OPINION:
In a normal, minimally competently run state, the adoption of the state’s budget is news among the ads for toenail fungus cures on Page 12, along with the usual items about dog biting man. Setting budgets, after all, is a routine responsibility of the state, like building roads and keeping the public schools open. Alas, that’s more than residents of Illinois can expect.
So it was front-page news when the state legislature finally adopted a budget, over the veto of the Republican governor, Bruce Rauner. Individual income taxes will be increased from 3.75 percent to 4.95 percent. The corporate tax rate will increase from 5.25 to 7 percent. The tax increases accompany cuts in the budget of about $3 billion.
The budget cuts are welcome, but won’t do much to stop the bleeding in a state that has piled up unpaid bills of $15 billion. Illinois now issues IOUs instead of actually paying the money it owes. Everybody tries not to talk or think about the state’s $251 billion in unfunded pension liabilities, as measured by Moody’s Investors Service, which rates bonds and investment risks.
Official profligacy is not restricted to Illinois. Two other prosperous states, each among those with highest personal income, face budget disasters. Connecticut has been systematically underfunding its pension fund for state workers since 1939, two years before the beginning of World War II. Moody’s says that with Connecticut’s enormous fixed pension and retiree health care costs, 30 percent of the annual state budget is consumed each year even before the legislature convenes. That’s the highest percentage of fixed costs of any state.
New Jersey, where Chris Christie, the governor, took his family sunbathing in a state park which he had shuttered to the public due to the state’s budget woes, faces a $527 million revenue shortfall, and if trends continue that deficit will balloon to $3.6 billion by 2023. The predicable culprit is unfunded pension liabilities, which Pew Charitable Trust calls the worst such example in the nation. Unless serious reforms are taken, an ever larger percentage of the state budget will have to cover lavish promises of yesteryear.
What’s particularly painful about the budget woes in Illinois is that they are happening even as the general economy does well. Budget accountants expect such suffering during recessions, but not when the economy is humming and unemployment is low. Indeed, in May, Illinois reported its lowest unemployment rate in more than a decade, at 4.6 percent.
Yet because of corrupt and incompetent governance, Illinois wildly overpromised to state employees and retirees. The state fell into the bad habit of making overly optimistic projects for the returns its pension funds would enjoy. The result is a budget disaster that even in a healthy economy the state couldn’t grow its way out of. There’s an unhappy moral here for everyone.
Please read our comment policy before commenting.