By thy rivers of debt gently flowing, Illinois, Illinois. O’er thy prairies of corruption growing, Illinois, Illinois. (source: http://www.lyricsondemand.com/miscellaneouslyrics/statesongslyrics/illinoisstatesonglyrics.html)
The Debt Bomb That Taxpayers Won’t See Coming by STEVEN MALANGA
Earlier this month, the Securities and Exchange Commission charged Illinois officials with making misleading statements to bond investors about the state’s pension system. The agency detailed a long list of deceptive practices including failure to tell investors that the system was so underfunded that it risked bankruptcy.
Illinois taxpayers, as well as the holders of its debt, will ultimately bear the burden of the officials’ misdeeds. But there is nothing unique about the Prairie State. For years, elected officials in states and municipalities across the country have been imprudently piling up obligations that are imposing serious strains on budgets, prompting higher taxes and cutbacks in services…
To prevent the pile-up of hidden debt, taxpayers need to spearhead a revolt that will narrow the ability of officials to mortgage their future. Any such revolt will first of all seek an end to government sponsored defined-benefit pension plans, through which politicians promise benefits years hence to current employees in a manner that potentially leaves taxpayers on the hook for unlimited liabilities. Simpler, defined-contribution plans featuring individual retirement accounts would make government pension systems less expensive and their accounting more transparent.
Similarly, reformers will have to rein in borrowing by independent authorities and other government entities created to circumvent current debt limits. No state or municipality should be allowed to issue any debt for which taxpayers are ultimately liable without voter approval.
Without such reforms, many states risk becoming like Illinois, where a $7 billion tax increase in 2011 was largely gobbled up by rising pension costs, leaving the state with a $9 billion backlog of unpaid bills and the prospect of new taxes to pay off its $271 billion in debt. This is a future in which rising taxes don’t provide citizens new services but merely go to pay off hidden debts.
Mr. Malanga is a senior fellow at the Manhattan Institute. This column is adapted from a forthcoming issue of City Journal, where he is a senior editor.