Government Pensions

Steve Malanga, in a Wall Street Journal op-ed, had some rather dismal things to say about the health care and pension obligations of various state and local governments.

Citing Chicago Mayor Rahm Emanuel, he wrote

Unless Illinois enacts reform quickly, [Emanuel] said, the costs of [pension and retiree health-care] programs will force taxes so high that, “You won’t recruit a business, you won’t recruit a family to live here.”


Early last year, [Illinois] imposed $7 billion in new taxes on residents and business, pledging to use the money to eliminate its deficit and pay down a backlog of unpaid bills (to Medicaid providers, state vendors, and delayed tax refunds to businesses).  But more than a year later, the state is in worse fiscal shape, with its total deficit expected to increase to $5 billion from $4.6 billion….

The result?  For one, Caterpillar, which makes heavy construction machinery, decided last February to build its next plant in Not-Illinois.

But Illinois isn’t alone.  California is acting just as…suboptimally.  In Oakland, property taxes are still being collected, to the tune of an additional $410 per year beyond “ordinary” property taxes, to pay off a municipal pension fund that went bankrupt over a generation ago—in 1976.  So is Massachusetts going broke.  The Massachusetts taxpayers Foundation found that, for 10 cities in the state, the average per person debt for unfunded retiree health-care government obligations was more than $13,500.

There is, though, no competition among the states for getting businesses to locate in them.  It’s a no brainer, as the difference between the neighbors, Illinois and Indiana, illustrate.  Indiana’s per capita debt for unfunded retiree health-care benefits is $81. For Illinois, it’s $3,399.


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