Any federal aid to Illinois should come with strings attached
When you've exhausted every other avenue for borrowing money, you turn to the federal government -- the last resort.
That's why Illinois Senate President Don Harmon sent a letter to members of Congress requesting a $44 billion bailout for the state.
Harmon has taken a lot of heat for sending that letter. To be sure, there are plenty of legitimate items to critique in his request. But some of Harmon's critics instead seem irritated that he muttered an unspoken truth out loud, admitting that Springfield's fiscal mismanagement has left it virtually out of options to fix state finances.
COVID-19 did not cause Illinois' financial problems. Much like the Great Recession before it, the economic fallout from the virus has exposed and amplified the state's long-running vulnerabilities.
"In a normal year the size of [pension] payments crowds out funding for services and programs," Harmon wrote. "Clearly this will not be a normal year and that crowding out effect will be exacerbated by significant revenue losses."
Harmon's right. Pensions crowd out a lot of other state spending.
Since fiscal year 2000, after adjusting for inflation, state spending on pensions for government workers has grown over 500%. That is on top of a 127% increase in spending on health care costs for state workers.
Compare that to state spending on education, which has grown by just 21%. State spending on everything from child protection, state police, college aid for low-income students and more has fallen by nearly one-third during that time.
Despite pumping more and more into the pension systems each year, Illinois continues to slide deeper into debt.
Excessive debt driven by the pension crisis has left Illinois with the lowest credit rating in the nation, just one notch above junk status. That means private investors may not be willing to lend Illinois money much longer. Bond markets already demand interest payments about 3.4 percentage points higher for Illinois' debt compared to financially healthy states. Interest payments for existing bonds cost the state $2.1 billion in fiscal year 2020.
The coronavirus pandemic has brought the collision of pensions and public services to a head.
Taxpayers in Illinois are tapped out and can't be asked to foot even more of the state's bill at a time when many of them are struggling with lost income of their own.
Illinois already has one of the highest combined state and local tax burdens in the country. But despite our state and local governments spending a higher percentage of those tax dollars on pensions than any other state, these contributions are still short of what it would take to keep debt from growing year after year under current benefit structures.
An Illinois Policy Institute analysis found career retirees in the five state pension systems typically receive lifetime pensions worth more than $2 million. Employees' own contributions cover only about 5% of their benefits, on average.
Even with these generous benefits, the current pension system does not serve the best interests of public retirees, either. Unless the growth in pension benefits can be adjusted to a level that is sustainable and affordable, the pension systems are at risk of running out of money.
It's not hard to see why Harmon thinks Illinois needs federal help. But his request for $10 billion in pension bailouts and $44 billion overall from the federal government would only serve to enable Springfield's bad habits without fixing the underlying issues.
Congress already conditioned corporate bailouts stemming from COVID-19 on taxpayer protections, such as banning stock buybacks and limiting CEO pay.
Taxpayers in other states shouldn't be expected to bail out decades of bad decisions in Springfield. But if the federal government does come to Illinois' rescue, any aid must come with strings attached. Illinois needs reforms to ensure future budgets are balanced, accounting is transparent and pensions are affordable and sustainable.
Maybe Harmon decided not to let a good crisis go to waste, but if federal leaders aren't careful, they may see just how good our state is at wasting other people's money.
• Adam Schuster is director of budget and tax research at the Illinois Policy Institute, a nonpartisan research organization.