Thursday, September 03, 2015

Illinois' Death Spiral

Decades of one-party rule in Springfield and Chicago have produced such a fiscal basket case that higher taxes may no longer be an answer to keep the state and its largest city afloat. Nonetheless, that's the solution of choice Mayor Rahm Emanuel is asking his city's residents to swallow, and its the preference for the state's Democratic-controlled legislature. Emanuel is now asking his city council, all of which are members of his Democratic Party, to approve a half billion dollar increase in property taxes, the largest property tax increase in the city's history. And the tax increases don't end there. Emanuel also wants to impose a new garbage tax collection tax, a new tax on taxi fares, including the increasingly popular Uber ride service and new taxes on electronic cigarettes and smokeless tobacco products. All of these tax increases are needed the mayor says just so the city can afford to make a pension payment that is due next year for police and firefighters.

Chicago, like the state of Illinois and a number of other local governmental entities in the Land of Lincoln, has been borrowing money every year to plug a perennial budget hole because government employees were granted more generous pension benefits than state and local governments could afford to pay. The proverbial chickens have now come home to roost. Legislative attempts to cut pension benefits have been struck down by the Illinois Supreme Court, which says the state's constitution doesn't permit lawmakers to cut pension benefits once they've been offered to public employees regardless of whether there is money to pay for them. For years, lawmakers have kicked the can down the road by issuing bonds to cover pension payments it couldn't afford, along with tax increases. The state's Supreme Court has backed the politicians into a corner to force them to raise taxes to the levels it will take to support the pension plans they've approved over the years since both the state and Chicago officials have stretched their borrowing authority to a point of no return.

The state is now three months into a new fiscal year, and the Republican governor, Bruce Rauner, and the state's Democratic controlled legislature have yet to reach a budget agreement. A temporary income and corporate income tax adopted under Rauner's predecessor to help close the budget hole expired on January 1. Rauner has insisted on budget cuts to close the budget hole because he fears higher taxes will only escalate the exodus of businesses and residents out of the state to avoid paying ever burdensome taxes. The state is facing a federal court order to restore payments to providers of care for those with disabilities and the state's lottery has stopped making payments to large lottery winners while the budget mess gets sorted out. It doesn't take a rocket scientist to figure out that both Illinois and Chicago have entered a death spiral and bankruptcy might be the only practical solution to get out from under debt obligations they can't possibly make up for by simply raising taxes again and again. Indiana residents can take solace in the fact that whatever misgivings they might have about its own elected leaders they have managed our state's fiscal affairs much better than our neighbor to the west.


Anonymous said...

Indiana has a bad cop problem, as well, and has already been forced to raise taxes to cover it.

Police are simply not due a pension. It's an outrageous benefit that taxpayers should never be forced to pay. We won't pay it. We don't have pensions for ourselves.

Indiana already commits far too much of its revenue to cover this unconscionable benefit, and this benefit reduces funding for proper government services. Eventually, police pensions will cripple Indiana, as Illinois, though the scale of the state gives us a doomsday a bit further out.

Put police on a 403b plan, and let them fund their own retirement.

It's not too difficult to imagine what might happen if the economy collapses and people are homeless. The people could easily conclude that they should confiscate the houses of anyone who received a government pension, as that pensioner's house was bought by the people and belongs to the people.

Illinois should default on cop pensions. If the judicial branch wants to be the executive branch, as well, let it.

Anonymous said...

In reading your legal argument, Illinois has a big problem, as states can't declare bankruptcy. There's no chapter for states in the bankruptcy code, as states are sovereign, and state bankruptcy would violate principles of federalism.

Will Obama nationalize police pensions? Will every American be forced to pay for Illinois' outrageous and bloated cop pensions?

Eric Morris said...

But the cops clean up what Planned Parenthood couldn't snuff out before it became a problem.

Gary R. Welsh said...

Congress can and has before allowed states to declare bankruptcy. Indiana did it in the 1840s, along with a bunch of other states. Arkansas did it in the 1920s.

Anonymous said...

Ha, ha, Indianapolis.

Brady won.

No suspension.

Anonymous said...

I notice 7:58 does not mention Firemen or Teacher pensions or how about all the Union pensions and benefits that ultimately cost the public via higher costs for such things as automobiles. Must have had a bad police experience and just wants to call Ghost Busters when in trouble....???

Josh said...

I wonder what their cafr has to say about this?

Pete Boggs said...

Nice pick up Josh.

Anonymous said...

In the future, and not too far, you will be able to search and replace all Illinois references with Indiana.