Illinois exemplifies fiscal foolishness
CHICAGO – Seated in his office here, wearing neither a necktie nor a frown, Republican Gov. Bruce Rauner is remarkably relaxed for someone at the epicenter of a crisis now in its second year and with no end in sight. But, then, stress is pointless when the situation is hopeless. Besides, if you can ignore the fact that self-government is failing in the nation’s fifth-most populous state, you can see real artistry in the self-dealing by the Democrats who, with veto-proof majorities in the state Legislature, have reduced this state they control to insolvency.
Illinois’ government, says Rauner, “is run for the benefit of its employees.” Increasingly, it is run for their benefit when they retire. Pension promises, though unfunded by at least $113 billion, are one reason some government departments are not digitized at all.
What is misleadingly called the state’s Constitution requires balanced budgets, of which there have been none for 25 years. This year, revenues are projected to be $32.5 billion, with spending of $38 billion. Illinois Democrats are, however, selective constitutionalists: They will die in the last ditch defending the constitution’s provision that says no government pension can be “diminished or impaired.”
The government is so thoroughly unionized (22 unions represent almost all government employees), that “I can’t,” Rauner says, “turn on a light switch without permission.” He exaggerates, somewhat, but the process of trying to fire someone is a career, not an option.
At last count, $7.6 billion was owed to many of the state’s vendors. But the law in its majesty requires that the state’s legislators – those who write the laws – get paid under any circumstances. This removes perhaps the most important potential pressure for compromise. If schools were unable to open this month, parents with pitchforks would march on Springfield, so a quasi-budget was cobbled together to keep government semi-funded for six months.
Under Rauner’s Democratic predecessor, the Legislature passed a “temporary” tax increase, serenely expecting that when it expired they would enjoy the truth of Ronald Reagan’s axiom that there is nothing as immortal as a temporary government program. They did not count on the first Republican governor in 12 years.
Rauner let the tax lapse. To their demand for more tax increases, he sweetly says: Let’s talk. About pension reforms and tort reform. And about exempting local governments from paying on construction projects the “prevailing wage” – which Rauner says is, effectively, “whatever unions tell them they want it to be,” and which raises costs 30 to 40 percent.
Rauner favors term limits for state legislators. Democrats have job security, thanks in large part to the financial support of grateful public- and private-sector unions. Illinois voters overwhelmingly want term limits, which Democratic politicians oppose because, they say, such limits restrict voters’ ability to get what they want.
Illinois is a leading indicator of increasing national childishness – an unwillingness to will the means for the ends that it wills. Nationally, state and local governments’ pensions have somewhere between $1 trillion and $4 trillion in unfunded pension liabilities, depending on, among other things, assumptions about returns on pension funds’ investments.
The Wall Street Journal reports that in 2001, the 20-year median return was 12.3 percent and every percentage-point decline in returns increases liabilities by 12 percent. Last year, the largest fund, California Public Employees’ Retirement System, which assumes 7.5 percent returns, instead gained 0.6 percent. This, in the sixth year of the recovery from the 2008-09 crisis, was the worst performance since then – and another recession will surely happen.
Nationally, neither party is eager to talk about the rickety structure of the entitlement state, although the Democratic platform promises to make matters worse. Although scheduled Social Security benefits vastly exceed the value of worker and employer contributions plus interest, the platform, a case study in reactionary liberalism, opposes even raising the retirement age. This, even though benefits are available at 62, three years younger than when the system was created in 1935, when life expectancy at 65 was 12.5 years. Today, it is 19.3 years for men and 21.6 for women. If in 1935 Congress had indexed the age of Social Security eligibility to life expectancy, the age today would be 72.
The federal government can continue to print money. There are bankruptcy procedures for cities but not for states. So, high-tax Illinois will continue bleeding the population and businesses, but with one contented cohort – the Democratic political class, for whom the system is working quite well.
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George Will’s email address is email@example.com.