Coalition: State faces 'financial Armageddon'

But are voters paying attention?

Wednesday, September 15, 2010

Illinois is facing “financial Armageddon,” in the words of one of the organizers of the Illinois is Broke campaign.

But it’s also a problem that’s “not terribly sexy,” so the fear is that voters are not paying attention — even though there is $162 billion in unfunded state debts, said R. Eden Martin, president of the Civic Committee of the Commercial Club of Chicago. He spoke to a crowd of 35 Monday at an event organized by the Kankakee Regional Chamber of Commerce
at Olivet Nazarene University’s Weber Center.

The Civic Committee heads the nonprofit coalition
Illinois is Broke. The Civic Committee has a 140- year history of tackling thorny community problems, but it steers clear of political affiliations or endorsements.

Martin told the group that Illinois faces its largest budget deficit in history, basically spending $3 for every $2 it takes in. The key problem is the gap between pension liabilities and pension funding.

He said that the $162 billion Illinois debt breaks out this way: $79 billion in unfunded pension liabilities; $40 billion in promised health care for retirees without enough money to pay for it; $28 billion in money that must be paid back from previous borrowing; and another $15 billion in fresh borrowing.

For years, Illinois has assumed that investments in its pension funds would grow at 8.5 percent — 4 percent a year would have been a lot more realistic.

“There’s a thought that this has just come up because of the slumping economy,” he said. Actually, the state’s pension plans have been in trouble for years, he said. The combined unfunded liability for pensions was $14 billion in 1998, $33 billion in 2002, $51 billion in 2006 and $79 billion in 2009.

With only 47 cents for every dollar of pension benefits promised, the Pew Research Center estimates that Illinois’ pension funds are in the worst shape in the nation. About 1 out of every 20 Illinois residents either receives a pension through one of the state’s five public pension systems, or is making payments toward their public pensions.

Martin said that it has not been a problem of employees, who have made their contributions. Instead, it is the state chronically underpaying for years.

Martin also said that it’s a myth that the state will be entirely on the hook if the pension funds run out. Although the case has never been tried, Martin said there’s a legal opinion that indicates the state is not liable if the funds are exhausted.

It’s a bleak picture and maybe another reason why the voters aren’t paying enough attention.

Yet, Illinois is Broke is encouraging citizens to write letters to legislators urging them to take action. The letters do not recommend any particular solution but encourage legislators to make “common-sense reforms.”

Martin said the state’s financial problems were creating a “crowding out” effect. Borrowing to pay and interest on past bills is sapping money needed for current
programs.

It was a view confirmed by Steve Mitchell, director of the Kankakee County Training Center, which provides training and employment for 400 individuals with developmental disabilities. About 80 percent of the KCTC budget comes from the state. Right now, Mitchell said, KCTC is on an “expedited” list, meaning it is receiving payment it was owed in February.

“Can we get the legislators to take a basic course in finance?” Mitchell asked.