This was a biggie. Last Friday, the Illinois state Supreme Court ruled a 2013 pension revamp violated the state constitution’s ban on reducing worker retirement benefits. Bloomberg:
After years of skipped contributions, Illinois in 2013 had just 39.3 percent of assets needed to meet promises to retirees, the worst ratio among states, according to data compiled by Bloomberg. The law overturned last week sought cuts in cost-of-living increases and a higher retirement age. Friday’s ruling adds $1 billion to its pension bill for the fiscal year starting July 1, according to the Civic Federation, a Chicago-based nonprofit research group that follows the city’s finances.
Illinois, by the way, has a $111 billion retirement system shortfall. The blue model at work. So what’s next for the Prairie State, my home state? This from the bond folks at Cumberland Advisors:
With Illinois unable to gain relief from its staggering pension costs, expect to see massive cutbacks in the state government. This may be easier said than done. The state already pays many of its vendors in the form of IOUs that sometimes do not get settled until up to a year later. Outsourcing work that state employees are currently doing to private firms may be MORE expensive, and it is doubtful if these firms will accept IOUs.
Expect the legislature to raise the state income tax. In 2011 the state’s top tax rate was raised from 3% to 5%. The raise had a -year life and reverted to 3% at the beginning of this year. Since even at 5% the top rate is still less than that in some surrounding states, a hike back to 5% (or higher) can be expected. The court’s ruling may also have a chilling effect in the state between those workers whose benefits are now court protected and those whose benefits are not.
Going forward, it appears that Governor Rauner will have to attack the pension problem on two fronts. First, he must attempt to get an amendment passed to the state constitution that would ALLOW changes in pensions, but that might take a very long time, and its passage is questionable. Then, he must try to get other reforms approved by the Illinois legislature, which has been derelict in cutting spending or investing the needed amounts in the pension system in the past. Their past inertia gives little comfort that they will move swiftly.
In the end, economics trumps nearly all other concerns. Through changes in the law or through bargaining, pension costs will need to be reduced in order for the state to function. The types of changes that the 2013 law sought are all approaches that other states are also trying in order to craft a solution to pension woes. And though politicians consider such measures “radioactive,” a freezing of current benefits and their replacement by a new system for CURRENT workers does not seem out of the question.
Unions are celebrating the judicial decision but it seems just a matter of time before a massive revamp of the pension system will happen. Taking more investment risk with pension assets doesn’t seem a sound idea. Nor do endless take hikes.
from AEI » Latest Content http://ift.tt/1IugkkN
0 التعليقات:
Post a Comment