Illinois Is the Canary in the Pension Coal Mine, Says Adam Schuster

[Muda69]

https://reason.com/2019/08/11/illinois-is-the-canary-in-the-pension-coal-mine-says-adam-schuster/#comments

Quote

Illinois is running out of time to fix its public sector pension problem. A new report from Moody's Investors Service identified the Prairie State as one of the two most likely to suffer during an economic downturn. Illinois towns and cities are already paring back government services to pay for generous benefits packages for retirees, and Chicago's pension debt alone is larger than that of 41 states. That arrangement can't last forever.

"The worst-case scenario is there's another national recession, which would cause our pension funds to lose a bunch of their assets again," says Adam Schuster of the Illinois Policy Institute. "As the assets shrink, the pension funds go into a financial death spiral. We might end up with some kind of Puerto Rico–style pseudo-bankruptcy or federal bailout. Everybody in the nation is now on the hook for Illinois politicians' irresponsible decisions."

The best-case scenario would involve repealing an automatic 3 percent raise that pensioners receive each year of their retirement and requiring workers to pay more into their own plans. Democratic Gov. J.B. Pritzker would prefer to scrap Illinois' flat income tax and replace it with a progressive tax scheme, which could cause even more people to flee the state. In May, Schuster spoke to Reason's Mike Riggs about the pension conundrum.

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In 1990, Illinois implemented a guaranteed 3 percent compounding cost of living adjustment. So a person's pension goes up by 3 percent every year regardless of how much inflation there is in the economy. It basically doubles the size of somebody's pension over the course of 25 years.

We also had a series of governors, both Republican and Democratic, who habitually shorted the system by putting in less than the required contribution. The reason they did that is that the required contributions were unaffordable and never would have been affordable because we overpromised the benefits.

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We've had five straight years of population loss. We're losing our prime working-age adults, and poll results say that the No. 1 reason they're leaving is that the taxes are too high here. And the No. 2 reason they're leaving is job opportunities are better elsewhere, which is related to No. 1.

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I don't know if you followed at all the story of Harvey, Illinois, but it's a South Chicago suburb, and they have one of the highest effective property tax rates in the nation. Even still, their police and fire pensions are so underfunded that in order to make their pension payment, they had to lay off dozens of current police officers and firefighters.

The state of Illinois is pretty much waiting for a federal government bailout at this point.  And because of Chicago they will probably get it.  How nice to make all Americans pay for bad decisions of Illinois.