WirePoints Original: Cost of fiscal storm coming to Illinois will dwarf damages from Sandy and Katrina
By: Mark Glennon*
Illinois has yet to come to grips with the enormity of the catastrophe it faces faces from its fiscal mess. Comparison to devastating storms may help.
Let’s start with the high end of current damage estimates for Sandy — about $50 Billion, as detailed recently in the Washington Post, using data from the National Hurricane Center. Katrina was worse when it hit New Orleans and the Gulf Coast in 2005 — $108 Billion, according to that same data, which would be about $128 Billion in today’s dollars. Combined, the two storms total $178 Billion.
What does the storm approaching Illinois look like? The state’s “official” estimate of the unfunded liability of the state’s five employee pension funds alone is $84 Billion, but nobody believes that because the state uses a phony assumption about how much it will earn on pension money it has invested. A correct assumption takes that unfunded liability up to $200 Billion.
Then there are state liabilities for retiree healthcare for which the state has put aside nothing. That’s probably another $50 Billion. And throw in another $6 Billion or so in ordinary bills backlogged that the state has not paid.
That gets us to $256 Billion just at the state level.
If you are in Chicago you could add in tens of billions more for unfunded liabilities for pension funds for the city, county, CTA, Chicago teachers and more, but let’s not even bother with that.
Keep in mind that the $256 Billion is just the unfunded liabilities — those for which the state has set aside nothing and has no revenue stream yet identified that could cover them. It does not included the state’s bond obligations, pension liabilities that are funded and other routine obligations.
No, the 66% “temporary” tax increase in 2011 did not help. It barely dented the yearly operating budget, which remains in deficit. Further tax increases likewise won’t help much because we have reached diminishing if not negative returns — Illinois is becoming uncompetitive and further tax increases may well lose more from driving out taxpayers than they will raise from those who stay.
So, the damage claim coming at the state level is $78 Billion more than the combined damages of Sandy and Katrina, but here is what makes the Illinois number dramatically worse: Those damages from Sandy and Katrina were spread out across many states, many people, many governments and many insurance companies. Sandy has affected some 80 million people across fifteen states. Insurance companies will pay $10 to $20 Billion of its damages. The Federal government covered most of Katrina’s. But there is only one source for Illinois to pay its liabilities — Illinois taxpayers. There will be no Federal help and there is no insurance.
Hurricanes usually weaken after reaching category five, but our fiscal problems get worse each year as bills accrue unpaid.
None of this bean counter and budget stuff kills anybody but hurricanes do, right? Wrong. When DCFS cuts off programs for disadvantaged kids, and the wait in the ER at Cook County Hospital is two hours, and Medicaid eligibility is cut, and drug rehabilitation programs close, and early intervention opportunities are lost and any number of other things that modern governments usually help with are gone, yes, people die. All that is being crowded out by pensions and other spending.
The link to those people cut off may be murky — we will never know their names or faces. They have no union, no super PAC, no political party. But they are there.
Time for Illinois to face reality.
Mark Glennon is founder of WirePoints