid is the bull elphant in the room and sucks up more dollars than anything else inlcuding education, prisons, raod - anything.

But the politiicans and media never mention it .  The new PC is to attack public employees.  Such attacks use to come only from the Right but are now hot and heavy from the Left as witnessed by this biased article.

paulejb
paulejb

$16.5 trillion in debt with no change in sight and the clueless ideologues of the hive continue to sing, Happy Days are here again...

jmac
jmac

paulejb:   " . . . the left wing yahoos here at Swampland . . .

You do a great job of representing today's Republican party, paulejb.  Keep up  the good work.   It's why  you have lost five presidential races (by vote)  in the last six years and how you lost seats in the House and Senate in the last election.   Some Republicans are starting to get the message but we're going to rely on you to keep them on the straight and narrow.  Get on the phone!  Tell Cantor not to cave.   

paulejb
paulejb

Want gun control?

1. Support Stop & Frisk.

2. Enforce current gun laws.

3. Enforce firmer penalties for use of weapons in the commission of crimes.

4. Stop kidding yourselves that more gun control laws will save lies.

paulejb
paulejb

Question:

Can any of you people define an assault weapon or are you all just speaking out of your fundament?

failureofreality
failureofreality

The fraud that characterizes our society is reflected in the state pensions.  State governments committed fraud and the unions committed fraud.

 State governments made promises that would have required either higher taxes or higher returns to pension assets.  The politicians knew that higher taxes would not be accepted by the public, so they assumed high returns on pension assets.  The pension fund managers then had to find the higher returns.   This led them to risky assets that went bust.

The unions participated in this fraud by not explaining to the state workers the necessary requirements for them to receive the promised benefits.  They allowed the underfunding of pensions because funding them would have meant either channeling money away from current  salaries or raising taxes.  They knew that those who were working would not accept channeling money away from them and the public would not accept higher taxes.

One question, though, really needs to be answered.  Why did the union leaders not understand this problem?  Why did they negotiate promises that could not be kept?  

 Or maybe the union leaders understood the problem and were willing to force the tax-paying public to compensate for the underfunding, colluding in the fraud.  This looks like theft.  Stealing from the taxpayers to benefit the state workers.  A contract requires consent from both sides.  Did the taxpayers consent to theft of their money?

paulejb
paulejb

You would think that the left wing yahoos here at Swampland would be proud of their goal of disarming law abiding Americans, but they insist that they just want a few more laws effecting everyone but the criminal class.

DonQuixotic
DonQuixotic

Poll shows huge support for new gun control measures

The poll, mostly taken before Obama released his recommendations, found 74 percent of Americans favor a ban on assault weapons, with 26 percent opposed. A ban on high-capacity ammunition clips was backed by 74 percent, and 26 percent were opposed.

The poll also found 86 percent favor expanded background checks of all gun buyers, including sales at gun shows and between private parties, with 14 percent opposed.

Now I wonder if Paul will realize that this actually doesn't run contrary to the poll he posted to Rasmussen, as that was about people's interpretation on the second amendment and not their support of gun control.

paulejb
paulejb

Two hundred dead Mexicans and counting and two dead US border agents and still no plausible explanation from the Obama regime. Why?

paulejb
paulejb

The Obama regime believes that the only people who should be armed with assault weapons are Mexican drug cartel thugs. They believe that so strongly that they provided the weapons themselves to the cartels.

MrObvious
MrObvious

Poolboy Original (paulejb) have so far proven that he's the man of fresh stuff by dragging out Fast and Furious, Liberals are tyrranical Socialistic Fascist Communists, Jeep IS moving jobs to China and Russia and the Chicago murder rate is all Obama's (libruls fault). Ontop of that Illinois pension problems is all about socialism.

With 'originality' like that I'm guessing he's hoping for a Mulligan so Romney can win the 2012 election.

DonQuixotic
DonQuixotic

Paul is there a reason you're repeating all the pre-election hullabaloo?  You know Mitt already lost, right?

bokeh9
bokeh9

It's incomprehensible to me that paulejb finds all this... entertaining.