Why Illinois (Or Your State) Could Be The Next Greece

Matthew Sullivan Contributor
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While the U.S. fiscal economy stays afloat, states like Illinois and New Jersey may be headed into a new era of economic depression in pension policy, according to the Christian Science Monitor.

Six years after the recession, some state economies are still struggling to manage pension liabilities, according to a report released Tuesday by the Mercatus Center at George Mason University in Arlington, Va. The report’s 50-state economic ranking placed Illinois and New Jersey at the bottom of the list. Thirty-four states had negative fiscal condition indexes.

The Mercatus Center report questions whether the scenario bares faint similarities to the beginning of the economic crisis in Greece. While we’re not there yet, some believe the states might be soon.

Stanford University finance expert Joshua Rauh predicts that unfunded pension liabilities at the state level now totals around $4 trillion. The value was previously acknowledged as $1 trillion.

“The solution to this issue is going to have to be some kind of shared pain,” said Rauh.

Illinois exemplifies the risks that could arise over time in numerous U.S. states that promised more than they can achieve for public pensions.

Republican Illinois Gov. Bruce Rauner is currently involved in a stalemate with the Democratic legislature over how to balance the state’s budget with a focus on public pensions. The deadlock has been so extensive that there have been talks of a possible state-government “shutdown” as the state entered a new fiscal year on July 1.

Long-term fiscal solutions for Illinois are harder to come by as the state has unusually strong constitutional protections for state workers against pension cuts.

The Christian Science Monitor asserts that the simple solution for how to deal with pension shortfalls is to reduce pension obligations. Other options include asking public workers to fund more of their benefits out of pocket and attaining funds from outside tax revenues.

Some experts argue that the pension issue is not as serious as the report predicts it to be, stating that long-term finances are generally more manageable for the majority of states. Not even Illinois is facing the same kind of turmoil that surrounds Greece, whose economy is currently entering into chaotic debt as it exits from the Eurozone.

“You need a balanced solution on pensions, which could mean part from current employees, part in benefit adjustments, and part from a state’s general fund, said Liz McNichol, a senior fellow at the Center on Budget and Policy Priorities.

In general, states with low debts and high natural resources rank high in fiscal health. The top five states with the best economic longevity are Alaska, North Dakota, South Dakota, Nebraska, and Florida.

At the bottom of the list is Illinois, New Jersey, Massachusetts, Connecticut, and New York.