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Budget Woes
Pensions in the Land of Lincoln, Round 2

In November, an Illinois circuit court judge threw out the state’s pension reform tout court—saying that the state constitution prohibited any changes to retirement benefits, including cuts to cost of living adjustments and raising the retirement age. The land of Lincoln boasts the most poorly funded pension system in the country and has more than $100 billion in unfunded liabilities, which is why the Democratic Governor and legislature backed this reform. Now, since every good court case deserves another, the matter will be decided by the state supreme court, perhaps as soon as January.

Steven Malanga of the Manhattan Institute describes the lower court’s decision as a “pyrrhic victory” for the reform’s foes, and a real problem for the state’s fiscal future. How is Illinois feeling the pinch?

[T]o pay off its retirement debt, Illinois needs more than $6 billion a year from taxpayers to make up for the skipped contributions to the pension system, along with more than $1 billion more to pay off its pension bonds. That represents more than one-fifth of the state’s general-fund budget. By contrast, states typically spend no more than 4 percent to 5 percent of their budgets on pensions. The consequences have already been felt by Illinois taxpayers—and workers. Government employment is down by nearly 30,000 workers since its 2009 peak. Local governments, those that deliver the most basic services to taxpayers, have done the most trimming, slicing 20,000 jobs. Meanwhile, rising benefits costs are squeezing out other spending, including pay increases. School districts have been hit the hardest; their budgets are largely made up of personnel costs.

Read the whole thing. This case is one to watch going forward, as is the challenge to Rhode Island’s recent pension reform. We’re still only in the beginning of the country’s reckoning with its pension problems, and it will cause a lot of suffering and a lot of controversy before it’s over.

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  • bigfire

    I believe it was someone in city of San Jose, California that said that if pension reform isn’t done, the last public sector employee will be the guy processing the pension check, as ALL of the other government service will have to be terminate to feed the retired unionized public sector union members.

  • FriendlyGoat

    This all makes one wonder why exactly we have these pension problems coincident with the highest stock market in history. Pension trustees, of course, were to invest safely, prudently, conservatively, etc., etc., in lots of bonds. But our global financial upheaval has resulted in central bank policies which kill bond returns while driving the too-dangerous-for-pension-money equity markets to the moon. There is something wrong with this picture—–and it’s so convenient to blame all the public employees for being too greedy. A lot of this has been caused by the investment world being artificially out of whack.

    • Denise Kearney

      I­­­­­’­v­­­­­­e b­­­­e­­­­e­­­n e­­­­­a­­­­­r­­­­n­­­­­­i­­­­n­­­­­g $­­­­­­8­­­­­­­5 e­­­­­­v­­­­­e­­­­r­­­­­y h­­­­­­o­­­­­­­­­u­­­­r s­­­­­i­­­n­­­c­­e i s­­­­­­t­­­­a­­r­­t­­­e­d t­­­­­­­o f­­­­­­r­­­­e­­­e­­l­­­a­­n­­c­­e o­­­n­­l­­i­­n­­e s­­­i­­­­x m­­­o­­n­­­­t­­­­­h­­s a­­­­­­g­­­o… A­­­­l­­­­l i h­­­­a­­­­­v­­­­­e t­­­­­o d­­­­­­o i­­­­­­­s t­­­­­­­o s­­­­­­i­­­­­t a­­­­­t h­­­­o­­­­m­­e s­­­e­­­­v­­e­­r­­a­­l h­­­­r­­­s a d­­­­­­­a­­­­­y a­­­­­n­­­­­­d d­­­­­­o b­­­­­­a­­­­­s­­­­i­­­­c w­­­­o­­­­r­­­k i g­­­­­­e­­­­­t f­­­­r­­­o­­­­m t­­­­h­­­­­i­­­­s c­­­­­o­­­m­­­­­p­­a­­­­n­­­­y t­­­­­h­­­­­­a­­­­t i d­­­­­i­­­s­­­c­­­o­­v­­­e­­r­­e­­d o­­­v­­­­e­­­­r t­­­­­h­­­­e i­­­n­­t­­­e­­­r­­n­­e­­t… I a­­­­­­­m v­­­­e­­­­r­­y g­­­­l­­­a­­­d t­­­­­­­o s­­­­­h­­­a­­­­r­­­­e t­­­­­­­h­­i­­s j­­­­­­­o­­­b w­­­­­i­­­t­­­­h y­­­­­o­­­­u… i­­­­t­’s i­­­­n­­c­r­e­d­­i­­­b­­l­­­e!
      -> RE­A­D H­E­R­E W­H­A­T I D­O <-

    • Josephbleau

      It’s even worse that pension funds project that they will earn 8% or so on holdings which is not happening. The fed has stopped talking about raising interest rates after being slapped down before the 2014 elections.

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