November 9, 2011

Illinois: From Worse to ‘Worster’; Ohio’s Not So Great Either

Filed under: Economy,Soc. Sec. & Retirement,Taxes & Government — Tom @ 8:06 am

Look just a couple of hundred miles west to see the consequences (HT Newmark’s Door) of failure to deal with the fundamental matters Issue 2/SB5 addressed before Ohio’s voters rejected it:

Illinois’ state budget … is in serious meltdown mode. Less than a year after the state raised taxes by some $7 billion in the face of a fiscal crisis, legislators in Springfield, whose government qualifies as the fiscal bad-boy of states, have done little to address Illinois’ long-term spending and borrowing problems.

Even while the state’s vendors wait up to a year for money they are owed, Gov. Pat Quinn is making sure that favored insiders get paid. The Securities and Exchange Commission is investigating whether Illinois exaggerated in bond offerings the savings it claims it will get from last year’s largely cosmetic pension reforms, which did little to fix the worst state pension problem in the country. And now the governor is actually proposing the state borrow even more, up to $5 billion, to clear up some of those back bills, which prompted an editorial from the Chicago Tribune under the simple headline: “No. More. Borrowing.”

… One result of the failure to fix pensions is that the system’s costs are eating up tax revenues, including from the tax increase. The state’s annual pension contributions are up by $2 billion since 2008, while debt service from pension obligation bonds, which the state floated several times in the last decade to prop up the system, have increased by $1.14 billion, according to the Civic Federation of Chicago. In all, pension costs consume $5.8 billion, or more than 17 percent, of all Illinois general fund spending. Those costs will rise by $500 million next year and $2 billion in five years without reform.

The state has also continued to issue markers to people it owes. The Civic Federation recently estimated that Illinois’ backlog of unpaid bills financed out of its General Fund will grow to $5.5 billion this year. That state has an additional backlog of some $2.8 billion in business tax refunds and Medicaid and employee health insurance bills, for a whopping $8.3 billion in outstanding invoices.

… Once you get on a treadmill like this, you can’t get off, it seems. The state’s bonded debt has increased to $30 billion from $9.4 billion since just 2002.

If you’re wondering, the Ohio’s state retirement system’s “funded ratio,” despite a very strong year of investment performance, is less than 60% (0.60). “Depending on risk aversion and the level of sophistication assumed for the DC-scheme, minimum acceptable funding ratios are between 0.87 and 1.20.”

Comment at the original link:

You know what would be really crazy would be to bring this Chicago show to DC.

OOOhh. Thats what we did.

Yikes, we are in deep trouble.

Yup. And so is Ohio, if the state’s political class on both sides of the aisle and its public-sector unions don’t get a grip.

UPDATE: Norma at Collecting My Thoughts has more.

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1 Comment

  1. [...] financial elements into law next year, because Ohio is not as far from becoming another disaster like Illinois as we might complacently like to [...]

    Pingback by BizzyBlog — November 11, 2011 @ 9:03 am

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