Tuesday, February 10, 2015

Illinois’ fiscal cliff

According to the New York Times, Illinois has the “country’s worst-funded public pension system, … billions in unpaid bills and the worst credit rating.” The financial woes of the state have been called “staggering” and Moody’s ranks the state as the most troubled in the country. The new Republican governor, Bruce Rauner, faces a Democratic senate but many hope both sides will compromise in the face of such gloomy financial straits. Rauner will soon unveil his proposed annual budget, which is expected to address the current pension crisis.

Before the formal budget proposal, Rauner’s first step has been to bar unions from requiring all workers to pay dues, a relatively aggressive move targeted at the public sector.  This new prohibition would affect about 6,500 workers who are not in unions but pay fees to them and benefit from the collective bargaining agreements they produce. He believes this will undo a “corrupt bargain” that is costing Illinois taxpayers and has reasoned that the existing setup is unconstitutional.

Teacher pension reform is a large discussion topic (at least in some circles). The Illinois Policy institute thinks that the state has no business paying teacher pensions, and this should be a local action. However, this calls into question the various levels of wealth at the local level – would wealthy localities have an easier time paying their teachers? Some argue that the “body of government that approved [pension] costs – the school districts – should be held accountable” and not the state (devolution principle).

With a state unable to pay for its programs, it could cut spending (services) or raise taxes. Some argue that tax hikes will cause business or residents to flee (“voting with their feet”), reducing revenues further. This could perhaps incite a downward spiral for the state (leading to a decrease in the state’s credit ratings, increasing the difficulty of obtaining financing to pay its outstanding debts, and so on).

As an alternative to traditional pensions, Federal employees switched to a 401-K type model  in the 1980s. Some have proposed Illinois switch to this model to deal with the pension costs. However, changing the status quo will be politically difficult as entitlements have become naturalized (ie. taken for granted). Budget hearings with the public will be held through May. Many strong opinions can be expected, but what viable strategies will actually be proposed to balance Illinois' budget? 

Interesting link that calls itself an “interactive almanac of U.S. politics":


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