Governor Pat Quinn rammed through the largest tax hikes in Illinois history last year. On January 13, 2011, Governor Pat Quinn signed off on a 67% hike in personal income taxes and a 46% hike in corporate taxes.
The result is not what the governor thought. Businesses have fled, more have threatened to leave and Quinn responded with sweeteners. Moreover, Illinois pension plans are still the worst funded in the nation, and the state is still struggling to pay bills.
Bloomberg reports Illinois ‘Treads Water’ as Unpaid Bills Top $9 Billion
Illinois’s backlog of unpaid bills has risen to more than $9 billion because of pension costs and falling federal aid, leaving the state “essentially treading water,” Comptroller Judy Baar Topinka said.
While revenue grew from higher personal and corporate taxes, “Illinois’ financial position has not improved,” Topinka said in a report today. The combination of unpaid bills to vendors and Medicaid obligations, estimated at $8.5 billion in January, means payment delays will persist, according to the report.
While tax increases boosted revenue by about $7 billion, or 3.9 percent in the first three quarters of the fiscal year that began in June, the gains were undercut by the loss of federal funding and financing of pension contributions directly, rather than through bonds as in the past two years, Baar Topinka said.
Democratic Governor Pat Quinn has proposed a voluntary 3 percent increase in pension contributions from current employees and a cut in cost-of-living increases for retirees.
“Bold action” is required to save the retirement systems, the governor told reporters in Chicago April 20. In fiscal 2010, Illinois had the lowest-funded state pension in the U.S., with assets equal to 45.4 percent of projected obligations, according to data compiled by Bloomberg.
Public Unions Bankrupt Illinois
Just where was this “bold plan” when Quinn was running for Governor?
Nowhere in sight. And now he wants “voluntary” contributions. Give me a break.
Illinois is bankrupt and corrupt politicians like governor Quinn, Speaker of the Illinois House, Mike Madigan, and all the union panderers in Chicago ruined the state by giving into “collective bargaining” demands from public unions.
Voluntary 3% contributions by unions is not a “bold plan” and will not do a damn thing. Illinois needs to scrap its defined benefit plans immediately and claw back on promised benefits under threat of default.
Moreover, Illinois needs to scrap prevailing wage laws and end collective bargaining of public unions immediately if not sooner.
Illinois desperately needs a “Bold Plan” before the entire state looks like Central Falls or Providence Rhode Island, or Detroit Michigan.
- Central Falls Rhode Island Files Chapter 9 Bankruptcy; Court Asked to Negate Collective bargaining Agreements; Vallejo Precedent
- Providence Rhode Island Faces “Bankruptcy by June” says Mayor; Pension Plan 32% Funded (and About to Get Worse)
- Deal Reached to Prevent Michigan Takeover of Detroit; Really? No, Not Really; What’s Best for Bankrupt Detroit?
Mish’s Eight-Point “Bold” Plan to Save Illinois
- Immediately kill public defined benefit plans going forward
- End collective bargaining of public unions
- Scrap prevailing wage laws
- Tax at an 85% rate all defined benefits above $80,000
- Claw back all pension-spiking
- Lower corporate tax rates to previous levels to attract businesses.
- Set long-term pension plan assumptions at 5% or the 30-year Treasury rate, whichever is lower (currently 3%).
- Default, if necessary on pension benefits above a certain level, whatever it takes to make the state solvent within 10 years, using conservative pension plan assumptions.
The $80,000 cap is a suggested starting point for discussion. It may be higher or lower based on point number eight.
Now that’s a bold plan, and a badly needed one at that.
About the author: Mike “Mish” Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management. His top-rated global economics blog Mish’s Global Economic Trend Analysis offers insightful commentary every day of the week. He is also a contributing “professor” on Minyanville, a community site focused on economic and financial education. Every Thursday he does a podcast on HoweStreet and on an ad hoc basis he contributes to many other websites, including UnionWatch.