Illinois Pension Benefits, Other Promises, and Insolvency

Mike Mish Shedlock

Let's take a momentary reprieve from Italian insolvency to discuss the sorry state of affairs in Illinois.

WirePoints asks: Will Illinois budget negotiations reverse the 10 trends dragging Illinois toward insolvency, or simply perpetuate them?

This a guest post from WirePoints. I will skip the blockquotes and instead note the end of the article.

By Ted Dabrowski and John Klingner

With just days left for Illinois legislators to agree to a new state budget, don’t expect them to make the tough decisions necessary to reverse the direction the state is in. After all, it’s an election year.

The media is reporting that all is quiet on the negotiating front, which confirms no real reforms are being debated. Illinoisans can expect the same financial and accounting gimmicks to keep the state’s financial games going.

The decline in Illinois has gone on long enough – certainly long enough to know the status quo isn’t working. To demonstrate, we’ve put together a list of trends that capture much of Illinois’ collapse.

The list could be much longer and more depressing, but the ten items below show the sort of reforms lawmakers should be adding to the budget.

Ten trends

The first four trends revolve around the state’s chronic budget deficits. Illinois’ budget is being swallowed by out-of-control Medicaid, pension and state worker costs that far exceed Illinoisans ability to pay for them.

1. Medicaid. Medicaid is supposed to be a safety net for our most vulnerable populations – children, seniors and disabled adults. They should be our priority. Instead, enrollment in Medicaid has ballooned to include 3.1 million Illinoisans – nearly 25 percent of the population. The program is now collapsing under its own weight and those being squeezed out of access to health care are, ironically, Illinois’ most vulnerable.

Booming enrollments, including 675,000 able-bodied, single adults, have led to booming expenditures. Medicaid spending more than doubled between 2000 and 2018 and now consumes more than 20 percent of the state’s general budget. Medicaid, combined with ever-rising pension costs, threatens to bankrupt Illinois.

Lawmakers should scrub the Medicaid rolls to ensure only eligible people receive services, request a block grant from the Federal government, and implement work requirements for single, able-bodied adults so Medicaid can focus on those most in need. Most importantly, Illinois needs jobs and a thriving economy. Financial independence is the best way to get people off Medicaid.

2. State worker salaries. State AFSCME worker salaries continue to grow in good times and bad. Meanwhile, the private sector earnings that pay for state workers have stagnated.

State worker salaries grew more than 40 percent between 2005 and 2015, the last year AFSCME had a contract with the state. During that same period, median private-sector earnings in Illinois grew only 11 percent, half the rate of inflation.  

The governor’s last, best contract offer to AFSCME – which calls for a salary freeze and for workers to pay for 40 percent of their healthcare costs – would cut down on the disparity between state worker compensation and taxpayers’ ability to pay for those benefits.

3. Pension promises. Total pension benefits owed to state workers and retirees are swampingthe Illinois economy and taxpayers’ ability to pay for them. Benefits grew 1,061 percent between 1987 and 2016. That’s eight times more than household income growth (127 percent) and nearly ten times more than inflation (111 percent) over the period.

A full fourth of the state’s general budget now goes to pay for pension costs. And according to projections, things will remain that way for the next 25 years.

Salary freezes, headcount reductions, consolidation of governments, the elimination of pensionable perks, and restructuring/bankruptcy options – all need to be implemented until a constitutional change can be made.

4. Unpaid bills. Illinois politicians have spent more than they take in year after year. It’s why Illinois has been running an unpaid bill backlog since at least 2001, the last time Illinois had a truly balanced budget.

Unpaid bills reached as high as $9 billion in 2013, three years before the recent budget impasse even began. At their peak, unpaid bills hit a high of $16.7 billion.

Today, the backlog is back below $10 billion, but don’t let that number fool you. It’s only lower because the state borrowed $6 billion from the bond market to pay down the bills. In the end, the state borrowed from the mortgage to pay down the credit card.

The next three examples revolve around keeping people in Illinois. People are finding it hard to stay due to a lack of jobs, growing tax burdens and high education costs.

5. Manufacturing: Since 2000, Illinois has lost more than 300,000 manufacturing jobs, or nearly a third of its manufacturing base, to other states and countries.

Since the Great Recession, Illinois has recovered just 24,000 manufacturing jobs. Meanwhile, Wisconsin and Indiana, both half the size of Illinois, have recovered over 56,000 and 96,000 jobs, respectively. Michigan has recovered 150,000 jobs.

Every day that lawmakers refuse to pass commonsense reforms to workers’ comp, property taxes and labor rules is another day Illinois becomes less competitive compared to its neighbors. And that means fewer good middle- and working-class jobs for Illinoisans.

6. Property taxes. Illinoisans’ incomes have been stagnant for years. Between 2000 and 2015, median household incomes increased by just 24 percent, far short of inflation. In contrast, total property taxes across the state have grown 100 percent over the same time period.

The average property tax bill now consumes 6.7 percent of household incomes. That’s up 55 percent compared to 2000. It’s why Illinoisans now pay the highest property taxes in the nation.

Lawmakers can cut tax burdens by enacting a comprehensive property tax freeze. The freeze should remove burdensome state mandates on localities and give communities control over their retirement systems.

7. Higher Ed tuition. A near doubling of higher ed tuitions are pushing thousands of Illinois students out of state each year. In 2014 alone, The New York Times reported Illinois lost a net 14,000 students. That year’s loss was part of a long-term trend.

High tuitions aren’t due to a lack of state funds. The state appropriates far more to higher ed than its neighboring states do. Instead, they’re using tuition dollars to fund more high-paid administrators. Since 2005, the number of university administrators in Illinois has grown 26 percent even as student enrollment has dropped 3 percent.

Too many administrators, executive style pay and excessive pensions are pushing up higher ed costs. Keeping students – Illinois’ future – in the state means bringing down those costs in line with peer states.

The last three trends demonstrate the impact of Illinois’ decline. Nothing better captures Illinois’ collapse than the state’s collapse toward a junk rating. Except, of course, the fact that residents are leaving in droves.

8. Credit downgrades. Illinois’ credit rating has been downgraded 21 times by the big three rating agencies since 2009. It’s clear they don’t like what politicians are doing, and yet politicians continue to do the same things.

Illinois was already the nation’s worst-rated state by 2010. Today, it’s just one notch away from being the nation’s first ever junk-rated state.

9. Outmigration. Residents have been leaving at an alarming rate to find better opportunities in other states. From 2000 to 2017, Illinois lost a net of more than 1.3 million people to other states. That’s the equivalent of wiping Aurora, Rockford, Joliet, Naperville, Springfield, Peoria, Elgin, Waukegan, Cicero, Champaign and Bloomington off the map.

It will only get worse without reforms. A 2016 survey by the Paul Simon Institute found that 47 percent of Illinoisans polled said they want to leave the state. Their number one reason for wanting to leave? Taxes.

10. Population loss. What’s worse, domestic outmigration has reached such a high level that births and international immigration no longer offset those losses.

Illinois’ total population has now shrunk four years in a row. That’s a sad distinction shared only with West Virginia.

All the facts above point to a state in steep decline. The single fact that Illinois has actually lost population four years in a row is evidence enough that Illinois is in deep trouble.

Yet all politicians do is offer Illinoisans more of the same. Overborrowing, overspending, higher taxes and corrupt budget practices haven’t turned around Illinois. It’s time to try the opposite.

Ted Dabrowski and John Klingner

Mish Comments

The Chicago Fed solution for Illinois is to raise property taxes to cover pension payments.

On May 12, WirePoints noted Three Chicago Fed Say Economists Say They Know How To Tax Illinoisans Fleeing Pension Liabilities.

Somehow I failed to report on that story by Mark Glennon.

That proposal led to a gasp in the room when the Chicago Fed made the proposal because Illinois suffers from a population exodus and already has the highest property tax in the nation.

Mike "Mish" Shedlock

Comments (16)
No. 1-16
Tengen
Tengen

I grew up in the rust belt in Ohio and can attest that Illinois' future is bleak. Even after people admit the severity of the crisis and start fishing for "solutions", nothing really changes.

In this highly financialized economy there are only a few places where Fed money flows freely and these tend to coincide with places professionals want to move. If you're not a destination, your future is a stagnating, aging population and brain drain.

My mother's hometown (Canton, OH) hit upon the happy idea to build a small city around the pro football hall of fame. That's right, even though the NFL has peaked (controversies and concussions aren't going away) and even though nobody wants to spend time in Canton, they want to be a Mecca for football fans. This is their only real plan to date and they intend to ram it through because there is no Plan B. It has no chance of success but they were sliding into the abyss anyway. My grandparents' big old house I ran around as a kid until they died around 35 years ago, is now in a ghetto and most recently listed at around $40K. That's not a typo- I didn't mean four hundred, I meant FORTY.

Some of the Ohio cities bent over backwards to bid for Amazon HQ2, offering everything they possibly could, and couldn't garner even slight consideration. In reality they were never candidates at all, but Bezos had a little fun pretending anybody could win, plus blunt honesty would be bad for optics.

Hope you get to leave Ill soon, Mish. I left OH 15 years ago and it looks more depressing every time I return to visit. When Chrissie Hynde famously lamented that Akron was "gone" back in the early '80s, she hadn't seen anything yet.

lol
lol

half the population don't work,that'll 2/3 by 2020,vast majority of folks receive some kinda check from big gov 1st of the month,handout from big gov,subsidy from big gov,entitlement from big gov,point is it's a national problem,other than welfare and gov't US produce nothing,it is what it is!

FlyOver_Country
FlyOver_Country
Tengen
Tengen said: I grew up in the rust belt in Ohio and can attest that Illinois' future is bleak. Even after people admit the severity of the crisis and start fishing for "solutions", nothing really changes. In this highly financialized economy there are only a few places where Fed money flows freely and these tend to coincide with places professionals want to move. If you're not a destination, your future is a stagnating, aging population and brain drain. My mother's hometown (Canton, OH) hit upon the happy idea to build a small city around the pro football hall of fame. That's right, even though the NFL has peaked (controversies and concussions aren't going away) and even though nobody wants to spend time in Canton, they want to be a Mecca for football fans. This is their only real plan to date and they intend to ram it through because there is no Plan B. It has no chance of success but they were sliding into the abyss anyway. My grandparents' big old house I ran around as a kid until they died around 35 years ago, is now in a ghetto and most recently listed at around $40K. That's not a typo- I didn't mean four hundred, I meant FORTY. Some of the Ohio cities bent over backwards to bid for Amazon HQ2, offering everything they possibly could, and couldn't garner even slight consideration. In reality they were never candidates at all, but Bezos had a little fun pretending anybody could win, plus blunt honesty would be bad for optics. Hope you get to leave Ill soon, Mish. I left OH 15 years ago and it looks more depressing every time I return to visit. When Chrissie Hynde famously lamented that Akron was "gone" back in the early '80s, she hadn't seen anything yet.

I agree northeast Ohio is not doing well but not all of Ohio is in economic turmoil. Columbus is doing just fine, thank you.

Tengen
Tengen

I lived in Columbus a bit too. It's a boring midwestern town devoid of character other than the Short North and the area around OSU. I always thought both Cleveland and Cincinnati had far more charm even though they're poorer.

Fun fact- I went to school with one of Taft's guys involved in the Coingate scandal. Seeing the state lose tens of millions by misplacing coins and gambling on Beanie Babies was a proud moment for all of us.

MissionAccomplished
MissionAccomplished

Outmigration?

Meh, let me know when they put up a wall to keep the cattle in. The left are currently plumbing the depths - they have a long way to go.

Snow_Dog
Snow_Dog

May I ask why there hasn’t there been a paywall erected on this blog site? Mr. Shedlock, how dare you!

The nerve of you hosting this site from within geographical boundaries of IL and not being monetized on behalf of the state. Workers are barely making it, children are suffering, schools are using old books in dirty buildings, lotto winners aren’t even being paid, etc. and there you are, opining about economic matters with a bunch of strangers.

The hubris, the audacity, the bold faced presumption of you to think that Illinois owes you something!

sarc.

jivefive99
jivefive99

Perhaps inflation is indeed running amok, and Federal numbers are prevented from reflecting that. Maybe high state salaries and pension benefits and medical care ARE the reality/necessity. But the government and the wealthy would be worse off if such numbers like 6% inflation or 8% inflation were to be communicated to the public. So the Fed keeps rates artificially low, which keeps bond prices high, which benefits the wealthy who own the bonds. The wealthy are the ones that decide how America will be run.

CautiousObserver
CautiousObserver

Re: Three Chicago Fed Say Economists Say They Know How To Tax Illinoisans Fleeing Pension Liabilities...“New taxes wouldn’t affect people thinking of moving to Illinois. While they would have to pay higher property taxes, that would be offset by not having to pay as much for their new homes. In addition, current homeowners would not be able to avoid the new tax by selling their homes and moving because home prices should reflect the new tax burden quickly.”

It is pretty remarkable that any self-respecting economists believe imposing onerous property taxes and lowering property values will help the state pay its bills. That’s a clear path to ruin. For evidence of that, all they need to do read about current events in Venezuela.

flubber
flubber

Honest question to those that live in Illinois. Are most of Illinois' problems caused by those in the Chicagoland area? Chicago is the big driver of population, industry, finance, sports etc. I think south of the Chicago area there is a lot of fertile agricultural land with a very sparse population as compared to Chicago. Sounds like a Red vs. Blue problem to me, but I don't live there.

AWC
AWC

Ya gonna vote for big spending politicians? Then, quityurbitching about the necessity of higher taxes to pay for it. Pretty simple. As long as spending has no consequences, it won’t be curtailed.

RonJ
RonJ

Apparently, crash and burn is the only acceptable solution to the politicians.

AWC
AWC

The lure of a free lunch brings ‘em out to the polls in droves.

AWC
AWC

@flubber, Red vs. Blue? Take a look at the Federal Budget under various bicolored administrations and get back to me on that. More like a “Four legs good, Two legs bad” problem, maybe?

AWC
AWC

Solution? A balanced Budget law, incorporated with a mandatory itemized tax bill. Just to remind folks what they spent their money on ;-)


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