Illinois’s Red Queen Solution

A study from the University of Illinois has found that reforms approved so recently and painfully by the state legislature and signed into law by Gov. Pat Quinn won’t do much to solve Illinois’s public pension problems:

Jan 21 (Reuters) – A reform package passed late last year will make improvements to Illinois’ woefully underfunded public pension system, but the state’s budget gap still will increase to $13 billion by 2025 if current policies remain in place, according to an independent analysis released on Tuesday.

While the pension reforms are expected to save Illinois $160 billion over 30 years, they will reduce the state’s structural budget deficit only by $1 billion to $1.5 billion a year over the next decade, according to the report by the Institute of Government and Public Affairs at the University of Illinois’ Fiscal Futures Project.

That would leave the state with a projected budget gap of $3 billion in 2015, growing over the next 10 years to $13 billion. The projected shortfall is just $1 billion less than the $14 billion deficit the report projects Illinois would face without pension reform.

There is no pain-free solution to Illinois’s problems. If there were the problems would have been solved long ago.

To date most of the pain has been inflicted on Illinois’s public employees. There will be more pain ahead for them but the hard facts are that we can’t solve our problems without making more changes to the basic structures.

We cannot expect relief from the federal government. Illinois’s Congressional delegation is the worst of the fifty state delegations. Illinois’s return in federal spending relative to federal taxes paid is fifty cents on the dollar, the third worst return in the nation and Illinois is by far the largest state with such a poor return. Illinois is no more than a cash cow for the other 49 states and the federal government and that’s basically because our Congressional representatives put up with it.

The real solution to Illinois’s problem is robust economic growth. We won’t get it as long as our neighboring states reasonably see our woes as an opportunity to lure Illinois businesses away and that’s a consequence of past Illinois fiscal mismanagement and the poor assumption that increased rates are synonymous with more revenue.

1 comment… add one

  • Red Barchetta

    On the return side of the coin, as I have noted so many times, pension managers will be moving up in yield chase.

    http://www.cnbc.com/id/101351909

    And Fed policies clearly endorsed by the Obama Admin provide advantages to the rich. Minimium wage and income inequality rhetoric my ass.

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