Washington, D.C. (Sept. 20, 2012) — Today, U.S. Sen. Jim DeMint (R-South Carolina) pledged his opposition to a federal bailout of underfunded state pension systems. Sen. DeMint was joined at a noon news conference by John Tillman, CEO of the Illinois Policy Institute, and other public policy experts who are urging Congress to block a federal bailout of state pensions.

Across the nation, state government pension systems are underfunded to the tune of $2.5 trillion. Rhode Island and Utah are among a handful of states that have tightened their belts and are aligning retirement promises with reality. Meanwhile, other states continue to spend beyond their means. Illinois, for example, faces more than $167 billion in state pension debt. Yet the state’s Fiscal Year 2012 budget book identified “a federal guarantee of [pension] debt” as one of the possible ways to reconcile this massive red ink. So far, Illinois has failed to pass meaningful pension reform.

“The only way to force recalcitrant states to put fiscal reform on the table is for Congress to take state bailouts off of it. Congress must make plain that the taxpayers will not protect reckless state policymakers from the consequences of their policies," said Sen. Jim DeMint (R-SC). "Prudent states cannot be forced to shoulder the bad decisions of irresponsible states. State policymakers whose failures created this crisis must be responsible for solving it. It is simply wrong for taxpayers who live within their means to be forced to bailout governments that did not.”

The Illinois Policy Institute, a nonpartisan think tank in Chicago, has developed a model to measure the impact of a federal bailout of state pension debt. To finance a bailout of all state pension systems, the federal government would have to raise taxes and cut federal spending by $2.5 trillion. States with the biggest pension liabilities, such as Illinois, would benefit tremendously from a bailout. Meanwhile, most other states would suffer.

“Just about everyone in Illinois knows that we have a serious pension problem on our hands. Massive pension debt threatens funding for core services, Illinois’ credit rating and future prosperity,” said John Tillman, CEO of the Illinois Policy Institute. “Unfortunately, too few politicians are willing to make the necessary reforms to bring Illinois’ pension systems out of the danger zone. The idea of a federal bailout has already been floated in Springfield, in our governor's fiscal year 2012 budget book no less. Illinois Gov. Pat Quinn has since joined the benefit reform-bandwagon, but others lag behind. This is unacceptable. State pension debt is and should remain a local responsibility.”

The Illinois Policy Institute, together with other prominent public policy organizations, have launched a website illustrating what a federal bailout of pensions would look like: NoPensionBailout.com. On that site, visitors can examine how a federal bailout of state pensions would affect their own state and tax bill.

###

Support for “No Pension Bailout”

“To preserve the federal credit rating, Congress cannot bailout a few spendthrift states. The people of Illinois need to know the dire financial position of our state and what we need to do to fix it ourselves. 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." U.S. Sen. Mark Kirk (R-IL)

“I’m proud to stand in support of the No Pension Bailout effort. The state of Illinois is currently $83 billion in debt to five separate pension funds, and due to decades of fiscal irresponsibility and doubling down on bad policies, Illinois is now facing real consequences for its inaction. After yet another credit-downgrade, our state is looking less attractive to new businesses, hurting our chances for job creation as a result. As my delegation colleagues and I wrote to Gov. Quinn last year, Democrats in Springfield shouldn’t look to the American taxpayer as an enabler to Illinois’ addiction to debt. The people of Illinois deserve a state government that addresses and solves its own problems. States like Wisconsin and Indiana show that it can be done — both are outpacing us in economic growth because they got their fiscal houses in order. Illinois must decide to stop being a punch-line and instead develop realistic solutions to the coming fiscal crisis.” Congressman Peter Roskam (R-Wheaton)

“The state of Illinois must take responsibility for the fiscal mess that has been created; Medicaid and pension reform are a necessity in order to get the state back on the correct financial track. The state must grow the base, also, through a broad-based jobs program — this is how we make long-term and lasting changes to the fiscal health of Illinois, NOT through taking handouts from the federal government. Those handouts would only prove that the State of Illinois continues to be on the same wrong track and shows we cannot live within our means or take responsibility for our actions. It’s time to act like adults and stop thinking a handout is the solution.” IL State Rep. Renée Kosel (R-New Lenox)

“A federal bailout of the states would conveniently ignore the chief contributing factor to state budget problems: out-of-control spending. State and local spending has grown more than 90 percent faster than the private sector over the past decade. That trend is clearly unsustainable. A federal bailout of the states would penalize the states that have made the tough choices and have lived within their means during these difficult economic times.” Jonathan Williams, Director of Tax and Fiscal Policy Task Force at American Legislative Exchange Council

“Any proposal for a federal bailout of state and municipal pensions would encourage politicians to delay progressive reforms desperately needed now to prevent public workers risking loss of pension benefits. The true public pension debt is at least $4.4 trillion and continues to grow despite the insufficient reforms passed to date.” Bob Williams, President at State Budget Solutions

“A federal bailout of state governments on account of their pension plan shortfalls would violate fundamental principles of government finance. It would unduly socialize the costs of particular states’ provision of public services and erode states’ incentives for prudent fiscal management. Besides, the federal government's finances are in no condition to accommodate the obligations of other sovereign entities.” Jagadeesh Gokhale, senior fellow at the Cato Institute