Letting pension system fail described as tough love for Illinois
Mike “Mish” Shedlock, who runs the blog “MishTalk.com,” believes imposing more taxes on Illinoisans with the biggest pensions can solve the pension crisis.
“I think that pensions above a certain amount ought to be taxed extremely heavily,” Shedlock said. “I’m talking about public pensions here. I’m not talking about the average little guy that was just in the system in the last 10 years and is getting a small pension and is not on Social Security. Those are the guys that are actually going to get hit hardest. They got hit hardest in California. They got hit hardest in Detroit.”
Shedlock's comments on Dan Proft's “Illinois Rising” radio show came after this publication revealed that a Local Government Information Services study discovered that Chicago’s police pension fund won’t have enough money to pay benefits to retirees in 2021.
By the end of 2020, the Policemen’s Annuity and Benefit Fund of Chicago is estimated to have less than $150 million in assets to pay $928 million in promised pensions to 14,133 retirees.
The study found that fund assets will fall gradually year by year, to $1.4 billion by the end of 2018, $751 million by the end of 2019 and $143 million by the end of 2020.
Patrick Hughes, Proft's co-host and co-founder of the Illinois Opportunity Project, asserted that the pension system in Illinois needs to collapse so that the state can learn to pick itself up again.
“This is a little bit like the addict that has to hit rock bottom before they start climbing out of the hole,” Hughes said. “This is the necessary thing that is going to have to happen at the state level and at the municipal level for us to get our hands around the public pension finance crisis. The recipients have to realize that the money is not going to be there, and if things don’t change, they’re not going to get any of the benefits that they were promised, much less all of the benefits they were promised. And when that starts to become part of the body politic, I think that is when real structural reform can get done.”
Shedlock agreed, asserting that municipal pension plans should be allowed to go bankrupt.
“We’ve seen what is going to happen," he said. "You can look at Detroit. You can look at Stockton. You can look at various cities in California that have gone bankrupt. We’re not talking about a city going bankrupt here. We’re talking about a pension plan going bankrupt. I believe the municipality plan itself could go bankrupt, and that would be exactly what I would propose. But it’s never going to happen.”
Shedlock asserted that since municipalities are not allowed to go bankrupt without state approval, the next best thing is to heavily tax the biggest pensions.
Proft, host of "Illinois Rising," is a principal of Local Government Information Services, which owns this publication.