Sunday, December 2, 2012

Fiscal Cliffs and Pensions in Illinois

Fiscal Cliffs & Pensions (the Nightmare After Christmas)

Fiscal Cliff (idiom):  A metaphorical euphemism to describe the pre-arranged and self-inflicted punishment that the United States of America will have to undergo at the end of the current year when the requirements of the 2012 Budget Control Act take effect; that is, if there is no compromise.  Chances are currently unlikely.

The nation’s lurid phantasmagoria coined the “fiscal cliff” has had little or no connection in the press to the egregious effects it will have on the economies of our many states.  Sadly, states like Illinois, which already hold an indisputably uncomfortable fiscal position may be exponentially affected by the federal government’s inability to find resolution on the national level.  In essence, what is a currently contrived pension “crisis” in Illinois could become the necessary scapegoat for a deadbeat state treading water to one facing another national fiscal tsunami. Given the ethos of our current General Assembly, this may be an unfortunately forgone conclusion.

States with monetary houses out of order or that are greatly dependent on federal dollars will be severely impacted by the fiscal cliff, decline, rut, etc.  It makes sense.  For example, states that have become very dependent on excessive or large contracts for national defense spending will find themselves losing access to vast sums of what had been a normal part of their yearly GDP (Gross Domestic Product).  While Illinois is not a state so dependent on national defense spending, other states like Hawaii with a great dependency on such expenditures are looking at a fiscal chasm if there is no resolution.

The impact of the last Great Recession in Illinois has left our budgetary house in complete disorder, special thanks to those in the Illinois state government who earlier avoided making the necessary and responsible payments to over a million public sector workers while using their industry as a credit card to seek popular acclaim. 

A “fiscal cliff” in 2012-13 can only augment the fiscal nightmare Illinois now faces.

Because federal and state finances are often interconnected, the failure to come to some consensus and instead hold to partisan lines drawn in Washington will result in significant increases in federal taxes and federal spending cuts to the states; hence, money lost to the state budgets for services.

Under the Budget Control Act of 2011, when the “super” committee was unable to find resolution in spending cuts, across the board spending will take effect on January 2, 2013 – probably one day before a special session in the General Assembly where pension reform will be a major topic.  Under the Budget Control Act, everyone from a major company, middle-class family, and a small retail shop will be affected harshly. 

The list is not endless, but the pain will be.  First, federal grants will become subject to immediate across-the-board cuts.  Note: This will include funding for education programs, assistance for low-income families (women and children), public housing, etc. 

Even without another almost guaranteed tumble into recession, the percentages of lost revenues to Illinois are shocking: Federal Grants at 8.5% of GDP, Federal Defense Grants at 1.5% of GDP, Federal non-Defense Salaries at 1%, Federal Spending on Salaries, Wages, Procurements at 2.5% of GDP. 

Illinois' total GDP for 2011 was $671 billion.  With these numbers provided by Pew Research Institute, Illinois could face a loss of 13.5% of GDP or $87 billion. 

We have a stake at the national level too, my friends. 

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