Thursday, August 9, 2012

Illinois Politicians Play Sick Hot Potato and Kick the Can Shell Games With the State's Public Sector Pension Liabilities

The citizens of Illinois are learning a very valuable, albeit painful, lesson about government and economics. And that lesson is this; if we spend a dollar on one thing, we can't spend that same dollar on another thing.

Government has spent all the dollars it has to spend and then made additional promises about spending even more dollars that it doesn't have to spend. These non-dollars are in the form of public sector pension promises.

Government gets its money from taxpayers. In fact, government is taxpayers. Sometimes government/taxpayers borrow the money they spend and sometimes they tax to get additional money to spend. But in the end, they can spend only what they tax or borrow, leaving fees aside for now.

I believe in a society based on limited government which stresses the blessings of liberty, individual rights, free choice, capitalistic based competition and MOM. Government knows best politicians and union leaders believe in the goodness of collective government knows best decision making and OPM spending. That sounds like socialism to me.

Now the people and politicians of Illinois are embroiled in a huge dispute about where the money will come from to pay the pension promises for which the various school districts and the state have no money to pay.

In the end, of course, the taxpayers will pay whatever is paid, however it's arranged and agreed upon by the various parties. And if the state or district pays the pensions for both communities A and B, then the taxpayers from communities A and B will help pay for each other's pensions. And if the taxpayers of A are left to pay for A alone, then B will pay for B alone, too. All will pay; the only questions are how the payments will be apportioned between the various taxpayers and how large those payments will be.

One thing is absolutely certain, however. Neither the government knows best elitist politicians nor the union officials will pay for the financial tragedy they've created for teachers and taxpayers alike. They just create messes; they don't pay for them.

Thanks to my friend Sid for sending along the following editorial from the Peoria, Illinois  newspaper's eEdition on Page A04 today:


Don’t mistake movement for progress with state pension mess


Gov. Pat Quinn is not wrong that public pension reform must happen in Il­linois, and soon. He is not wrong that if nothing is done, state spending for yesterday’s obligations will crowd out support for today’s services — it al­ready is — which will spell very bad news for local school districts and just about any entity that relies on assistance from Springfield.

Where the governor is in error is in thinking the magic bullet is to move state government’s mess to others, specifically to local school districts, and that Springfield’s sins will be absolved by it. State Rep. Mike Unes of East Peoria is correct, “cost shift is not pension reform.” It’s like transferring the patient to a different doctor and declar­ing him cured.

In fact this crisis exists because the Legislature did not own the discipline or fiduciary responsibility necessary to make its required pension payments. Year after year — until those turned into decades — the state’s leaders did the wrong thing, not only failing to keep up with their commitments but digging the hole even deeper by mind­lessly sweetening pension benefits along the way. As a result those benefits are now too generous for the state treasury to accommo­date. They’re unfair to a private sector that does not enjoy comparable retirement ben­efits and is paying the vast majority of the state’s bills. Annual, automatic cost-of-living adjustments of 3 percent in particular are breaking the bank. All of that has led to an $83 billion unfunded pension liability that is the highest in the nation by far, and that may be a lowball figure given some arguably un­realistic return-on-investment projections.

No public employee wants to hear it, but the math just does not work, unless Illinois were to raise taxes so sky high that they would cripple the state’s economic com­petitiveness and likely lead to an exodus of talent and investment. The Legislature now has no other choice but to deliver substan­tive pension reforms, though from this vantage that has its limits. One does not see how legislators can constitutionally or in good conscience alter benefits for existing retirees, who made life decisions based on state government’s stated, contractual com­mitments that cannot be reversed now. It’s a different story for those currently in the work force, especially those in the first half of their careers. There will be a constitu­tional challenge regardless, but that should not paralyze legislators.

Unfortunately, Quinn continues to be something of a Johnny One Note on this issue in saying that shifting pension costs is the answer. He did it again Tuesday in Peo­ria, noting that “school districts like District 150 are much better off with pension reform phased in over the next 12 years than just standing still and doing nothing and getting their budgets cut by state legislatures year after year.”

“School districts like District 150” are not better off with another liability being added to a bottom line that already is in deficit. District 150 is not better off by coupling that added pen­sion responsibility with an 11 percent decrease in general state aid, along with a decline in property tax revenue due to falling local real estate values. District 150’s taxpayers are most assuredly not better off with the enormous property tax increase that is inevitably coming their way if this proposal flies through the Legislature and the governor signs it.

In fact, given the above “triple whammy,” this page cannot fathom why any Peoria­ area legislator would vote for it. Given that District 150 is hardly alone in suffering it, one can’t see how any downstate lawmaker could. This proposed solution is not leader­ship, it’s abdication.

That said, Quinn has a point that contin­ued inertia on pensions will doom District 150 and just about every other recipient of state dollars. The status quo is not an option.

The credit agencies are breathing down the state’s back. Certainly one can make a case, as some besides the governor have, that pension costs ought to be borne by the employer, so as to discourage the kind of recklessness with other people’s money that many a school board absolutely was guilty of over the years. So address the fundamental drivers of this pension crisis first, make pen­sions manageable again, then come back to talk with the locals.

But to take Springfield at its word now that if this pension transfer happens, all will be fine for schools in the future ... well, perhaps those in charge of state government don’t fully appreciate the zero credibility they have where delivering on their promises is concerned. One might add that the state’s budget problems don’t end with pension reform. Springfield has $9 billion in unpaid bills besides. Trust in Springfield has to be earned back on a variety of fronts.

Quinn has called a one-day special session for Aug. 17 in which two of the five pen­sion plans may be dealt with — for state employees and for legislators. It would seem unlikely that there would be comprehensive pension reform beyond that until after the election, though local legislators should be on guard, just in case."


We'll have more to say about this sick political shell game of hot potato and kick the can later.

The teachers and taxpayers will both suffer in the end and have to find a compromise which will make neither party happy. That's how compromises work.

That said, don't look for any help from the teachers' union and the government.

Over the years, these self interested and self dealing clowns disguised as "public servants" have already done more than enough to screw things up beyond any hope.

There can be no simple, pain free and easy remedy. There's not enough money for that.

Thanks. Bob.

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