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.