by | June 7, 2013 12:50 pm
With apologies to Detroit’s $15.7 billion long-term debt, and the budget problems in California that led Stockton to become the largest U.S. city ever to file bankruptcy, Illinois might be in the worst financial shape of any city or state in the country.
The issue is Illinois has racked up nearly $100 billion — yes, with a “B” — in unfunded state employee pension liabilities.
As a result, Fitch downgraded the state’s already-lowest-in-the-nation credit rating even further Monday. Moody’s followed suit Thursday, also citing its belief that nothing will change on the pension front anytime soon. These downgrades come days after the state legislature adjourned for the summer without addressing the unpaid obligations it owes, though the situation has become so dire, Illinois Gov. Pat Quinn has called the state Congress back for a June 19 special session.
A $100 billion bill doesn’t just show up overnight. The massive debt the state faces is the result of decades of politicians robbing Peter to pay Paul. Watchdog reports dating as far back as 1945 complain about pension obligations being underfunded.
Instead of cutting spending in other government programs or raising taxes, politicians created pension payment plans designed to kick the can down the road — deferring payments to a later time when (hopefully) tax revenue would increase, or spending would decrease.
What makes things grimmer for Illinois compared to Detroit, Stockton or anywhere else in the U.S.? Illinois’ complete lack of movement on this crisis.
Stockton might have filed for bankruptcy, but at least it took some kind of action to deal with its debt, even if it’s the least palatable option. Detroit has been hurting for some time now, but the emergency financial manager appointed by Michigan’s governor is at least working on the problem.
Illinois, on the other hand, has had countless chances to fix things, and has done nothing.
Politics shoulder much of the blame for the breakdown, though oddly enough, it’s not partisan politics that are at fault. The three men most responsible for this mess — Quinn, state House Speaker Mike Madigan and state Senate President John Cullerton — are all Democrats. In this case, though, that doesn’t mean they get along.
Madigan and Cullerton both came up with their own plans to fix pension funding. Cullerton’s plan offered state employees a choice — give up some of their pension benefits or give up their health care. Madigan wanted to raise the retirement age, take more out of employee checks for the pension funds and decrease cost-of-living increases.
Cullerton argued his plan was more likely to stand up to challenges from state employee unions, though it would have made less of a dent in the debt. Madigan’s plan, though more likely to be challenged, would have done more to resolve funding issues.
Neither bill passed. Both bills made it through their respective halves of the legislature, but died on the other side — Madigan’s plan lost resoundingly in the Senate, while Cullerton’s plan didn’t even get a House vote. Madigan later accused Cullerton of a “lack of leadership.”
The real elephant in the room, though, is the 2014 governor’s race.
Quinn is one of the weakest and most unpopular governors in the U.S., and faces an uphill battle for re-election. In fact, he will almost certainly face a difficult primary challenge with at least two probable opponents that will seem awfully familiar: Bill Daley and Lisa Madigan.
Madigan is the House Speaker’s daughter and the current state Attorney General. Daley was President Barack Obama’s White House Chief of Staff from 2011-12 and President Bill Clinton’s Commerce Secretary from 1997-2000. Daley also is the son of long-time Chicago mayor Richard J. Daley.
Many have assumed Mike Madigan is using the pension crisis as a political football against Quinn in an effort to smooth his daughter’s path to governor. Daley also has weighed in on the issue, saying, “I obviously believe the governor is the one who’s got to bring people together, and that didn’t happen. Leaders do that.”
The whole situation screams “no win.” Maintaining the status quo will only lead to further credit downgrades, making it more expensive for the state to borrow money. This in turn will lead to cuts in important programs — local school districts have already felt the squeeze, as they have been forced to lay off teachers, close schools and cut programs.
If one of the two competing plans eventually does get passed, though, a long and bruising court battle between the state and the state employee unions almost certainly awaits. If the unions win, Illinois and Illinois taxpayers are stuck with a pension bill they almost certainly can’t pay back. If the state wins, the power of the state employees’ unions will be crippled.
Right now, there seems to be little hope for a fast solution, and little upside to any of the possible resolutions to this issue.
No wonder so many Illinois politicians want to ignore it and hope it goes away.
The opinions contained in this column are solely those of the writer.
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