If Gov. Pat Quinn or anyone else has any thought that the federal government will pull Illinois back from the ledge of financial ruin, forget it.
Sen. Jim DeMint, R-S.C., and a Wall Street Journal editorial warned Illinois that it shouldn't think about a bailout in the form of a federal guarantee of the state's trashy bonds, apparently before more than a few here were even thinking about it. Or at least saying so publicly.
However, the Journal editorial ("An Illinois Pension Bailout?" Sept. 20) and DeMint, joined by the conservative Illinois Policy Institute, anticipate the request by pointing to Quinn's remarks in presenting his fiscal year 2012 budget. There Quinn raised the possibility of a federal guarantee of the state's indebtedness as one of three "significant long-term improvements" to the state's crushing pension debt. (The other two were "significant pension reforms" and debt refinancing.)
Question: Who would be stupid enough to buy Illinois bonds, probably the riskiest investment outside of Europe? And why should American taxpayers be put in the position of backing anyone stupid enough to buy those bonds?
As the Journal editors noted: "Sooner or later, we knew it would come to this since the Democrats who are running Illinois into the ground can't bring themselves to oppose union demands. (Witness the costly settlement of the Chicago teachers strike.) Illinois now has some $8 billion in current debts outstanding, and taxpayers are on the hook for more than $200 billion in unfunded retirement costs for government workers. By some estimates, the system could be the first in the nation to go broke, as early as 2018."
Or sooner, I'd say.
We've raised taxes and who would dare suggest another increase? Services are being cut. We've borrowed up to our necks. Federal assistance? Laughable. The numbers are almost beyond comprehension:
Just last week, custodians of the state's Teachers' Retirement System announced that Illinois would have to cough up another $670 million in the next budget. That overnight, jarring increase was the result of the application of realistic accounting methods to calculate what's needed to keep the pension fund breathing.
Quinn's budget office said last month that by 2016, the state is on track to spend more on government pensions than on education. Thank you, educators; so much for those students you claim you love so much.
The new accounting rules by the Governmental Accounting Standards Board and Moody's Investment Services lift the veil on how politicians and the unions have hidden how much they are into taxpayers' pockets by grossly overestimating what the pension fund returns.
The Illinois Policy Institute estimates the fund will require a return on investment of 19 percent to cover future payouts, and if they can figure out how to do that, I wish they'd give me the phone number of their investment adviser. As it is, the state predicts the funds will earn a return of 7 percent to 8.5 percent annually, which seems laughable in today's economy.
If the feds give in to any Illinois bailout request (remember, it's President Barack Obama's home state), it will start a stampede of demands for equal treatment from other financially troubled states whose public pension debts, depending on who is making the estimate, vary from $1 trillion to $2.5 trillion or more. Asking the federal government, which is $16 trillion in debt, is like trying to pump water from a dry well.
The institute says we can get out of this problem by, among other things, freezing government pensions and limiting the 3 percent annual "cost-of-living" increase that retirees get. True, many employees contributed to their pensions and believe it's their right to receive everything promised to them. And the state has inexcusably raided the pension funds to pay for everyday expenses. But that's only part of the story; what the employees and employers have contributed could never cover the promised bountiful benefits.
The Journal reports that since 2009, 45 states have scaled back pension benefits for teachers, police, firefighters and other public workers. Illinois politicians have reduced benefits for new workers, but the real economies have yet to be achieved, thanks to the strong opposition of public employee unions.
States, cities and the feds all face killer debts. Honestly, I can see no way out of this mess.
Dennis Byrne, a Chicago writer, blogs in The Barbershop in chicagonow.com