Surviving Illinois' debt sentence
If Illinois government were a private business, it would be careening toward bankruptcy, an influential civic group said Wednesday in a report that identified $106 billion in liabilities that the state has no money to pay.
The amount equals a debt of $8,800 per Illinois resident, said the report from the Civic Committee of the Commercial Club of Chicago, a nonprofit association of elite business leaders. It said the long-term bills total nearly three times what the state spends each year in discretionary accounts, money not held aside for a specific purpose.
It warned that the cost of doing nothing about the shortfall would be devastating. Worst-case scenarios foresee pensioners going unpaid and credit-rating agencies downgrading the state's debt, making it more difficult and expensive to borrow money.
(Sun-Times)
(Ernie Torres/Sun-Times)
• State worker pensions.
• Health care costs for active and retired employees.
• Piled-up Medicaid bills.
The $106 billion tab doesn't include costs for boosting school funding.
Not responding promptly could result in much higher tax increases later, which would render Illinois uncompetitive as a business location, said R. Eden Martin, the Civic Committee president. Another possibility would be catastrophic spending cuts in state programs.
W. James Farrell, a Civic Committee leader and retired chairman of Illinois Tool Works Inc., said the group steered clear of casting blame on any administration or political party. But it was clear the situation stems from long-term inattention to the costs of the state's pension and health benefits, which are uncommonly generous compared with those in private industry.
"Let the facts speak for themselves," Martin said. The group hopes its report can influence the content of Gov. Blagojevich's next budget address to the General Assembly in early 2007.
The unfunded pension obligation totals $56 billion, counting bonds issued to pay some of the cost, the committee found. It estimated the health care tab at $48 billion.
Martin said Illinois is funding only about 59 percent of its pension liabilities, the fourth-worst performance among the 50 states. But he said the dollar amount of the liability may be the largest of any.
This extra funding would "transform public education in Chicago," said Chicago Public Schools CEO Arne Duncan.
"Could you imagine what we could do with those types of resources in reducing class sizes, more summer school, more reading specialists and full-day kindergarten?" asked Duncan, who advised on the report.
State aid to local education is supposed to equalize resources among school districts, to provide that every district will have no less than the "foundation level" of per-pupil expenditures.
But the state has not provided foundation-level funding since fiscal 2002, the Commercial Club report said. In 2006, the gap totaled about $1,240 per pupil.
If Illinois were to fund every school district at the "foundation level," the Chicago Public Schools would reap $400 million more annually in state money, the Civic Committee report said.
The state also does not contribute to funding Chicago teachers' pensions as it does in other school districts -- a $75 million potential benefit.
Mary Wisniewski
Those eligible for state pensions include teachers and administrators at public schools, judges, General Assembly employees, state university workers and state service employees.
Not counting judges and General Assembly retirees, about 180,000 people are collecting state pensions, according to Becky Carroll, spokeswoman for the state's Office of Management and Budget.
The average Teachers Retirement System pension is $36,400 a year. The average State University Retirement System pension is $25,600, while the average State Employees' Retirement System pension is $18,400.
One notorious state pensioner is Roger "The Hog" Stanley, a former state lawmaker who ran a successful direct-mail firm specializing in political campaigns and pleaded guilty to a bribery scheme. Stanley got to keep his state pension of $55,253 annually.
The Commercial Club was founded in 1877 by a group of 17 businessmen, and today as then, it is driven by a belief that Chicago needs a strong and cohesive civic force to help shape the course of the city's development.
The club's smaller Civic Committee, made up of about 80 members, was formed in 1983 to undertake projects to bolster core industries and economic development for the region. The Civic Committee has been the Commercial Club's agent of change.
The committee's Task Force on State Finance is led by W. James Farrell (at right), retired CEO of Illinois Tool Works Inc., and includes Lester Crown, industrialist and investor; Donald Lubin, head of Sonnenschein Nath & Rosenthal law firm; John Madigan, former CEO of Tribune Co.; Andrew McKenna, CEO of privately held Schwarz Paper Co.; Richard L. Thomas, former CEO of First Chicago Corp.; David B. Weinberg, Judd Enterprises Inc., and R. Eden Martin, president of the Commercial Club.