Tuesday, May 12, 2015

Illinois' Blue State Blues on Unfunded Union Pension Liabilities

For decades, the mostly Democrat-controlled (blue) state governments have caved to their state union worker's demands for earlier retirement ages and increased pension amounts and benefits.  All to curry votes. Never once paying any real attention to the fact that Americans are living longer and that many rust-belt states are seeing declines in their taxable populations and increases in their poverty rates.  This is the problem facing the State of Illinois today.

Illinois has a massive unfunded pension liability problem that they may not get themselves out of until bankruptcy.  A problem so bad that the then-Governor Pat Quinn signed a 67% tax increase into law in 2011.  Then, in December 2013, that same governor signed some modest reforms that should have slowed the growth of the impending pension crisis.  But, the unions fought back; claiming that the State had a contractual obligation to pay pensions and that the amounts can never be changed. On May 8th, the Supreme Court of Illinois unanimously sided with that union argument. So, the pension crisis continues on unabated.

How big is the pension problem anyway?

The numbers are staggering, As of 2014, if you are a taxpayer and potentially on the hook to come up with the cash to pay all those retired state workers.  The unfunded pension amount, in all categories of programs, is $104 billion and growing by the day.  This is a state of nearly 13 million residents of which only half are actively working and able to pay income taxes that could help cover that huge debt.   But, if you do the math, that is a per-worker liability amount of nearly $16 thousand, and growing exponentially every year.  For, example, in 2000, the total pension liability was $15.6 billion or nearly one-seventh of what it is today.

What makes it even worse it that the Illinois' tax base is shrinking as taxpayers flee the state's already high taxes (income, real estate, sales, etc.).  I know I did. My wife and I escaped to Las Vegas for that very reason (along with the weather).  In Illinois, we were paying property taxes that were 2-1/2 times higher for a house that was 32% smaller and on a lot that was 1/3 the size of what we have now.  Also, thanks the Casinos, we pay no state  tax. The simple fact is that, based on a study of tax date in 2010, Illinois lost almost 50,000 taxpayers and their dependents in that year alone, along with almost $2 billion dollars in tax revenues.  This of course, was before the State raised its income tax by 67% in 2011; which probably only exacerbated the exodus.

There is one more problem that is putting Illinois on a path to bankruptcy.  Rising poverty.  Since the recession of 2007, the number of people in poverty has risen an average of 3.1% per year with "officially" only 2 million people or 14.1% in poverty.  But, that official rate assumes that even if you make a dollar more that the designated poverty income level per year, you're rolling in cash.  The Heartland Alliance says that 33% of Illinois residents are "at" or "near" poverty.  This is especially troubling for the pension crisis because people in poverty don't pay any taxes and people near poverty pay very little; and at the same time, sap the State treasury with welfare assistance.

Personally, I can't see how Illinois can avoid bankruptcy.  The unions won't concede on pension benefits.  The tax base is shrinking.  The workforce is shrinking while poverty is rising.  Essentially this is an all encompassing recipe for fiscal failure.  Of course, if the State is taken down by its pension shortfalls, those retired union personnel may just see much of their pension decimated.  They should have accepted the modest reforms and not taken the case to the State's Supreme Court.


Definition: Blue States: https://www.google.com/search?q=blue+states+definition&ie=utf-8&oe=utf-8

Illinois Supreme Court rules landmark pension law unconstitutional: http://www.chicagotribune.com/news/local/politics/ct-illinois-pension-law-court-ruling-20150508-story.html#page=1

Census Bureau Quick Facts: Illinois: http://quickfacts.census.gov/qfd/states/17000.html

Illinois workforce smaller than at any time during the recession: http://www.rebootillinois.com/2014/08/06/editors-picks/kevin-hoffmanrebootillinois-com/illinois-workforce-numbers-since-recession/22205/

Outrageous Public Pensions Could Bankrupt These States: http://www.thefiscaltimes.com/2015/03/30/Outrageous-Public-Pensions-Could-Bankrupt-These-States

Report: Illinois poverty remains stubbornly high: http://www.washingtontimes.com/news/2014/jan/30/report-illinois-poverty-remains-stubbornly-high/?page=all

IRS data show more taxpayers fleeing Illinois: https://www.illinoispolicy.org/irs-data-show-more-taxpayers-fleeing-illinois/

Illinois' 33%: A Report on Poverty: http://www.ilpovertyreport.org/sites/default/files/uploads/Illinois_33percent_PovertyReport_FINAL.pdf

Illinois’ temporary tax hike: $18 billion later: https://www.illinoispolicy.org/policy-points/illinois-temporary-tax-hike-18-billion-later/

The victims of Illinois' failure on pensions - Chicago Tribune: http://www.chicagotribune.com/news/opinion/editorials/ct-pension-ruling-victims-edit-0510-20150508-story.html

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