Can Illinois go Bankrupt?

July/02/2017 7:44AM
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Can the state of Illinois avoid bankruptcy?  In a word no. Below are numerous articles outlining the genesis of the Illinois financial crisis. Hundreds of words but few answers. Let me boil it down. Two Democrats, Speaker of the House, Michael Madigan and Senate President, John Cullerton, did this. They have been in power for 40 years each. What did they do? They hitched onto to public union power and used that to control the state and destroy the state. Simple as that. By dishing out un-payable, lavish salary and pension benefits to public union workers they created a debt that private working families can’t pay. The Constitution of the state doesn’t allow adjustments to these pensions. This has been reaffirmed by the courts. I might add that the media in Illinois has supported this fiasco every step of the way. Ever pubic pay raise, pension benefit, and spending plan has the full support of the media. Even now they try to put some of the blame on a Republican governor who has tried to reverse the trend. These unions contribute to the campaign war chests of the two aforementioned politicians. They dole it out to fellow Democrats running for office. If a candidate doesn’t pledge allegiance to them, they pull the money and run another Democrat against that candidate. Remember even Franklin Roosevelt, a true liberal, was against public unions. Take a few minutes and pursue some of this material. Federal employee pensions are nowhere as generous as those of the state of Illinois. Illinois workers have contributed very little toward the pensions, but Federal employees do contribute. Keep in mind with Federal pensions you also include Social Security paid to non-public workers. We know the status of that fund. Also keep in mind that Obama inflated both the population of public jobs and the pay to those workers. Much like Illinois has done.

US Pensions Spending History from 1900

In 1902 governments in the United States spent nothing on pensions programs. In the early 21st century, governments spend over 6.5 percent of GDP on pensions programs.

A Century of Pensions Spending

Pensions spending by governments increased rapidly during the second half of the 20th century.

Chart 2.71: Pensions Spending in 20th Century

Government pensions spending, including both pensions for government employees and government pensions for workers, like Social Security, started out at the beginning of the 20th century at zero percent of Gross Domestic Product (GDP). Pensions increased very slowly during the first half of the century. It was only in 1931 that government pension expenditure reached 0.12 percent of GDP. By the beginning of World War II pension expenditure had doubled — all the way to 0.22 percent of GDP.

After World War II pension expenditures, now including Social Security payouts, began to accelerate, reaching 1 percent of GDP by 1953 and doubling to 2 percent of GDP by 1958. Pension expenditure reached 3 percent of GDP by 1971 and 4 percent by 1974. Pension expenditure breached 5 percent of GDP in 1980.

The ramp-up in pensions expenditure began to moderate after 1980, reaching 5.1 percent of GDP in 1990 and 5.3 percent in 2000. Pension spending breached 6 percent of GDP in the recession year of 2009, hitting 6.39 percent of GDP in that year. Pensions expenditure is estimated to be 7.14 percent of GDP in 2015, and reach nearly 8 percent GDP by 2020.

Still, the trend is frightening.

In Illinois people are leaving the state. Real estate taxes are the highest in the country. Money for local schools and universities in the state are being drained by public pension demands. Man of these who receive pensions have retired to states like Florida with no income tax. As the state politicians try to approve a state budget for the first time in 3 years, Mr. Madigan has put forth one that raises taxes.

Let’s look a my situation. I have a home in Illinois and one in Arizona. I now spend 5 months in Arizona and 7 in Illinois. The Madigan tax will be retroactive to January 1, 2017. I have 4 months banked in Arizona . I have the easy option of tacking on one more month than planned in Arizona and Illinois gets zero from me.

Simply put, the state of Illinois has only two options to avoid bankruptcy. First, find a legal way to reduce pensions retroactively. Second, term limits to remove Madigan and Cullerton. Neither will happen.

A Chicago Tribune columnist, John Kass, has suggested the state be broken up and parts given to adjoining states. John began this as a joke but it is what happens when a pubic corporation files bankruptcy.  Even then, who gets Chicago, which the Democrats have also sent into bankruptcy.

When neither the city nor the state can borrow any more with junk bond status it’s over. That time is coming soon.

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