There’s an old saying that if you owe the bank $1 million, you have a problem. But if you owe the bank $100 million, then the bank has a problem.
That’s the situation we’re in today.
States around the country have racked up outrageous unpaid balances for their pensions. Few of them have any plan for digging out of the hole. Since they have no plan, they’re creating issues for everyone who might be called upon to help them make good on their obligations.
Even if you don’t live in one of these states, you might still have a problem. In effect, the states owe a lot of money, and all of us are the bank!
Some states, like Rhode Island, tried to deal with the issue. That state slashed benefits and jacked up contributions.
But in many states like Illinois, state pension benefits are constitutionally guaranteed, so benefits cannot be cut. This leaves taxpayers in the state to foot the bills as they come due, no matter what the cost. And in some cases, bondholders suffer as well.
That’s where you might have a problem.
In Illinois, the unfunded liability sits at $110 billion and is getting worse by the month. After years of mismanagement by the state, Illinois has about 48 cents of every dollar it needs to make good on its pension promises.
Across the country, smaller entities like cities, school systems, and counties are suffering from the same disease – official mismanagement.
The basic problem is that current politicians negotiate changes, while future politicians are left to clean up the mess when things blow up. These changes include benefit increases, fewer years of service needed to retire, and how much the entity will contribute each year to the pension.
Now, the politicians who created today’s problems in the 1990s and early 2000s aren’t around to answer for their sins.
Meanwhile, the workers who toiled for years with their pensions in mind want what is rightfully theirs.
This is all coming to a head in states like Illinois, and cities like Chicago. The money’s running out, and government officials refuse to raise taxes any higher on their constituents.
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