Tag: Jim Farrell

Illinois’ Pension Time-Bomb Too Big Too Fix

So says the Commercial Club of Chicago.

In a memo to its members, the Civic Committee of the Commercial Club of Chicago said last week’s elections didn’t bring in an influx of lawmakers willing to deal with the pension crisis but instead leaves taxpayers with “more legislators who aren’t prepared, or willing, to make the tough decisions necessary to save our state.”

“We are writing today to let you know that the pension crisis has grown so severe that it is now, unfixable,” said the letter co-signed by Miles White, chairman of the Commercial Club; Jim Farrell, chairman of the Civic Committee, and Ty Fahner, president of the Civic Committee and Commercial Club.

via Sun-Times.

Miles White is the Chairman and CEO of Abbott Labs.  Jim Farrell is the retired Chairman and CEO of Illinois Tool Works.  Ty Fahner is a partner at Mayer Brown where he handles tax, bankruptcy, and securities matters.  These are not dumb guys.  They understand finance and are used to dealing with large numbers.

The headline is of course misleading; the problem is fixable.  It’s really just that every week that’s wasted means the solution will be more painful.  The Commercial Club outlines what it thinks needs to be done:

  • All cost-of-living increases need to be eliminated for retirees, who now get annual 3 percent pension boosts.
  • A cap on salaries must be imposed upon which pensions can be based.
  • The retirement age for full pension benefits needs to be raised to 67.
  • Downstate and suburban school systems must be forced to take on pension payments from the state for educators over a 12-year phase-in.

This is pretty painful for the pension members.  Naturally there will be some pain on the taxpayers as well.  It’s a bad situation that’s only getting worse by the day.

How Retirement Benefits May Sink Illinois

We’re national news again.

…  Indiana’s debt for unfunded retiree health-care benefits, for example, amounts to just $81 per person. Neighboring Illinois’s accumulated obligations for the same benefit average $3,399 per person.

Illinois is an object lesson in why firms are starting to pay more attention to the long-term fiscal prospects of communities. Early last year, the state imposed $7 billion in new taxes on residents and business, pledging to use the money to eliminate its deficit and pay down a backlog of unpaid bills (to Medicaid providers, state vendors and delayed tax refunds to businesses). But more than a year later, the state is in worse fiscal shape, with its total deficit expected to increase to $5 billion from $4.6 billion, according to an estimate by the Civic Federation of Chicago.

Rising pension costs will eat up much of the tax increase. Illinois borrowed money in the last two years to make contributions to its public pension funds. This year, under pressure to stop adding to its debt, the legislature must make its pension contributions out of tax money. That will cost $4.1 billion plus an additional $1.6 billion in interest payments on previous pension borrowings.

Business leaders are now speaking openly about Illinois’ fiscal failures. Jim Farrell, the former CEO of Illinois Toolworks who is heading a budget reform effort called Illinois Is Broke, said last year that the state is squandering its inherent advantages as a business location because “all the other good stuff doesn’t make up for the [fiscal] calamity that’s on the way.” Caterpillar, the giant Peoria-based maker of heavy construction machinery, made the same point more vividly when it declined in February to locate a new factory in Illinois, specifically citing concern about the state’s “business climate and overall fiscal health.”

via WSJ.

How bad is it going to be?

Back in Illinois, Dana Levenson, Chicago’s former chief financial officer, has projected that the average city homeowner paying $3,000 in annual property taxes could see his tax bill rise within five years as much as $1,400. The reason: A 2010 Illinois law requires municipalities to raise the funding levels in their pension systems using property tax revenues but no additional contributions from government employees. The legislation prompted former Chicago Mayor Richard Daley in December to warn residents that the increases might be so high, “you won’t be able to sell your house.”

We’re in trouble.

Local media is still ignoring.  National media starting to ring the bell.