What to Do About Illinois’ Debt (And Death is Not an Option)
With more than $7 billion of unpaid bills and (depending on who you ask) $130-$200 billion in unfunded pension liabilities, a credit rating hovering just above “junk” status and people and businesses fleeing in droves, there are no easy answers to what it will take to pull Illinois out of the financial abyss in which it finds itself.
The Illinois Supreme Court has consistently ruled that accrued pension benefits to be paid to retired state employees cannot be “diminished or impaired”. As a result, 25% of the State’s General Revenue Fund (over $8 billion in 2019) is used to pay accrued and unfunded pension liabilities, and this amount is scheduled to increase (the “Edgar Ramp”) every year to almost $20 billion by 2045. This is money that was diverted in the past to dispense the type of governmental goodies that politicians are only too happy to give, especially when they know they won’t be around when it comes time to pay the bill.
This is real debt, and the State’s unwillingness to confront it is the primary reason why we find ourselves in the financial condition that we’re in. Its origins are many:
- Years of chronic underfunding of pensions;
- Pension benefits guaranteed by the State Constitution which were granted with had no corresponding increase in funding;
- Unbalanced budgets that spent money that those crafting the budget knew would never materialize;
- And on, and on and on.
But at this point, why it happened is really beside the point. The bill has come due. All of those new programs that were created out of thin air or with money that was diverted from the pension plans have created an unsustainable burden upon Illinois’ finances. Guaranteed increases to state pensions and inadequate oversight of state appropriations have brought us to this place.
When you’re confronted with a crappy situation, there are only crappy solutions; all the good ones have been taken. A progressive income tax, legalizing marijuana, building new casinos nor any combination of these are not going to pay this bill. But doing nothing is not an option any more, either. The only possible solutions I see which could possibly put the State on a path to fiscal sanity are:
- Front-load a massive payment on our pension debt. One suggestion is to issue “Pension Anticipation Bonds” to partially fund the pension shortfall and then flatten the amount going toward pensions in the future at the current level (approximately $7 billion/year) in order to get us off the “Edgar Ramp”;
- Amend the Illinois Constitution to eliminate or modify Article XIII, Section 5, which guarantees that pension benefits may not be “diminished or impaired”.
- Lobby Congress to amend Chapter 9 of the U.S. Bankruptcy Code to allow Illinois to file for bankruptcy;
- Raise taxes (income taxes, sales taxes and user fees).
I’m going to try to explain each of these alternatives in turn, and then I’m going to put it to you to in the form of a survey to tell me which of these admittedly lousy alternatives you’d vote for if you were sitting in my chair. And remember, death is not an option.