CHICAGO - During his quick stopover at CPAC Chicago June 8, US Senator Rand Paul spoke briefly with Illinois Review. "Illinois' financial situation is a mess," Paul said unprompted. "And I think they expected Congress to bail them out. That's not going to happen, you know."
Indeed, months ago US Rep Peter Roskam led a delegation of Illinois GOP Congress members in writing a letter to Governor Pat Quinn assuring him that they would not support or enable a federal bailout for the unprecedented financial pit Illinois had dug herself into.
"However, there's something I do fear could happen," Senator Paul said. "I'm concerned the Federal Reserve could take steps to rescue Illinois, and maybe California or New York, too."
"They would print money to bailout Illinois," he said.
And with that, Senator Paul dashed off to his next conversation, leaving us wondering just how the Federal Reserve could do something like that? We talked with a few budget observers who suggested it could happen if the Federal Reserve Board issued bonds to sell off the state's pension debt to wealthy persons or countries. That would involve pulling other more prudent states into the fallout and would set into chain reaction inflationary conditions that would affect the rest of the world.
A Pew Study this week found several states in trouble with their retirement pensions, but none as bad as Illinois:
Nationwide, some 22.5 million public workers fall under a state pension plan. When states fall behind in their retirement contributions, they'll have to come up with even more money later to make up the difference. In addition, pension and retiree health costs are growing, driving up state expenses even more. That leaves states less and less each year to spend on education, public safety and other government services.
Illinois had the worst funding level at just 45 percent. Officials there say fixing the problem is a top priority, but a proposal to cut cost-of-living increases for current employees and retirees has stalled in the General Assembly.
Photo by Keith Liscio, Copyright 2012