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$106 billion in liabilities with no ability to pay

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The Civic Committee of the Commercial Club released a grim report yesterday about state finances.

Illinois’ growing shortfall in pension and health-care funding is pushing the state toward financial disaster, a report released Wednesday concludes.

The report by an elite group of chief executives from large Chicago-area companies lays out in unusually strong language the hard choices Illinois faces. It calls for significant cost cuts and warns that tax increases, including a hike in the corporate tax rate, may also be required.

“Illinois is headed toward financial implosion,” states the study by the Civic Committee of the Commercial Club, an invitation-only group of about 80 chief executives.

But the governor’s office disputes the numbers.

Gov. Blagojevich’s office disputed a report on state finances by the Civic Committee of the Commercial Club of Chicago, saying its estimate of a $106 billion shortfall is based on “flawed and inaccurate” information.
“There are several flaws with this report, probably due to the fact that the Civic Committee did not seek the state’s consultation in any way,” said Becky Carroll, spokeswoman for the Office of Management and Budget.

Carroll said Medicaid bills owed to providers do not total $1.7 billion, but only $1 billion.

The state also says the unfunded liability for pensions is not as bad as the committee reports, and in fact is $2.1 billion less than pension system actuaries anticipated at the end of fiscal 2006 on Sept. 30.

Here are the debts

* $46 billion in future pensions for state employees and retirees, plus payments on a $10 billion pension bond issued in 2003.

* $48 billion in unfunded commitments for future health insurance for state employees and retirees.

* $1.7 billion in unpaid bills to Medicaid providers, such as doctors who serve low-income residents.

Proposed remedies include…

* Increasing employee contributions to pensions and implementing a “defined contribution” system, such as a 401(k) program, for future employees.

* Aligning employee and retiree health benefits with those in the private sector, including increasing deductibles and co-payments and converting to a managed-care system.

* Shifting all Medicaid recipients to a managed-care system, which the study says most other states already have done. Only 10 percent of current recipients are on managed care, the study says.

* The study also suggests increasing the personal state income tax from 3 percent to 4 percent and the corporate income tax from 4.8 percent to 6.4 percent. It also recommends expanding the state sales tax to include personal services and entertainment

You can download the entire report here.

posted by Rich Miller
Thursday, Dec 7, 06 @ 9:59 am

Comments

  1. Self-centered, ego-driven, weak-minded, crooked glad-hander, and we got him for 4 more years. Illinois is incapable of getting it right.

    Comment by Holy #&^T Thursday, Dec 7, 06 @ 10:06 am

  2. Maybe JBT is glad she doesn’t have to deal with this. While she laid this out to the voters, Blago denied it and now must face up to it. Of course, he has many other lies to face up to as well.

    Comment by fat tony Thursday, Dec 7, 06 @ 10:09 am

  3. Let’s see who should we believe…80 CEOs whose companies and employees will be dealing with reprucussions for years to come, or an administration that is under federal investigation, and will probably be gone in 4 years (if not sooner, thansk Pat Fitzgerald!).

    Comment by Niles Township Thursday, Dec 7, 06 @ 10:11 am

  4. Tax, tax, tax!

    I need to seriously consider moving my business to another state.

    Comment by We're screwed. Thursday, Dec 7, 06 @ 10:14 am

  5. If only Judy could have had her own pay to play system, she could have had this headache. She was not funded well enough to get her message across…as if voters were intelligent or cared enough for this to matter anyway. Todd Stroger won.

    Comment by Wumpus Thursday, Dec 7, 06 @ 10:18 am

  6. I don’t know which side is right here, and I’m not smart enough to be able to tell from dueling press releases, but I do know this –

    If this study is using bad information, it’s likely because the state has refused to release accurate information. And when asked, if past history is any indicator of future performance, the Gov’s office will likely stonewall, force FOIA requests, then ignore those requests.

    I’m just saying.

    Comment by RickG Thursday, Dec 7, 06 @ 10:21 am

  7. On another note:

    Why do all of the headlines about Margret Mell identify as ‘governor’s mother-in-law’? I can understand the papers outside of the Chicago area doing this, but Ald. Mell is very well known in Chicago, and I would bet she didn’t really like the governor.

    Comment by fat tony Thursday, Dec 7, 06 @ 10:22 am

  8. The Chicagoist makes a great point about the recommendations to raise corporate income taxes: it’s cheaper for businesses than the income tax/property tax swap.

    Comment by the Other Anonymous Thursday, Dec 7, 06 @ 10:28 am

  9. Hey @10:14 -

    You won’t move. It is too costly for you to move. Studies show you will stay right here and lap it up.

    So stop bluffing, and send in your IDES forms & state 941s OK? You don’t want a stiff financial penalty if you are late.

    Comment by Johnny USA Thursday, Dec 7, 06 @ 10:31 am

  10. I couldn’t figure out what this was:

    “* $48 billion in unfunded commitments for future health insurance for state employees and retirees.”

    Retiree health benefits are paid year-to-year. Isn’t this the same as saying we have “unfunded” education commitments of $180 billion for the next 30 years simply because we haven’t paid them yet?

    Comment by sam Thursday, Dec 7, 06 @ 10:32 am

  11. Wumpus,

    Oh for heaven’s sake, Todd Stroger won, it doesn’t mean the electorate is stupid. One of the two numbskulls on the ballot had to win. Peraica was no better and after his demonstration of folly on election night, arguably worse.

    I thought there already was a rule that all new hires were given a defined contribution plan rather than a traditional pension. Many companies offered sweeteners to their employees to convince them to switch over, maybe the state should do likewise for mid-career employees.

    I’m not sure I’d look to the private sector on retiree health care. Most of them are trying to get away with providing as little as they can and the ones who aren’t are going broke. Eventually, there will be a national (or at least 50 statewide) healthcare simply because our businesses can’t compete when all their over-seas competitors don’t have the expense of employee and retiree healthcare.

    Comment by cermak_rd Thursday, Dec 7, 06 @ 10:37 am

  12. The governor’s office response was breathtakingly inadequate, even stupid. Becky Carroll is clearly not able to articulate OMB’s response on complex, and critically important, financial issues. I guess they are not critically important to OMB. OMB staffers have lifetime sinecures, competitive salaries, lush pensions and healthcare benefits. What do they care.

    I give the guv a pass this week because of his wife’s mother’s passing, but where is John Filan. He always seems to be absent when controversy arises. Yet this is his bailiwick.
    He should be on the next news cycle explaining the guv’s position and the assumptions underpinning them.

    And clearly the guv’s office and the Civic Committee are using vastly different assumptions in arriving at their figures. We need to know and understand much more about these assumptions
    before we shell out yet more of our cash for luxurious state worker pensions and health care, even higher six figure salaries for school administrators, thousands of retired-on-the-job state managers, nursing home care for the rich via Medicaid, grossly inadequate DCFS investigations resulting in violent infant deaths, legislator raises, and such.

    On the positive side, at least the Committee provides some credible ammunition against the tax swap.

    Comment by Cassandra Thursday, Dec 7, 06 @ 10:47 am

  13. No one should be surprised.

    Blagojevich promised freebies to everyone to buy their votes, and it worked. Thanks to greed and compassion, his pack of fables won last month.

    The Democrats have been playing a game of chicken with our state finances for four years and Blagojevich has learned that legislators will blink before he does making them the bad guys.

    Blagojevich will continue to deny reality and wait for Madigan to pick up the pieces. Playing dumb has been raised to a new political level with Blagojevich, and he intends to keep doing what has worked for him so far - playing ignorant.

    Move over California, New Jersey, Michigan and Massachusetts, we have a new true blue Democratic state to watch decay and collapse!

    Comment by VanillaMan Thursday, Dec 7, 06 @ 10:57 am

  14. Nice report. I’m sure it will be the first piece of legislation introduced in Senate President Jones’ new super-majority Democratic Senate and be on the governor’s desk before the end of January.
    Yeah right.
    Let’s raise taxes but not give it to schools. Oh I’m sure there’ll be overwhelming public support for that.
    The only thing this report fails to address is this little thing called political reality. Exactly how would this ever become law? Political courage from lawmakers? Ha, Ha, Ha. Go check the roll call on the legislative pay raises.
    Heck, while we’re talking about pie-in-the-sky things we “should” do, let’s go ahead and outlaw gasoline burning vehicles, prohibit fastfood restaurants and big box stores and subsidize solar power in all homes and businesses.
    Oh, and one more: restrict how much CEOs can make.

    Call me when the shuttle lands.

    Comment by Frank Booth Thursday, Dec 7, 06 @ 11:07 am

  15. On the medicaid issue, without going to the trouble to look up the numbers I would guess both sides are right. Bills on hand probably are about a billion now, and almost undoubtedly will be around 1.7 billion by the end of the fiscal year.

    Comment by steve schnorf Thursday, Dec 7, 06 @ 11:40 am

  16. Yea let’s raise taxes and burden the working man so we can have more feel good programs to buy votes and keep this bunch of idiots in office.Didn’t they see what happened to the repubs on the national level when they couldn’t get it right.

    Comment by DOWNSTATE Thursday, Dec 7, 06 @ 12:01 pm

  17. I’m waiting for John Filan to come out with his response and tell us that the state is actually a 100 billion in the black because of the tough choices and great programs he and the guv have come up with!

    Comment by Anon Thursday, Dec 7, 06 @ 12:24 pm

  18. Someone should make a movie about the depth of Illinois corruption and the fiscal mess this state is in and then use to money from the box office receipts to pay off some of this stuff, like the Medicaid backlog, for example.

    They could make it a training film for politicians nationwide: How Not To Run a State: Featuring Illinois Government!

    Comment by Angie Thursday, Dec 7, 06 @ 12:25 pm

  19. I think Governor Moronavitch should propose free health care for our pets. He should also enact the book of the month deal that he initially proposed. Lets see….millions for a ball park in Marion. Millions for a shooting complex in Sparta. Lets put the blame where it should go….Filan and Moronavitch.

    Comment by Milorad Thursday, Dec 7, 06 @ 12:29 pm

  20. Cluck! Cluck! Cluck! The financial chickens are on final approach to the roost!

    Let’s see:

    The State is $106 BILLION in the hole, which is overwhelming.

    Cook County is running a projected deficit of $500 million, or about 16% of its annual budget.

    The City of Chicago has to pick up the defaults on Millenium Park, running in the millions.

    The federal budget is hopelessly awash in red ink.

    The financial irresponsibility of our “Who cares so long as I look good in TV ads” politicians is disgusting. Unfortunately, the hgeretofore ignorant voting public in Illinois is about to get a very painful education about electing snake oil salesmen, delivered by the chickens.

    Comment by Bubs Thursday, Dec 7, 06 @ 12:38 pm

  21. Does anyone know where our $106 billion in debt rank nationally? I would assume that we are #1 on that list.

    Comment by four (maybe less) more years Thursday, Dec 7, 06 @ 12:57 pm

  22. For all of those who have been celebrating or mourning the “death” of the Il GOP of late, please reread the above story. It has GOP ressurection written in the subtext. True, the GOP cant rely upon Federal indictments to save it. As the above story demonstrates, it will not have to rely on the Feds prosecuting DEMs out of office, the voters/taxpayers/people will throw them out.

    Comment by anon Thursday, Dec 7, 06 @ 1:25 pm

  23. Anon @ 1:25
    So the key to a GOP comeback is backing a massive tax hike to bail out teacher and state employee pensions? Oh yeah, that’ll go over big.

    Comment by Don Quoxite Thursday, Dec 7, 06 @ 1:47 pm

  24. Sinply….. We are SCREWED !

    Comment by Guy Fawkes Thursday, Dec 7, 06 @ 1:56 pm

  25. Just tack this $8,000+ onto the $28,828.98 per capita Federal Debt. In a couple of more years, I’ll be more in debt to the government (isn’t that me) than I make in a year. Just pull out another charge card. ;-(

    Comment by Pot Stirrer Thursday, Dec 7, 06 @ 4:05 pm

  26. The sky is falling…The sky is falling…!!!

    Comment by Bill Thursday, Dec 7, 06 @ 4:06 pm

  27. Huh… and I thought only a month ago that the budget was balanced (please note much sarcasm)… hmm… maybe if a group would do a study before an election instead of a month after they could help. Way to complain when it is too late!!!

    Comment by Lovie's Leather Thursday, Dec 7, 06 @ 4:41 pm

  28. If the numbers from the Civic Committee of the Commercial Club’s study agree more with what the comptroller has been saying for years than they do with the Governor’s office, who do we believe?

    Comment by Buck Flagojevich Thursday, Dec 7, 06 @ 4:53 pm

  29. We State employees earn every dime our union gets us , putting up with all this crap. Take it our of Rod’s pay. It’s his fault were broke.

    Comment by state worker Thursday, Dec 7, 06 @ 5:07 pm

  30. Funny thing. We supposedly had “massive job cuts” in state employees, yet spending still went up.

    Gotta love crony privatization!

    The fact is that managed care for Medicaid is going to happen, the only question is when and how much. We might as well make it sooner than later.

    Next, all those “end of career” raises and early retirements have to go. They’re great to get, but we just can’t afford them when there’s not enough money to buy decent books for the children.

    I’d like to suggest that we have a temporary income tax increase to get us over the hump, but additional revenues will only raise the bar on how much Springfield will overspend.

    If they had the fiscal discipline to forego foolishly blowing the additional funds, we wouldn’t be in this problem now.

    We learned an important lesson in the Reagan years, you don’t raise taxes until you cut spending FIRST! Spending reduction promises are never kept after tax increases.

    Raising taxes before cuts will only be enabling our “honorable” legislators to AVOID fiscal responsibility and reform.

    Comment by PalosParkBob Thursday, Dec 7, 06 @ 5:08 pm

  31. To Steve Schnorf…..it is with true nostalgia I look back on the Edgar years, while not ideal, at least were mostly honest, responsible, and competent. It’s been a nauseating slide since…

    Comment by Anonymous Thursday, Dec 7, 06 @ 6:31 pm

  32. I’m not so sure that stopping early retirement IS the way to go.

    The choices seem to be, let the high-seniority employees, merit comp and union, dozing away on our dime, continue to collect their way above market compensation packages for years, even decades, or offer an early retirement package they can’t refuse. Either way we taxpayers lose, but there is a scenario in which early retirement is lest costly to us, the taxpayers. Especially if most are not replaced, which they likely do not need to be if they were actually held accountable for their time and production.

    Comment by Cassandra Thursday, Dec 7, 06 @ 6:46 pm

  33. John Filan, was on Chicago Tonight.

    Comment by MC Thursday, Dec 7, 06 @ 7:25 pm

  34. So, Becky Carroll is arguing the state’s unfunded liabilities total $103.2 billion, not $106 billion?

    Great talking point.

    Comment by Yellow Dog Democrat Thursday, Dec 7, 06 @ 8:31 pm

  35. Pensions
    Pensions
    Pensions

    Too much borrowing

    Comment by Don Haider Thursday, Dec 7, 06 @ 8:59 pm

  36. Anyone who has been paying attention shouldn’t be surprised by this. The smoke and mirrors strategy can’t hide the implosion of the state budget. I have noticed that no one is really disputing the numbers. The Gov’s office says some of the numbers are inaccurate, but it looks like they are agreeing that they are in the ballpark. I also noticed that Bill didn’t chime in with any relative comments. I expected some budgetary puffery from him. Maybe it is time to start governing and to stop campaigning.

    Comment by Holdingontomywallet Thursday, Dec 7, 06 @ 9:02 pm

  37. The good ole’ Edgar years, huh?

    You think that this $100 billion popped up overnight?

    This $100 billion problem is over 30 years in the making. And it will plague for the next 30 as well.

    I am going to look at this report tonight to view it beyond the soundbite level…

    Comment by JohnR Thursday, Dec 7, 06 @ 9:37 pm

  38. Re: “the voters/taxpayers/people will throw them out…”

    It won’t matter. It’ll just be different weasels running to take the place of whoever got voted out. Sort of like a Merry-Go-Round from Hell, if you will. Deja vu. Groundhog Day.

    Comment by Angie Thursday, Dec 7, 06 @ 10:09 pm

  39. The average pension for state employees in Illinois is about $18,000 per year. This is hardly luxurious, and is in the middle of the pack compared to other states.
    The pension underfunding problem comes from political decisions made over many years by Dems and Republicans to use pension dollars for on-going expenses. It does not come from rich or excessive benefits.
    The basic problem is that our revenue system does not grow with the economy, even in the best of years. As a result, we are always short of cash and borrowing from Peter to pay Paul. Check out the recent study by the Center for Tax and Budget Accountability.

    Comment by patient advocate Friday, Dec 8, 06 @ 12:26 pm

  40. Switching to a defined contribution pension system would actually cost the state more. Leave it to the CEO’s not to actually crunch the numbers…. http://www.ctbaonline.org/

    Comment by numberz Friday, Dec 8, 06 @ 12:50 pm

  41. I was generally impressed with the report, but very seriously disappointed that they sank to the same old public employee bashing that we hear over and over again. The report made blanket statements that public employee pensions are “generous” but offered not one single fact to back that up.

    The average state employee retires with an $18,000 a year pension and the average teacher gets $36,000 with NO social security. How does that compare to their company pensions, stock options and company match for defined contributions.

    Are there loopholes and abuses? — of course. Should they be fixed — yes.

    Unfortunately, they avoided confronting the truly problematic issues — Medicaid is growing at an unsustainable rate and this administration has expanded eligibility at a time when all other states are tightening the rules; middle income students are rapidly being priced out of the market for college by budget cuts and spending pressures; one-party control, no-bid contracts and secret budget allocations for pet projects drive up the cost and foster disrespect for government, etc. etc.

    The Civic Committee gets an A+ for describing the problem but fails the course when it comes to assigning responsibility and defining reasonable solutions.

    Comment by Old Elephant Friday, Dec 8, 06 @ 1:17 pm

  42. Old elephant and patient:

    The problem isn’t the current “average” pension for state employees and teachers,it’s the skyrocketing NEW retiree costs that send the future obligations soaring.

    For example, you would be hard pressed to find a Chicago or Suburban HS teacher who, if they went through the “early retirement” program, would be getting about double the “average” pension rate.

    The “average” adminstrator in Chicago, “pre-retirement”, made about $114,000 per year according to the latest published school report cards. That would result in a pension of about $85K if it were the final four year average salary on which the pension were based.

    The roots of the problem were formed by the Education Labor Relations Act of 1983, when unions were given the “right” to strike and were anointed as the “sole bargaing agent” for a given district. At that point, once the unions learned how to flex their negotiating muscle, they were able to virtually dictate the salary schedule.

    School Boards essentially had two choices in the face of an aggressive and motivated union; give them what they want and run a deficit that would eventually cause a financial crises for the children, or have a strike that would shut down the schools and result in the removal of the board in the next election, adn have THAT board create a financial crises by paying more than they could afford.

    Since 80% of school expenses are for salaries and benefits, that’s where your “structural defict” originated.

    Schools soon discovered that significantly overpaying senior faculty ws poor value, so they pushed for, and recieved, early retirement programs by the state to transfer the burden from their district to the state. Loopholes were then “discovered” by which end of career raises and sick time and vacation payments could double pensions, making the state in even deeper trouble.

    If end of career salaries for public employees and teachers became more proportional and Early retirements ended, much of the balooning pension obligation would disappear.

    PS: Many early retirees DO wind up getting social security also because they continue to work between the too young retirement age of 55 and the typical 65.

    Comment by PalosParkBob Friday, Dec 8, 06 @ 2:39 pm

  43. “The report by an elite group of chief executives from large Chicago-area companies” — oh yeah, a bunch of multi-million dollar executives with lush pensions, stock options and golden parachutes continuing the trend of pulling the rug out from under average people. Yeah, and the state can’t shift the pension burden to the Benefit Guaranty Corporation like private corporations can .. or declare bankruptcy and stop making payments to the pension funds. Is anyone surprised to find out that they recommend shifting all risk to employees who may or may not have the resources or financial education to make good choices about what pension products are best? Individuals who will be charged greater fees to manage their accounts than what can be negotiated by the state?

    How about health care after retirement? Guess what — everyone’s going to have health care needs after retirement. So if the state employees aren’t receiving health care benefits through the state, I guess it’ll be through medicare? Same as employees of other corporations who’ve discontinued those benefits — and the taxpayer will still be paying. It all has to be paid for one way or another — do you want your mother or father not to have healthcare and a pension? What happened to the idea of the providing for our citizens in a decent manner? Sure, it would save a lot of money if we didn’t have medicare, medicaid or pensions. To tell you the truth, I don’t mind paying taxes to support the government who provides many necessary public services, or to take care of my fellow sick, disabled or elderly neighbors.

    I’m truly sick of hearing coddled executives telling us what a bad idea defined benefit pensions and health care benefits are. Give me a couple of million dollars and I won’t need a pension either.

    Comment by NoGiftsPlease Friday, Dec 8, 06 @ 8:02 pm

  44. Bob,
    As usual there are lies, distortions, and msirepresentations in every one of your paragraphs. I just don’t have time to point them all out.

    Comment by Bill Friday, Dec 8, 06 @ 11:16 pm

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