Gonna have to let these guys go...
Posted on 01/29/2011 10:55:04 AM PST by SeekAndFind
The Illinois pension fiasco continues to plague the state with embarrassment and near-fatal fiscal consequences. Late Monday, January 24, Governor Quinn confirmed that the Illinois State Pension System and state officials connected with it are subject to an SEC investigation. According to Moody's Investor Service, the pension system is funded to only approximately 50% of the $136-billion liability. Even that shortfall is likely understated; it is believed to be closer to $150 billion. Furthermore, Moody's states that the underfunding is among the worst of states, resulting from frequently skipping contributions to the fund that were recommended by the actuaries.
According to the Wall Street Journal, the SEC inquiry focuses on statements concerning an overhaul measure passed in 2010 meant to shore up the system, but which thus far has failed to achieve the objective. Moody's went on to state that one issue being examined is the practice of taking future savings and treating them as current reductions in cost of the pension fund. The factor that initially drove SEC involvement was the $3.7-billion bond fund due to be issued in the next few weeks.
So now, following the eleventh-hour stunning, stifling, and job-killing personal and business tax increases from the lame duck legislators, we learn of likely, but not at all surprising, improprieties from those in the state who manage the pension system. What is even worse, we have a temporary tax increase plus a bond issue, defined as more debt obligations, that places only a Band-Aid on a gaping financial wound, deferring real reform of the underfunded and unsustainable state pension plan. If 2011 showed a $13-billion budget shortfall, imagine what 2015 will look like. With no reform of the pension plan such as lower benefits, later age of retirement, more working years, and increased employee contributions, the plan and the state will be further immersed in an ocean of red ink.
Speaking of job-killing measures, an obscure and unreported aspect of the lame duck tax hike on businesses in Illinois is the four-year moratorium on tax loss carry forwards. Tax loss carry forwards have long been part of the accepted tax policy at both the federal and state level, and they contribute to the improvement in the business outlook for any company exiting a period of financial losses of the past. This concept is an effort to level the cash flow and earnings of a company over the long term and encourage a business to grow and expand the workforce following a recession and past business losses. Placing this tax relief on hold is not the way to grow private employment as we creep away from a recession.
In addition to the highly visible pension liabilities owing to underfunding, the state continues to spend on questionable programs that are seemingly cast in stone and not subject to critical evaluation, much like most government programs, and base line budgeting, where present spending levels become the holy and untouchable grail and the starting point for future allocations. This Alfred E. Newman (of Mad Comics fame) "What, me worry?" mentality is responsible for the other $7.0-billion shortfall in the budget.
Imagine an enterprise that spends nearly 50% more than its revenue. Well, that enterprise is Illinois, and the price we pay for irresponsible legislators is high business and personal income taxes, a diminishing population, unacceptably high unemployment and underemployment, and businesses either moving out or investing elsewhere -- and most certainly avoiding new investments in the state. This scenario is actually a death spiral, and we are witnessing the same in New York, California, and, until the fresh thinking and reform from newly minted Governor Chris Christie, New Jersey. When we add the irresponsible behavior of the legislators to the systemic corruption of the political leaders in the house and senate, an Illinois recovery is mythical and unachievable.
Unless a top-to-bottom reform of major state spending and commitments is called for and imposed, there is no hope -- not even from a gradual national economic recovery. The damage inflicted from years of abuse, corruption, and irresponsible acts of past governors and legislative bodies is too severe and nearly irreversible. Elections have not done the trick, as we continue to receive the government we vote for. Therefore, let's end the misery now with a form of bankruptcy or court-supervised reorganization. For years, we have elected and sent in the clowns who are responsible for our miserable status. Now it is time for adult supervision.
Bailout over here! Bailout!
I wonder what California's picture is going to look like.
They can just call Obama and get the investigation quashed.
As my State Representative said in an email reply last week: “We are our own worst enemy”.
Unfortunately the Dems are in control and guys like him can’t do much about it.
I have a feeling a lot of conservative Republican Illinois voters who read this are asking, "Who is this 'we' you're talking about?" Illinois is what happens when the parasites outnumber the hosts. Personally, I don't care what Illinois does so long as it does whatever it does without taking any federal tax dollars confiscated from me in Pennsylvania at gunpoint.
Thank God the GOP controls the US House.
I’m so proud to be a resident of this glorious state. /s
Just raise taxes another 8000%!
What is to keep the fed from buying these junk bonds. I think I read something about it???
“Illinois is what happens when the parasites outnumber the hosts”
Dead-on. But let this be a lesson on the importance of working for your local conservative candidates for state legislature - the Dems in IL control both houses of the legislature and block everything. Having Adults back in charge of the US House is great, but remember it’s your state lawmakers that keep feeding the parasites.
No NOL lose carry over! Incredible.
I know this is popular among conservatives right now but it's a really bad idea. If the Fed gov presides over the bankruptcy of a state it will be the death knell of state sovereignty and the defacto end of the Republic.
If Illinois won't reorganize itself then business and population exodus from and collapse of a few bad states are preferable to the end of Federalism. At least a cratered state can be revived in time.
How can something with a $136-billion liability have a $150-billion shortfall?
Is it the $136-billion liability that is understated?
Gonna have to let these guys go...
I agree. They made the mess, let them clean it up. Assuming the Feds don't agree to bail them out using taxpayer dollars from all the states.
Talk about redistribution!
“the pension system is funded to only approximately 50% of the $136-billion liability. Even that shortfall is likely understated; it is believed to be closer to $150 billion”
That’s stating the shortfall is $150 billion hence the obligation would have to be more massive than the $136 billion stated. I will guess the obligation is $150 billion and not the shortfall.
Anyway this article is indirectly what the battle over the debt limit is about. The screams you hear are from those that want the states rescued as opposed to those that don’t. If they don’t raise the limit they can’t ‘rescue’ Illinois and others much as they did GM.
This battle over the several states that need help won’t i believe be fought to completion until after the 2012 election cycle. Should Illinois have to tell all their pensioners collecting over a certain amount(you have older retirees getting sums like $25,000 who should remain untouched in my opinion)that they will have to take a 33% cut,as a start,then there’s no way the unions will be backing the libs. Something along these lines,much like Schumer saying the Republicans want to take your SS every chance he gets,will be tossed around with ‘blame’ being pointed in the usual directions. It will be stalled with some meager corrections to the states spending habits be3ing implemented. After 2012 the hard cutting will begin.
That sentence in the article didn’t get much thought. Who exactly will say,if not the elected officials,that an $80,000 a year pension,never mind the free health or whatever,will be cut to $50,000? Judges? All we read about is judges saying to governors,”well,no,you can’t furlough workers,you can’t force them to take a week off” and so forth and so on. Legislative action is all that will remedy this matter.
Debt limit battle is all about rescuing states. They can buy the paper if the issue paper of their own.
I don’t agree with you. Until and unless a state is forced to its knees then the others (the ones with ‘issues’) will continue making noise but doing little. Look at NJ. Its tough but it there’s a path out. Once the first state is bailed out then there’s no way the others can be told ‘no’. After all,the others contributed to the rescue.
Gonna have to let these guys go...
No, send then to the legislature or make them judges. They couldn’t possibly be more corrupt than the clowns running the show now. Got cooler nicknames too!
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