Controversial Public Pension Vote is Latest Chapter in Illinois’ Dismal Fiscal Saga

A state-by-state look at 2010 budget gaps. (Infographic by GDS Digital/Flickr)

Illinois’ fiscal crisis goes on and on.

The latest installment of this financial tragedy plays out this month as state lawmakers search for a way to meet an estimated $4 billion public pension payment due by yearend.

By any standard that’s a hefty pay out, but it’s an especially tough bill to foot for cash-strapped Illinois, which already owes about $6 billion in unpaid bills, faces a deficit approaching $15 billion, and is buckling under nearly $100 billion in long term pension obligations.

As a result of this fiscal meltdown, lawmakers are forced to consider some tough and equally unattractive options:

OPTION #1: Borrow big money
Later this month the Illinois State Senate will wrestle with the issue of selling state-backed bonds, which essentially act as a loan, to pay the legally required $4 billion pension obligation. Already this plan has been approved by the House and is backed by Gov. Pat Quinn.

But passage is not a slam-dunk in the Senate where a supermajority of 36 votes is needed for approval.

For the most part, few lawmakers relish the idea of tacking more debt on the state’s credit card even though five major employee unions, whose pension funds would receive the bulk of the bond proceeds, strongly support the rescue plan.

Democrats sympathetic to labor favor the borrowing package, but not every Dem in the upper chamber is on board.

Republican lawmakers are more solidly against the measure. They argue it’s irresponsible to add more debt when the state’s already awash in red ink.

Nevertheless, some Republicans have left the door open to the debt offering, provided it is attached to a strategic financial recovery plan that they can live with. The Quinn Administration says it favors “responsible” borrowing, including this controversial bond offering, which will pay out nearly $1 billion in interest before the bonds are retired within 10 years.

But the governor stresses this tactic is only one part of his comprehensive 2011 budget, which also calls for raising the income tax by 1 percent and using those proceeds for education funding.

OPTION #2: Don’t borrow
Not borrowing is also an option. Should lawmakers go that route the state would have to tap its other resources for the $4 billion—most likely taking it out of the estimated $26 billion that makes up the state budget’s general revenue fund.

There are consequences to this “Just say No!” approach, too.

Primarily, it means hollowing out the current budget by diverting $4 billion to pensions. That’s money meant to fund education, public safety, health care, and various other human services.

It would also further penalize the state’s vendors, who are owed nearly $6 billion in back payments and would be forced to wait much longer for their money.

Still, critics of the borrowing plan contend such belt-tightening is long overdue and that scuttling the bond issue would force Gov. Quinn and the General Assembly to get serious about making deep cuts.

The Quinn Administration favors “strategic” cuts—and claims to have already chopped $3 billion from the state budget—but does not favor taking $4 billion out of the budget to meet the 2011 public pension obligations.

There has also been some speculation about the state declaring a “pension holiday,” which would legally relieve the government from making the payment.

In reality, a pension holiday is a gimmick that would do nothing to ease the financial burden of meeting the pension obligation.

What’s more, failure to make the payment this year will boost the state’s public pension obligation another $25 billion over the remaining 35 years of the pension plan, according to figures cited by the Quinn Administration and the Commission on Financial Accounting and Government Forecasting.

OPTION #3: Increase revenues
If the state can’t cut $4 billion to cover pension costs, and it doesn’t want to borrow the money, then another option is to raise revenues—also known as a tax increase.

It’s unlikely that a tax increase will be approved before year-end, especially since House Speaker Michael Madigan, who controls a Democratic majority in the House, has repeatedly said that any tax hike will have to have bi-partisan support.

Another possibility? Expanding casino gambling.

A vote on the bond plan is expected to occur during the veto session, which begins November 16. Right now, no one knows how it will be resolved.

But one thing is certain: This end-of-the-year pension skirmish is just one more chapter in Illinois’ sorry financial story. There’s much more to come, so stayed tuned.

What do you think should be done?
Contact: Illinois State Senate President John Cullerton at: 773.883.0770 or go to www.senatorcullerton.com.

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