How the unfunded pension liabilities of government unions are destroying Illinois
I've written several articles on the pension crisis in America over the last few years, including the issue of states hiding their unfunded pension liabilities that threaten to destroy states' fiscal position.
Nowhere has this been truer than in my home state of Illinois. The situation can no longer be kept from the taxpayer, as the Wall Street Journal explains:
llinois is an object lesson in why firms are starting to pay more attention to the long-term fiscal prospects of communities. Early last year, the state imposed $7 billion in new taxes on residents and business, pledging to use the money to eliminate its deficit and pay down a backlog of unpaid bills (to Medicaid providers, state vendors and delayed tax refunds to businesses). But more than a year later, the state is in worse fiscal shape, with its total deficit expected to increase to $5 billion from $4.6 billion, according to an estimate by the Civic Federation of Chicago.
Rising pension costs will eat up much of the tax increase. Illinois borrowed money in the last two years to make contributions to its public pension funds. This year, under pressure to stop adding to its debt, the legislature must make its pension contributions out of tax money. That will cost $4.1 billion plus an additional $1.6 billion in interest payments on previous pension borrowings.
Business leaders are now speaking openly about Illinois' fiscal failures. Jim Farrell, the former CEO of Illinois Toolworks who is heading a budget reform effort called Illinois Is Broke, said last year that the state is squandering its inherent advantages as a business location because "all the other good stuff doesn't make up for the [fiscal] calamity that's on the way." Caterpillar, the giant Peoria-based maker of heavy construction machinery, made the same point more vividly when it declined in February to locate a new factory in Illinois, specifically citing concern about the state's "business climate and overall fiscal health."
Chicago Mayor Rahm Emanuel recently made the point that "You won't recruit a business, you won't recruit a family to live here" because taxes are going to be so high, it will make running a business or living in the state a nightmare.
Case in point, in next door Indiana, debt per person for unfunded health care benefits is $81. For an Illinois resident, it is $3,399. Where would you rather live?
The crisis is not confined to Illinois, of course. California may be even worse:
Executives at Stasis Engineering, a formerly Sonoma, Calif.-based auto design firm that left the state for West Virginia in the midst of an unfolding budget crisis in 2009, told the Press Democrat newspaper that the "budgetary bedlam gripping Sacramento" seemed to portend, as the paper characterized the company's concerns, "a future filled with tax increases and service cuts." More recently, in December 2011, Ron Mittelstaedt, the chief executive of Waste Connections, a recycling company formerly based in Folsom, Calif., told the press that the state's "structural [budget] mess" was a contributing factor in its decision to relocate to Texas.
A fiscal crisis of massive proportions is coming and most citizens in states where it will hit hardest are completely unaware of the tsunami of new taxes that will be needed to pay for the profligacy of unions and state legislatures when it comes to public employee health care and pension costs.
It wouldn't be a bad idea to check on the situation in the state where you live and decide whether you need to take a serious look about moving elsewhere.