Eaton: D.C. task force with latest sobering news for Illinois
By Fran Eaton Always Right/illinoisreview.typepad.com July 17, 2012 8:58PM
Updated: August 19, 2012 6:25AM
On one hand, you’ve got to chuckle. Why is it that there’s really not a crisis until the muckety-mucks in Washington, D.C., put together a report that deems it so?
Tuesday morning, a group called the State Budget Crisis Task Force released the “first-ever comprehensive report detailing threats to states’ fiscal sustainability and actions that can be taken to address them.”
The group, led by former New York Lt. Gov. Richard Ravitch and Paul Volcker, a former chairman of the Federal Reserve, held a news conference in the capital to announce its findings, part of which was that Illinois’ finances are a mess. Not exactly a news flash.
The task force’s report is the result of a year of in-depth analysis, and it concluded that Illinois and other states have huge problems in their future, including that Medicaid spending is far outpacing what they’re taking in.
Here in Illinois, we figured that out a few years ago when state Treasurer Judy Baar-Topinka got into office and found the unpaid stack of bills that former Treasurer Alexi Giannoulias left on his desk when he decided to run for the U.S. Senate. Medicaid care providers were struggling to provide health care services, with Illinois up to nine months behind in paying invoices.
The better doctors began dropping Medicaid patients, deciding that they simply no longer wanted to deal with the hassle. Doctors gradually left the state, unwilling to carry huge malpractice premiums with no reform in sight.
The task force’s study found that pension funds in California, Illinois, New Jersey, New York, Texas and Virginia are underfinanced by more than $385 billion and retiree health benefits by more than $500 billion.
Again, not news to us in the Land of Lincoln. The General Assembly has been debating pension reform for the last year, with no cure-all ideas on the horizon. While state workers and teachers for decades have paid their share each year into their pensions, lawmakers chose to ignore the state’s pension obligations and spend tax dollars on more politically favorable purposes.
There was always that idea that the state could catch up on its pension debt sometime in the future, with another tobacco company windfall or a gambling expansion that would fill the gap. But the severe recession has made sure that won’t be happening by widening the pension gap to the size of the Grand Canyon.
The task force also says that the states’ tax revenue is eroding and becoming increasingly volatile. Costs of services are rising while property values plummet, reducing property tax revenue. Consumers, still shell-shocked by the recession, are spending less, meaning lower sales tax revenue for governments.
The end result is that local and state governments are cutting budgets by reducing services and laying off workers, but that huge unsustainable debt load remains. States are constitutionally banned from bankruptcy, but local governments are not. For some states, such as ours, the answer is one that many find problematic — dump as much debt as you can on local government.
Thus, the plan by those renowned guardians of the public purse, Gov. Pat Quinn and House Speaker Mike Madigan, to dump the state’s large pension liability for suburban and downstate teachers onto local school districts. Pat and Mike say the districts can cover the costs because many have reserve funds and the transfer will occur over several years.
But most school districts are not exactly flush with cash. To afford the pension costs, many will have to lay off teachers and support staff and encourage others to retire early, reduce salaries and programs and increase class size. They’ll raise student fees and their property tax levy and ask employees to boost their pension contributions, but as time goes by the financial pressures are likely to grow.
Eventually, some school boards will be forced to make a very tough decision — declare bankruptcy? Those representing districts in areas with little property tax base may have little choice. A bankrupt school district will have residents edgy with school officials and each other, businesses will close and financial disaster will cloud its future.
That reality must have hit Madigan after the 2010 Republican Revolution that put fiscal conservatives in charge back in D.C. The newly empowered U.S. Rep. Peter Roskam (R-6th) and his Illinois GOP colleagues wrote Quinn and Madigan, warning them that the new Congress would not allow a federal bailout of the debt-ridden state.
“States do not have proper tools to address these problems: their finances are opaque, they do not prepare multi-year financial plans, fully fund the costs of current services or fully disclose longer-term liabilities,” the task force’s report says. “They do not have adequate ‘rainy day’ funds and their budgeting approaches encourage them to patch budget gaps with temporary resources.”
The deeper one gets into the report, the less one feels like chuckling. It’s not funny at all. Illinois, like it or not, is indeed in financial crisis.
Fran Eaton is a Southland resident who co-founded and edits the conservative political blog, illinoisreview.com