A new year began with the Illinois debt burden problem remaining unresolved. Lawmakers continue to be bedeviled by its challenge. They remain unable to agree on how to solve a mounting crisis. By the dawn of 2013, vendors, agencies and contractors were owed almost 7 billion in unpaid payments.
There were over 210,000 unpaid bills waiting to be paid by the time January 2013 arrived. The House returned on January 30 and the Senate returned on February 5 to face the same conundrum the prior general assembly did not solve. They all know their biggest challenge is the grossly underfunded pension system that keeps falling deeper in the hole. No state faces a bigger gap.
According to data compiled by Bloomberg, by 2011 the plans had about 43 percent of assets needed to cover obligations. This system had the lowest ratio nationally. By the beginning of 2013 there was 96 billion dollars worth of unfunded liabilities. If the problem is not fixed before legislative session ends at the end of May, the unfunded pension liability amount is expected to have ballooned by an additional 2.45 billion. The chickens have come home to roost. This shortfall is a combination of workers living longer, decades of shorted or skipped payments and economic downturns bringing investment losses.
Meanwhile, the annual pension fund payment is expected to rise by about 1 billion to close to 7 billion in the fiscal year commencing in July. This amount is now more than 16 percent of the general funds budget, rising from 6 percent in 2008. Yet, pension fixes being discussed are disputed by enough legislators in some measure to cause an impasse.
Freezing of cost of living adjustments, getting more contributions from employees and making them work longer are among options on the table. Unions object to these options. Leading Democrats and the Governor favor shifting teacher pension expenses to school districts. Both Republicans and some Democrats oppose this as they fear tax increases will result.
While a solution eludes legislators, other programs are squeezed out by pension funding demands. With an expanding pension hole, other programs have faced cutbacks. These areas include key sectors such as health care and education.
Some local governments have turned to interlocal cooperation agreements to deal with their funding constraints. An example is DuPage County which closed its juvenile detention center and contracted with Kane County nearby to keep its juveniles. Problems at state level have also impacted municipal bond issuers. For instance DuPage County despite its AAA credit rating was required to pay an interest rate premium for bonds issued to finance its storm water project. Municipal bond investors are unwilling to purchase local issues at lower rates. Local governments are well aware they are cast in a disadvantageous light by failure of legislators in Springfield to address this situation.
Many reasons underlay this Illinois debt predicament. It is not simply a matter of fixing a growing pension burden. There is an urgent need to grow a limited tax base. While services now dominate the economy, only a limited number of services fall under sales tax cover. Just seventeen services are taxed. This puts Illinois among a small minority of three other states. The norm nationwide is a wider net covering fifty six services. In nearby Iowa ninety four services are taxed. Another issue that remains to be addressed is the excessive number of local governments in this most fragmented system in the country. Lawmakers need to face the present with resolve to devise a sound fiscal base.
There were over 210,000 unpaid bills waiting to be paid by the time January 2013 arrived. The House returned on January 30 and the Senate returned on February 5 to face the same conundrum the prior general assembly did not solve. They all know their biggest challenge is the grossly underfunded pension system that keeps falling deeper in the hole. No state faces a bigger gap.
According to data compiled by Bloomberg, by 2011 the plans had about 43 percent of assets needed to cover obligations. This system had the lowest ratio nationally. By the beginning of 2013 there was 96 billion dollars worth of unfunded liabilities. If the problem is not fixed before legislative session ends at the end of May, the unfunded pension liability amount is expected to have ballooned by an additional 2.45 billion. The chickens have come home to roost. This shortfall is a combination of workers living longer, decades of shorted or skipped payments and economic downturns bringing investment losses.
Meanwhile, the annual pension fund payment is expected to rise by about 1 billion to close to 7 billion in the fiscal year commencing in July. This amount is now more than 16 percent of the general funds budget, rising from 6 percent in 2008. Yet, pension fixes being discussed are disputed by enough legislators in some measure to cause an impasse.
Freezing of cost of living adjustments, getting more contributions from employees and making them work longer are among options on the table. Unions object to these options. Leading Democrats and the Governor favor shifting teacher pension expenses to school districts. Both Republicans and some Democrats oppose this as they fear tax increases will result.
While a solution eludes legislators, other programs are squeezed out by pension funding demands. With an expanding pension hole, other programs have faced cutbacks. These areas include key sectors such as health care and education.
Some local governments have turned to interlocal cooperation agreements to deal with their funding constraints. An example is DuPage County which closed its juvenile detention center and contracted with Kane County nearby to keep its juveniles. Problems at state level have also impacted municipal bond issuers. For instance DuPage County despite its AAA credit rating was required to pay an interest rate premium for bonds issued to finance its storm water project. Municipal bond investors are unwilling to purchase local issues at lower rates. Local governments are well aware they are cast in a disadvantageous light by failure of legislators in Springfield to address this situation.
Many reasons underlay this Illinois debt predicament. It is not simply a matter of fixing a growing pension burden. There is an urgent need to grow a limited tax base. While services now dominate the economy, only a limited number of services fall under sales tax cover. Just seventeen services are taxed. This puts Illinois among a small minority of three other states. The norm nationwide is a wider net covering fifty six services. In nearby Iowa ninety four services are taxed. Another issue that remains to be addressed is the excessive number of local governments in this most fragmented system in the country. Lawmakers need to face the present with resolve to devise a sound fiscal base.
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