Illinois Taxpayers On the Hook for $530 Billion in Unfunded Pension Obligations - Mish Talk - Global Economic Trend Analysis

Hello Illinois taxpayers, you have a massive bill that's overdue. I have the solution.

Pension Debts Hit $530 Billion

Hello Illinois taxpayers, the Pension Shortfall Surpasses $500 Billion and your average debt burden is now $110,000 per household. 

Moody’s estimate of Illinois’ retirement debts, made up of pension and retiree health shortfalls at the state and local level, hits $530 billion in 2020.

This is despite a massive multi-year stock market rally and huge tax hikes that went to pension funds and little else.

Illinois just reached an alarming milestone: each Illinois household is now on the hook for, on average, $110,000 in government-worker retirement debts. That figure is the result of dividing Illinois’ $530 billion in state and local retirement shortfalls among the state’s 4.9 million households. In 2019, the burden was $90,000 per household.  

Shortfall Contribution

llinois’ debt swamps that of its neighbors and other big states. At $313 billion, Illinois’ state-level pension debt is the nation’s biggest, the 2nd-most on a per household basis, and the highest when measured as a share of state revenues and GDP. Illinois also has the nation’s highest pension costs as a share of revenues, according to Moody’s. 

Spotlight Chicago

The $110,000 per household is an average across the entire state, but the precise burden for Illinoisans differs depending on where they live. The debt burden on Chicago’s one million households is larger because of the city’s deeper debt crisis. There, each household is on the hook for $180,000 for their share of state and local retirement debts.

Illinois vs Other States

Pension Shortfall vs Revenue

Moody’s says Illinois’ “tread water” pension cost – the annual state contribution required to ensure the state’s pension shortfall doesn’t grow from one year to the next – equals 21 percent of Illinois’ own-source tax revenues.

No other state comes close to that amount. Connecticut’s tread water cost equals 15 percent of revenues, the national average is just 4 percent, and all of Illinois’ neighbors’ costs, except Kentucky, equal just 5 percent or less of revenues.  

Pension Funding Ratio

Hard Truth 

The hard truth is that Illinois’ crisis will only worsen over time. As the state’s retirement debts continue to grow, more and more Illinoisans will be motivated to leave the state’s debts behind while fewer migrants will be willing to move in and assume the pension burden. A growing debt burden on an ever-shrinking population will only hasten Illinois’ downward spiral.

Pension reform is inevitable. The question is whether Illinois’ legislature will address the crisis now, while Illinois still has assets and dynamism left, or delay until this state is a shadow of its former self. It’s a question of whether those reforms will happen in a controlled, organized fashion, or under the duress of fiscal and political chaos. And it’s a question of whether lawmakers will enact true structural reforms or pass more can-kicks as they have in the past.  


Wirepoints offers a four-pronged solution to the Illinois Pension Crisis

Bankruptcy Reform

I agree with all the points above, but Wirepoints missed a huge one: bankruptcy reform. 

Trump wasted his first two years attempting to kill Obamacare. Instead, we could have had national bankruptcy reform and who knows what else. 

As it stands now, states can either allow or disallow municipal bankruptcies. Illinois does not allow municipal bankruptcies. 

Municipal bankruptcies fall under Federal, not state rules. If Illinois allowed municipal bankruptcies, that alone would offer a way out. 

Federal laws would immediately supersede any state law that says pensions are sacrosanct.  

So rather than spelling it out in a constitutional amendment, the simpler approach is to just allow bankruptcies.

The mere threat of bankruptcy, would bring unions and pension plans to the table.

Thanks for Tuning In!

Like these reports? If so, please Subscribe to MishTalk Email Alerts.

Subscribers get an email alert of each post as they happen.

Read the ones you like and you can unsubscribe at any time.

If you have subscribed and do not get email alerts, please check your spam folder.