In the world of investment, Illinois’ credit rating is equal to the African nation of Botswana, where the per capita income is around $15,000. This comparison, though, is unfair to Botswana, which unlike Illinois enjoys a growing economy. After decades of Democratic rule led by public sector unions, Illinois is the dead-beat uncle of America’s states.
Illinois’ current credit rating is A-, the lowest of any state in the union, one notch about junk bond status. This dismal rating is driven largely by the state’s enormous pension costs. Currently, one in four tax dollars collected by the state go to plug its pension hole. This is more than the state spends on elementary education. The great wave of baby boomer retirements is only beginning, though.
Except for a couple years in the 1990s, Democrats have controlled the Illinois House for decades, acting as the personal legislative arm of Speaker Mike Madigan, who, in addition to running the state Democrat party is the father of the state Attorney General. In the state Senate, the Democrats have a supermajority.
The real power behind the Democrat majorities lies with public sector unions. Unions spend millions each year lobbying and electioneering for legislators. They place in power the people who will decide their compensation and benefits.
This has inevitably led to headline-grabbing scandals, where unions successfully lobby for a change in the pension system that allows officials who never taught a class to collect millions in teacher pension payments. As outrageous as these examples are, they are simply symptoms of a much more malignant disease.
Speaker Madigan and other lawmakers saddled taxpayers with a double-whammy on pensions. In order to plug the regular holes in the state budget, lawmakers have cut the state’s annual contribution to fund the pension system. In exchange for union acquiesce to the reduced contribution, lawmakers will often increase future benefits. The system is hit twice; lower payments to maintain current benefits and new obligations to meet future benefits.
The result is a pension system that is underfunded by $250 billion. This shortfall is equivalent to almost 40 percent of the entire state’s economy. Even the legislators’ own pension system is catastrophically underfunded, holding just 17 cents in assets for every $1 in obligation it owes.
The newly-elected Republican Governor, Bruce Rauner, talked tough about pensions on the campaign trail. As he prepares to take office, though, his rhetoric has softened. He says now it is important to “protect what is done — don’t change history.”
The courts in Illinois may enforce this exact position. Recently, a state judge struck down a modest change to pensions enacted recently by the legislature. The Illinois Constitution might bar any legislative changes to the existing pension system. Judges, of course, also receive benefits from the state pension fund.
Judges in Illinois haven’t ruled on what the Constitution says to protect taxpayers or those investors who hold state government bonds. What isn’t sustainable eventually stops. Democrat governance in Illinois is unsustainable. What happens now is up to the citizens.
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