I read a story about the State of Illinois in Financial Times today and felt compelled to write an opinion.
Public debt or Bonds have long been an effective manner to run our public sector. They are paid by taxing those who live within or work within a public authority. Are we in need of an overhaul?
What’s fascinating to me about this story is how each person may interpret it and come up with a solution based upon their own personal needs and wants. A few will see a simple solution and think that those who are receiving too much of tax payer support in order to fund a retirement of other public benefit that is beyond the financial means of a public agency, must do with less.
A few people in a state recognize that Union leadership and those who wish to get elected to office, often rise to power by pledging to the workers/voters that they and they alone are the only ones who care about them. They must convince the workers/voters that if elected they will go after the boss and the rich and take from them and redistribute their wealth through wages, benefits and retirement plans.
It is a very successful strategy and, had it remained reasonable as was the case fifty years ago, it would have worked. However, in a demonstration of text book sociological studies, if you continue to give someone something, they will claim it is never enough! And so it went that city councils paid their fire fighters and police more and more. So did the counties and the states. They did the same with every public employee. As their ranks grew, so did their voting base. Add to this a narcissistic private sector, which far too often is more concerned about reality TV than how their society functions and you have the makings of a Roman Empire crumbling under its own weight and self-indulgence.
Don’t misunderstand my comments. It is not a matter of someone being deserving. There is a lot of deserving public employees as there are a lot of others in society with needs. I’m stating the obvious. Simply put, at some point the system will break. As the famous quote goes; “the problem with socialism is eventually you run out of other people’s money”. That time is nearing if not already arrived.
History throughout the world and here in America shows that people will sacrifice to save their country. They send their children to war, they do with less and they pay taxes. Are we willing to sacrifice? All of us?
If you’re a public employee with a retirement package that was negotiated for you under the threat of a strike and a shutdown of services, or my personal favorite; “we will spend thousands or millions to campaign against you if you don’t support our wage and benefits package”, than are you willing to give up that which the state (Which is nothing more than your neighbors) simply cannot afford?
Or, is the only answer in your opinion to tax business and individuals more? Do you say; “so what if my neighbor has to work fifteen to twenty years longer than I had to in order to fund their own retirement”. “They could have applied for work at the same place I did”. “Tax others more, I earned my retirement and I don’t care if my state goes bankrupt”.
If everyone works for the state and we get rid of the private sector, which is socialism defined, than we can say good bye to the greatest nation on the planet. We will say goodbye to the nation that has brought peace to the world due to our strength and our ability to work collaboratively with other likeminded individuals around the globe, as well as coexist peaceably with those who view things differently than we do. Regardless of the propaganda, we don’t start fights, but we finish them.
Illinois’ has long been a union state. They have a long history of socialism in their politics. Now, they’re technically bankrupt. The privet sector businesses that are left were recently given tax breaks so they wouldn’t leave and employ those who were willing to be appreciative of a job in a neighboring state.
Governor Pat Quinn says the state needs to face its “rendezvous with reality” and tackle its dysfunctional budget habits. Top of the list, Mr. Quinn says, is to slash spending on Medicaid, a federal program that provides healthcare to poor Americans.
To save a system he says is “on the brink of collapse”, Mr. Quinn proposes cutting $2.7bn from Illinois’ $11.5bn Medicaid bill. Few would dispute that the state needs to change its behavior. Last year, Illinois underfunded Medicaid by $2bn as it struggled with debts totaling more than $280bn, an $86bn hole in its public pension funds and a $9bn backlog of unpaid bills.
Those unpaid bills are to the small businesses that have their own private sector employees who in retrospect made a mistake in contracting with the state of Illinois. When Illinois fails to pay their bills they put business into bankruptcy and force them to lay off their employees. Why? So the state can continue to pay for retirees who in many cases are receiving 90% of their last year’s earnings for life! Plus they and their families receive full medical benefits, again, for life. I would say; “good for them” if it was not causing so much pain to their neighbors who are being laid off and unable to get medical insurance. I would say; “fine” if the poorest amongst us were able to get some basic medical care on the states dime while they are struggling.
To stem the growing shortfall in its public pension funds, Illinois pledged to pay its full pension obligations, $5.2bn next year, without borrowing, something budget watchdog groups have long urged it to do.
However, the state can only afford to do this by cutting sharply elsewhere. “This represents the ‘crowding out’ of spending as a result of the demands of the pension system,” says Joshua Rauh of Northwestern University.
In that sense, Illinois, which has the most underfunded public pension system in the US, could be a leading indicator for a pension crunch that will hit other cash strapped states. “We’re going to see more and more states cutting spending to meet pension obligations mandated by the state’s own statutes,” says Prof Rauh. The only way to get around this is for the states to file bankruptcy.
Illinois’ Governor also proposes closing two state prisons and six halfway houses. Is this really how we want to “keep our promise to those who agreed to work in the public sector”? Many say, we cannot cut pensions to those who worked for thirty years in the public sector and I understand that. However, at what cost? More crime? More poor without services? Is it possible, just humor me here, is it possible that the elected leaders agreed to give too much in order to get elected and remain elected?
Illinois is only remaining solvent by not paying its bills on time, a practice that hurts thousands of small contractors that do business with the state. Yet state legislators are in little mood to cut spending when they are facing re-election in November.
Prof Rauh reckons that ultimately, fiscal discipline will only come when the bond market demands it. Moody’s, the rating agency, downgraded Illinois in January to the lowest credit rating of any US state. Yet less than a week later, the state auctioned $525m of general obligations bonds at 3.9 per cent, the lowest rate on such a bond in recent history. How were they able to do so? Because they have “police power”. Investors know that all the state has to do is tax the public more and cut services and they will come up with the money.
So what is the answer? I raise the question not necessarily with an agenda, but to create debate so that collectively, we may come up with a solution that does not pit one segment of our great society against another. If I were king I would likely force a reduction in retirement packages as well as reduce public services. I would plead with the church’s to pick up were the state is forced to exit. I would make us more competitive globally by taking advantage of our resources and managing those who are exploiting our resources and selling them to other countries for their own gain and a cost to our citizens.
This election seems destined to pit us against each other. I for one would like to challenge my fellow Americans to a more educated discussion than; “let’s tax those who are flying around in private jets”.
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