Illinois Pension Fund $61 Billion Underwater; State Borrows Money For 2010 Contribution; California $20 Billion in the Hole Again
Courtesy of Mish
Illinois’s pension fund is deep in the hole and getting deeper every year.
The state’s reaction never changes: borrow money and hope the returns beat the cost of borrowing. Former governor Rod Blagojevich tried that to the tune of $10 billion and it worked out less than spectacularly to say the least. Nonetheless Illinois is back at it for 2010.
Please consider Emperor has no clothes: Pensions are short cash
Illinois politicians are at it again. They’re borrowing from the future to make state pension contributions today.
In early January, while everyone was busy watching the nasty campaign commercials, the State of Illinois pulled an end-run on the budget process. On Jan. 7 the state sold $3.5 billion of "pension obligation notes." In simple English, the state borrowed money to finance the state’s contribution to its five retirement systems.
The money raised will go to shore up the Teachers Retirement System, which is scheduled to receive $2.08 billion of the proceeds, and the Illinois State Universities Retirement System, which will get $702.5 million from the bond offering. The Illinois State Board of Investment gets nearly $813 million for funds, including the Illinois State Employees’ Retirement System, and the Judges Retirement System, and — big surprise — the Illinois General Assembly Retirement System.
In November 2009, the state’s Pension Modernization Task Force sent its recommendations to Gov. Quinn. The Task Force concluded that Illinois’ unfunded pension liability exceeds $61 billion! And that number is growing exponentially. [Note: Projections have it at $89 billion by the end of the fiscal year – See below Mish]
The report lays out the problem clearly:
"Not wanting to implement dramatic cuts in spending on essential services, the legislature and various governors elected to instead divert revenue from making the required employer pension contribution to maintaining services like education, health care, public safety and caring for disadvantaged populations. Effectively, the state used the pension systems as a credit card to fund ongoing service operations."
Illinois now has public debt of more than $130 BILLION. Unlike the federal government, our state cannot simply create new money to pay its bills. At some point — and that point is very near — investors will no longer be willing to lend money that cannot be repaid.
Perversely, the problem is so huge that our politicians won’t acknowledge this true "elephant in the room." So let me say it loud and clear: The Emperor Has No Clothes. Illinois is Broke. And there’s no way public pensions will be paid — unless huge changes are made. And that’s The Savage Truth.
Illinois Is Broke
Inquiring minds are looking at Illinois Is Broke, a website mentioned in the above article.
By July, Illinois will be $130,000,000,000 in debt. This crushing load hampers the state’s ability to fund public schools and universities, health care, and other essential public services. Most of that money is owed to the state’s pension funds and retiree health care plans. And YOUR SHARE of that debt is $25,000 per household.
How did this happen? Basically, Illinois spends $3 for every $2 it takes in. Only in Springfield is this kind of math possible. The state accomplishes this by borrowing or by simply ignoring its unpaid bills. And it has been doing so for years.
Here are a couple charts from the site. Click on either charts to see a sharper image.
Pension Underfunding
Illinois Budget Gap
California Here We Come Right Back Where We Started From
In what cannot possibly be a surprise to anyone, California braces for repeat of last fiscal crisis
Last year, California furloughed state workers, froze spending on public works projects and issued IOUs to state contractors, becoming the poster child for fiscal disasters undercutting state budgets across the country.
This year’s forecast: more of the same_ unless Gov. Arnold Schwarzenegger and state lawmakers learn to get along.
"Here we go again," said state Controller John Chiang, warning lawmakers that the state will run low on cash this spring unless they make adjustments in the weeks ahead.
California is falling $6 billion short of the revenue it needs to fund basic programs in the current fiscal year and is projected to be short by another $14 billion in the fiscal year that starts July 1.
The emergency budget session, called by Schwarzenegger, will not tackle the entire $20 billion deficit that is projected over the next year and a half. It will target the $6 billion shortfall in the current year, leaving longer-term funding for core services such as public schools, colleges and health services in a state of uncertainty.
Democrats are searching for ways to sidestep the rule that requires a two-thirds vote of the Legislature for tax increases and to pass state budgets.
The state’s largest teachers union is backing an initiative to close business tax loopholes.
Pension Proposition
California desperately needs a state proposition killing defined benefit pension plans for public sector employees. It also needs prison reform. Hopefully someone will act before it’s too late.
The last thing California needs, indeed the last thing any state needs, is to accept advice from teachers’ unions, or for that matter unions in general.
Advice
If a public union wants you to vote for something, and you are not in a public union, you better not vote for it because it will cost you taxes up front, and still more taxes down the road, with the union whining for even bigger handouts all along the way.
