Possible federal bailout, Illinois Constitution change predicted
Ike Brannon is sounding the alarm about Illinois' future in a financial crisis.
“I could see how the federal government could get involved,” Brannon, a visiting fellow at the Cato Institute, told the Sangamon Sun.
He described this scenario: Illinois runs out of money and turns to the federal government, which helps but imposes restrictions. Americans get angry about the federal bailout.
In an article for the Weekly Standard, Brannon recently laid out what he sees as likely changes to the Illinois Constitution if things continue to go south.
Brannon said the federal government might try to institute a progressive tax, which is currently prohibited by the Illinois Constitution. Brannon suggested that longtime House Speaker Michael Madigan (D-Chicago) would welcome a progressive tax on higher-income residents.
Another change, Brannon said, would likely be to the state’s pension system, where he sees the possibility for real reform.
“There are so many games people play with Illinois pensions,” Brannon said, noting that in some cases, long-term pensions paid to public workers can amount to much more than the short-term salaries they earned to become eligible for the pension.
Brannon also suggested the possibility of top marginal income tax rates approaching 10 percent, citing New Jersey as an example of that kind of taxation, where the wealthiest citizens pay a higher tax rate.
He said overspending for years has created a problem that can't be solved overnight.
“You can’t just say, ‘Now we’re going to draw the line,'” Brannon said.
That, combined with research showing scenarios in which no achievable rate of return can keep pensions solvent, should keep Illinois politicians up at night, he said.
Brannon’s article provides the example of U.S. federal involvement in Puerto Rico. After a financial crisis on the island, the local government worked with the federal congressionally appointed Fiscal Oversight Board, which resulted in — in Brannon’s words — the “stiffing” of bondholders, an action prohibited by the Puerto Rican Constitution.
Brannon is also president of Capital Policy Analytics.