The Illinois budget: Averting doomsday | The Economist

 

Bruce Rauner is trying to fix the finances of America’s worst-run state

Feb 28th 2015 | CHICAGO | From the print edition

 

 

 

THE Scott Walker model of tough-it-out conservatism (see article) may be proving most influential in a neighbouring state. The new Republican governor of next-door Illinois, Bruce Rauner, has just signed an executive order ending mandatory union fees for state workers who do not want to join a union or support its agenda. And on February 18th, as part of his $31.5 billion budget plan, Mr Rauner proposed savings of $6.7 billion in state spending on health care for the poor, pensions for public workers, local government and universities. His aim, he said, was to present a budget that “lives within our means—without raising taxes or relying on irresponsible borrowing”.

Illinois has overspent and borrowed recklessly for years, and is now in the biggest fiscal mess of any state in the country. It has the most underfunded retirement system of any state, amounting to $111 billion in unfunded pension liabilities, as well as the highest pension burden relative to state revenue. Its credit rating is the lowest of all the states, which means dramatically higher borrowing costs. “Drastic measures are needed,” says Christopher Mooney of the Institute of Government and Public Affairs at the University of Illinois, Chicago, who thinks the governor’s “doomsday budget” was meant to get people’s attention.

Yet unlike Mr Walker, who can count on support from a Republican majority in both houses of the Wisconsin legislature, Mr Rauner faces a veto-proof majority of Democrats in both houses. “This budget is not politically viable,” says David Merriman of the University of Illinois. In particular, he adds, the big cuts in pension benefits and in the Medicaid programme, which handles health-care costs for the poor, will never get through. Mr Rauner hopes to save $2.9 billion by moving all state workers into the less generous pension plan that legislators approved in 2010 for state employees hired after January 1st 2011. And he wants to slash spending on Medicaid, which has already been squeezed, by a whopping $1.5 billion.

The governor’s pension reform is different from the overhaul passed in 2013 by lawmakers under Pat Quinn, his Democratic predecessor, which would have reduced annual increases in pension payments, raised the retirement age and capped pensionable salaries. A circuit judge struck down the Quinn reform, saying it violated the state constitution. The case is now before the Illinois Supreme Court, which is expected to rule the same way. The Rauner camp claims that his pension proposal can withstand court challenges, but most experts expect it too to run into legal trouble.

In the next few months the governor will have to negotiate with legislators to craft a budget that all sides can live with. If he wants to balance the books he will have to raise taxes, however unpopular that may make him with his Republican base. Supporters of Mr Rauner’s tough course say that small-scale pension reforms and tax increases simply won’t be enough to solve Illinois’s gargantuan problems, and would make the governor a lame duck.

The Civic Federation, a budget watchdog, suggests even sterner measures. They include getting rid of the tax exemption for retirement income, excluding Social Security payments and pension income of less than $50,000 a year. Mr Rauner should also tax 32 professional services that are currently untaxed, says the federation, and repeal the state’s sales-tax exemption for food and non-prescription drugs until the $6.4 billion backlog of unpaid bills is gone.

After years of mismanagement, Illinoisans are keen on change. A Gallup poll last year found that one in four of them believes their state is the worst to live in; about half of them said they would leave if they could. Only 28% of respondents said they trusted their government, compared with 60% nationally: fair enough, in a state where four of the last seven governors have ended up in jail. If the new governor turns Illinois round, as he promises, he will be a hero, says Mr Mooney. At this point, that is a very big “if” indeed.

Above is from:  The Illinois budget: Averting doomsday | The Economist