Wednesday, July 5, 2017

We weren't Illinois before Walker, and aren't like the FIBs...yet

I wanted to take a bit to discuss the budgetary mess in Illinois, which WisGOPs try to use as justification for their bad policies ("look at Democrat-run Illinois! You don't want us to be like them!"). Illinois was being threatened to have their credit rating cut to "junk" if they did not reach a budget deal to solve a budget deficit estimated at over $6 billion.

In no small part, this fiscal crisis is due to the state's decades-long trend of borrowing and can-kicking when it came to paying their bills, and the July 1 Fiscal Year arrived without a budget in place between the Democratic-run Legislature, and GOP Governor/oligarch Bruce Rauner. Over the Independence Day weekend, the Illinois Legislature sent a bill to Rauner that would raise the state's flat income tax from 3.75% to 5%, and also raise its corporate tax rates. Rauner vetoed it on Monday, but that veto was quickly overridden by the Illinois Senate, and the Illinois House seems set to override tomorrow, which would turn the tax hikes into law, a move that credit agencies are cheering as a step toward fiscal stability (although the state has many steps to go).

In addition to all of the borrowing from both Republican and Democratic administrations, one of the main reasons Illinois has become such a complete fiscal mess is due to their underfunded (and comparatively lavish) pensions for public workers. The Khan Academy put together this kinda-awesome video explaining how it got there by 2012, and the situation has not improved in the 5 years since then.

WisGOPs and other right-wingers frequently cite Illinois as a reason that Wisconsin had to bust public employee unions with Act 10. There was one big problem with that statement. In 2011 WE WERE NOTHING LIKE ILLINOIS ON THESE ISSUES. Not in having their type of fiscal mess, and because our pensions have always been among the best-funded in the nation.

Let's go back to February 2011 as Walker was introducing the legislation that became Act 10, and note this breakdown by the Huffington Post’s Zach Carter
According to the Pew study, Wisconsin had about $77 billion in total pension liabilities in 2008. But according to that same Pew study, those liabilities were 99.67 percent “funded,” giving Wisconsin one of the four-highest of such ratios in the nation. Other states had funding ratios as low as 54 percent. For comparison, expert analysts and the Government Accountability Office consider an 80 percent level to be a good benchmark for pension fund stability, while Fitch Ratings considers 70 percent adequate.

Pension accounting relies on a very long-term outlook. When the state calculates its pension liabilities, it adds up the total expected pension expenditures for the entire lifetimes of everybody currently receiving a pension and all employees expected to receive pensions. That outlook routinely eclipses 30 years, depending on the ages of state employees. A $77 billion liability is only a problem if the state has no realistic way of meeting those expenses over that 30-plus year timeframe. But the Wisconsin pension system actually does have the vast majority of that money — in fact, in 2008, the pension fund had 99.67 percent percent of that $77 billion total on hand. If all of the assets in the fund had simply been sold at market values on June 30, the resulting cash would have been enough to pay 99.67 percent of the state’s total pension payouts for decades to come.

According to the Wisconsin pension fund’s own 2010 annual report, the system had $69.1 billion in total assets at June 30, 2010, while paying out $3.7 billion in benefits over the course of the previous year. The value of those assets has since risen. According to Dave Stella, secretary of the Wisconsin Department of Employee Trust Funds, the retirement system’s assets were worth $79.8 billion at the end of last month. The most recent solvency test for the fund was conducted for the fund’s operations at Dec. 31, 2009. At the time, the funding ratio was 99.8 percent. The next solvency test is scheduled for June of this year.
Walker knew these facts when he took office, but he was counting on the average dope not to figure this out when he introduced Act 10, to trick them into thinking public employee benefits were causing a fiscal crisis, and to play “divide and conquer” by ginning up resentment against those public employees having those benefits.

6 years later, the strong status of the Wisconsin Retirement System (WRS) which covers most public employees is still in place, even with the stock market crash of 2008 being “smoothed out” through 2012. These figures are courtesy of last December’s report from the Legislative Audit Bureau.

Funded ratio, WRS Dec 31, 2015
Total Net Position (assets) $88.5 billion
Total Pension Liability $90.1 billion

Even if there is a year when the Wisconsin Retirement System's assets don't reach its benchmarks in a year the stock market flatlines or declines (it assumes a 7.2% increase each year), the WRS can either increase required contributions from employees and taxpayers, and/or reduce pension payouts in a given year. So there is rarely a significant drop in the funded ratio, and if there's a year where the market does well (as it's done in this stupid Trump rally), those costs are less and there's a nice bump for your retirement account.

And here's a dirty secret you never hear from Walker or other WisGOPs. Act 10 did next to NOTHING to improve our funded ratio. All it did was change who was paying those contributions, shifting it more onto state employees and away from other taxpayers. And any help to the state budget in the form of “savings” to the State of Wisconsin were promptly blown by Walker and WisGOP on tax cuts, which explains why we have such serious constraints on our budget despite a better economy (Thanks Obama!) and the decreased amount of taxpayer funding into the pensions.

Now compare that to Illinois’ fiscal problems with their pension fund, as outlined in a recent report from CNN.
[Moody's credit officer Ted] Hampton said Illinois treated the pension fund as a "financial cushion" that could be relied on to provide fiscal relief. He also pointed to a tendency to delay paying bills and chronically underestimate spending needs.

"All of these problems are governance and management weaknesses," Hampton said….

Illinois is also notorious for using one-time financial tricks that masked the scale of its growing fiscal problems.

"Republicans and Democrats would stand up and say they passed a balanced budget, but it wasn't -- and they knew it," said Diana Rickert, vice president of communications at the Illinois Policy Institute, a free market-oriented think tank.
Wait, claiming fiscal balance where it doesn't exist? One-time tricks and hopes things will work out at a later point? Why does that sound familiar...

Oh wait, that's like when Scott Walker's administration skipped debt payments to keep the budget "balanced", in the same budgets where they increased borrowing for roads. There's also the 2017-19 proposals to use state tax dollars to “buy down” items such as the state Forestry Tax, and to give pre-election bumps in per-pupil aid, while deferred debt and previous tax cuts add up to a $1 billion deficit in the next budget.

No, we are not Illinois at this time. But between blatant pay-for-play corruption, openness to tolling roads, and reliance on "borrow and spend for everything and hope we don't have to pay up" budgeting mentality, you can see where Wisconsin is heading that way under today's GOP. Heck, I bet Scott Walker is a huge Cubs fan, since Chicago owner Tom Ricketts gave Walker's failed superPAC $5 million in 2015 (and has funneled God knows how much through right-wing dark money).

As the FIBs can tell you, sooner or later, the tune in the "musical chairs" budget game will stop at some point, often when a recession hits, and rough choices have to be made. Scott Walker and the WisGOPs are hoping that game stops at a time when Democrats in Wisconsin that will be forced to clean up their mess. Which would enable WisGOP to fall back to their favored position- bitching and blaming others for the problems their bad policies have caused.

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