Marathon Pundit: Ideas to fix Illinois

Tuesday, March 16, 2010

Ideas to fix Illinois

Writing for RealClearMarkets, Josh Barro has some ideas on fixing Illinois.

The Illinois Policy Institute, a free-market think tank based in Chicago, has promoted a creative reform on public pensions, which combines a state expenditure limit with a commitment to direct all surplus revenues into the pension fund until adequate funding is reached. New employees would be shifted to a defined contribution retirement plan that would prevent future pension funding crises.

Meanwhile, the state and localities could freeze or even cut employee wages to offset the value of generous pensions. Fewer than 2% of state employees voluntarily left their jobs in 2008, a lower figure than in any other state, which suggests that Illinois could reduce employee compensation while continuing to retain talent. (Similarly, a wage freeze at the school district level would significantly reduce the pressure from state aid cuts.)

What Illinois cannot do is go on forever with a fiscal strategy of borrowing to finance current operations. The state already has one of the worst credit ratings in America (though still better than California), which will continue to deteriorate so long as the state's structural deficit and pension underfunding problems persist. If the state fails to control spending and fix its pension problem, it is poised to follow California off a fiscal cliff.