EXODUS

It's not just going to be businesses.  Illinois is so screwed.

When he was campaigning for the Illinois governor’s office, Democrat Jay Pritzker promised to confront the state’s many fiscal problems without cutting rich public-employee pension benefits or raising taxes on millions of residents. Now it’s clear how Pritzker planned to work this miracle. Last week, he released his first set of fiscal proposals for an “honest” budget, which relies on hundreds of millions of dollars of taxes that he’s not authorized to levy. The plan also resorts to a traditional Illinois budget maneuver—pushing pension payments further into the future, which will reduce the retirement system’s already-anemic funding status and raise the risk of insolvency. The governor’s long-term solution to the pension crisis, meantime, includes selling unidentified state assets to raise funds, a plan that one Chicago Tribune columnist described as “more smoke and mirrors.” Overall, it’s a budget that says to the average Illinois citizen: “Don’t worry, be happy. This won’t hurt a bit.”

Pritzker faces a $3.2 billion budget deficit, but he’s proposing little in the way of cuts to fill that hole. His biggest saving amounts to a fiscal maneuver to reduce the funding goal for the state pension plan from 100 percent to 90 percent and extends by seven more years the schedule for paying off the debt. Doing that will trim $878 million off next year’s pension payment. While 90 percent funding must sound reasonable to any Illinois resident (the system has only 40 percent of the money it needs right now), the lower goal is just a way of avoiding fiscal reality and, in the process, raising the risk that the system runs out of money.

The state can’t make any headway on its pension debt because nearly two-thirds of what it’s promising employees is supposed to come from investment returns on money that was never put away. Specifically, Illinois is missing about $135 billion, and that’s a whole lot of investment returns that the state isn’t getting when the market booms. The less money Illinois puts in now, the more investment revenue it forgoes, and the bigger the burden that falls on the taxpayer. There’s no evidence from around the country, where government retirement debt is piling up even in states that make their pension contributions in full, that Pritzker’s approach will end well.

Nevertheless, the governor refuses to amend the Illinois constitution so that the state can reduce the rate at which current government workers—whose unions heavily backed him—earn pension benefits. Changing the current system would slow down the accumulation of new pension obligations and channel the savings into paying off the debt. Without benefit cuts, the state will have to pay about $9 billion a year—nearly one-quarter of current revenues—to begin fixing the system. And it will need to make that kind of outlandish payment annually for about 30 years.