For years, Illinois has racked
up billions in public debt to plug budget holes, pay overdue bills, and put
money into its mismanaged pension funds. And for the people who live there,
this has resulted in decrepit commuter trains and buses, thousands of unsound
bridges, 200 hazardous dams and one of the most inequitable public school systems
in America.
Those are the conclusions of a new examination of Illinois’
finances by the State Budget Crisis Task Force, which was released Wednesday.
The group, led by the former
Federal Reserve chairman, Paul A. Volcker, and the former New York lieutenant
governor, Richard Ravitch, recommended an overhaul of Illinois’ budgeting
practices, to make it harder to kite money from year to year and raid
special-purpose funds. It also warned that tax increases may be in store.
“It would be better for
Illinois to start on a long-run path to a sustainable budget than to live
beyond its means for several more years and then face a sudden, painful
reckoning,” the task force said.
Illinois has the lowest credit
rating of the 50 states and has America’s second-biggest public debt per
capita, $9,624, including state and local borrowing. Only New York State’s debt
is bigger, at $13,840 per capita. But Illinois has not been able to use much of
the borrowed money to keep its roads, bridges and schools in good working
order, because years of shoddy fiscal practices have taken a heavy toll, the
report said.
“Illinois has been doing back
flips on a high wire, without a net,” the task force said in the report, which
was issued in Chicago.
The task force has been
examining the finances of
the states out of a concern that huge fiscal problems at the state and local
level are being overlooked as the election-year debate in Washington focuses on
the federal debt and deficit.
Nearly two-thirds of the
Illinois state government’s $58 billion in direct debt consists of bonds the
government issued to cover retirement payments for workers, including a $10
billion pension obligation bond that broke all previous records in 2003.
Yet despite all that
borrowing, Illinois’ public pension system is still in tatters. In fact, its
total pension shortfall is conservatively estimated at $85 billion. Recent
changes that raised the retirement age for new workers and limited the pensions
that future workers can earn have not reduced the existing obligations.
The task force said that
further reductions in pension benefits appear inevitable, though legally
difficult, because the state has promised more than it can deliver.
While many states have heavy
debt burdens and unfunded pensions, the task force warned that Illinois’
problems had been building for decades and were advanced. The state was
“insolvent” even before the financial crisis hit in 2008, the report said, but
that was hard to detect because “budget gimmicks became a standard practice.”
During the 2001 recession, for
instance, the state started issuing a type of short-term debt permissible only
during emergencies, and within certain limits. But even after the recession,
the emergency borrowing continued. The money was used to pay overdue bills.
The task force noted that Gov.
Pat Quinn had inherited the insolvency from the previous governor, Rod R.
Blagojevich, who is serving a prison sentence for corruption. The $10 billion
pension obligation bond was issued on Mr. Blagojevich’s watch, and prosecutors
said at his trial that he had used the transaction to raise campaign money in a
pay-to-play scheme. The state paid a total $76.3 million in issuance fees, but
the pension fund ended up worse off than ever, because bondholders were
promised that the state would divert its pension contributions to pay their
interest.
Mr. Quinn has been trying to
push through some fiscal reforms, the report said, but he was running into
intense opposition at nearly every turn. In August he warned that by 2016,
Illinois will be paying more for public pensions than for education, and he
called back the legislature for a special pension session. But lawmakers
rejected his proposals.
Time appears to be running out
for a relatively painless fiscal reform, the task force said. Besides a pension
system in desperate shape, the government faces decreasing transfers from the
federal government, the imminent expiration of a temporary state income tax
increase that was enacted in 2011, and escalating state Medicaid costs.
“Retirees may lose their
pensions as the funds dwindle, low-income and disabled people may lose their
health care as costs escalate, and citizens and businesses seeking a stable
environment may face steep and sudden tax increases,” the report said.
Illinois’ budget director,
Jerry Stermer said at Wednesday’s news conference that the state had made
drastic reductions in spending, which this year would be back to about the
level in 2008.
“This report is required
reading for every public official in Illinois,” Mr. Stermer said.
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