Illinois’ Growing Public Employee
Pension Liability Crisis, by Craig Eyermann, 9/6/18.
Illinois is rapidly
advancing into
one of the worst state government pension liability crises in American history.
Last week, debt rating
service Moody’s announced that Illinois had
achieved the most underfunded pension system for state government employees in
U.S. history, where the state “saw its adjusted net pension liabilities reach
$250 billion, or 601% of state revenues (in 2017, before the state’s 2018 tax
increase), an all-time high for any state.”
According to Moody’s, the
median net pension liabilities for states nationally is 107 percent of their
tax revenues. Those liabilities are
costly in that Illinois’ credit rating has fallen to be
just one
step above junk status. The lower a borrower’s credit rating, the higher the interest
rates they must pay when borrowing money.
Even more remarkable is
that Illinois’ public employee pension managers lost
money in 2017,
defying the odds of making money through investments
during a year that saw one of the biggest and longest sustained rallies in U.S.
stock market history.
To say that Illinois’
pension plans for state and local government employees are in a state of disaster
is something of an understatement. Because Illinois’ state constitution
guarantees that state and local government employee pensions will not ever be
diminished below the levels that politicians have promised, regardless of how
inadequately those same politicians have funded those lavish pension plans, or
how badly their investments perform, or how mismanaged the pension funds
have been, several local governments in the state are now having to reduce
needed services to the public to pay for the very generous pensions of retired
government employees. Here’s how that’s playing
out in Peoria:
The city of Peoria,
Illinois has joined
the south Chicago suburb of Harvey as another warning sign of looming financial crisis caused
by Illinois’ unsustainable state and local pension debt.
On Aug. 15 and 16, Peoria
officials sent layoff notices to 27 municipal employees, according to the Journal
Star,
after unions rejected a cost-saving plan requesting four furlough days. Eleven
of those who received layoff notices were members of the American Federation of
State, County and Municipal Employees, while 16 temporary layoff notices were
issued to members of the Teamsters union.
Once again, pension costs
are crowding out current services in the Prairie State. According to Peoria
City Manager Patrick Urich, 85 percent of the city’s property tax revenue
currently goes to pensions, rather than services.
Those public service cuts
are a harbinger of even more to come. For their part, the state politicians
most responsible for the state’s deteriorating pension liabilities are looking
to borrow even more to come up with additional money to speculate on high
risk ventures in order to boost pension
fund investment returns. The same kind of investments that led the state’s
public employee pension funds to lose money during a year-long stock market
rally.
In terms of overall
underfunding of its state and local government employee pension funds,
Illinois ranks
third in
the United States behind New Jersey and Kentucky, which are tied for first, and
is just ahead of Connecticut and Colorado.
Craig Eyermann is a Research Fellow
at the Independent Institute, Managing Director of Political Calculations, and
the creator of the Government Cost Calculator at MyGovCost.org.
Norb Leahy, Dunwoody
GA Tea Party Leader
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