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Our sorry state

Wednesday, Mar 3, 2021

* Moody’s…

Moody’s has published new research (attached) noting the State of Illinois (rated Baa3/negative outlook) will set another record for the 50 states when its adjusted net pension liability (ANPL) exceeds $300 billion in financial reporting this year, reflecting the June 30, 2020, funding position of its five pension plans. With historically low interest rates, this increase in liability will closely track other states, but the higher ANPL connected with the state’s June 2021 financial reporting underscores Illinois’ growing pension challenges. Even with the substantial increase in long-term liabilities, however, the near-term funding and cash-flow positions of the state’s pension systems will remain relatively unchanged.

“The new liability is based on the aggregate ANPL of Illinois’ five pension systems, which reached $317 billion as of June 30 last year, a 19% jump from the prior year that was driven largely by falling interest rates,” said Ted Hampton, Vice President at Moody’s. “The FTSE Pension Liability Index, a high-grade corporate bond index Moody’s uses to value state and local government pension liabilities, fell to 2.70% as of June 30, 2020, from 3.51% the prior year.” (In comparison, the aggregate net pension liabilities reported under Governmental Accounting Standards Board (GASB) rules by the state’s five pension systems grew to $154 billion from $145 billion as of June 30, 2020, reflecting a weighted average discount rate of 6.74%. The results will appear in the state’s audited financial statements covering the period ending June 30, 2021.)

With a state GDP decline estimated at 2.5% in 2020, Illinois’ ANPL amounts to roughly 37% of economic output, up from a range of 28% to 32% over the previous four years. As illustrated in our most recent survey, Illinois’ pension liabilities are the highest among the 50 states, and the state’s liabilities and fixed costs for pensions, debt service and retiree healthcare (or OPEB) are at or near the top by almost any measure. Illinois also allocates about 30% of its budget to retirement benefits and debt service, a “fixed-cost” ratio more than three times the median for states.

- Posted by Rich Miller        

24 Comments
  1. - Merica - Wednesday, Mar 3, 21 @ 1:48 pm:

    This is incredible. The biggest non-political issue this state faces. Yet, the GA is more worried about naming streets after their friends, making buildings safe for birds, and making sure landscapers are licensed.

    Even when you pay the full amount, the pension debt goes up. There is no way the State can dig out of this hole. that is why no one is talking about it.

    Sad.


  2. - Dan Johnson - Wednesday, Mar 3, 21 @ 1:49 pm:

    We need to get a handle on retiree health care costs and the easiest way to do that is to pay Medicare rates, not ‘market’ rates which are absurdly expensive. (Lots of those providers are out of state. Maybe we can start there).


  3. - Anyone Remember - Wednesday, Mar 3, 21 @ 1:59 pm:

    ==Even when you pay the full amount, the pension debt goes up.==

    That is how the Edgar Pension Ramp is designed. Our gracious host has commented, repeatedly, that the liability will continue to go up for another decade-ish. Then it will drop. To quote other commenters: “Pay attention.”


  4. - Blake - Wednesday, Mar 3, 21 @ 1:59 pm:

    Rich, can you add a link to Moody’s report?
    Thanks.


  5. - DuPage - Wednesday, Mar 3, 21 @ 2:02 pm:

    The tier 2 pensions will cause the amounts of money the state needs to pay to go down.


  6. - RNUG - Wednesday, Mar 3, 21 @ 2:07 pm:

    Depending on where you want to start counting from, it took the State either 120 or 45years to get into this hole. It will be out of the hole in another 25 years or so.


  7. - Masker - Wednesday, Mar 3, 21 @ 2:10 pm:

    That is how the Edgar Pension Ramp is designed. Our gracious host has commented, repeatedly, that the liability will continue to go up for another decade-ish. Then it will drop. To quote other commenters: “Pay attention.”

    In theory yes……but those highly paid actuaries are turning out to be wrong and the ramp isn’t keeping up with real costs…making the deficit even bigger.


  8. - City Zen - Wednesday, Mar 3, 21 @ 2:11 pm:

    ==Even when you pay the full amount, the pension debt goes up.==

    Because we’re paying the full statutorial amount, not actuarial.

    ==The tier 2 pensions will cause the amounts of money the state needs to pay to go down.==

    Until they are enhanced.


  9. - Oswego Willy - Wednesday, Mar 3, 21 @ 2:13 pm:

    ===Until they are enhanced.===

    You get those lottery numbers yet?

    Share that too.


  10. - Rich Miller - Wednesday, Mar 3, 21 @ 2:16 pm:

    ===can you add a link to Moody’s report?===

    Not allowed. Sorry.


  11. - Donnie Elgin - Wednesday, Mar 3, 21 @ 2:18 pm:

    =Our gracious host has commented, repeatedly, that the liability will continue to go up for another decade=

    Technically that is correct - the “liabilities” may peak and then slowly head down. The average taxpayer really cares about how much and for how long will the pension liabilities overwhelm state spending. Pension costs will remain high
    (between 25-27% budget) until we get to 2045 and that 90% funding level. That is of course if Tier 2 can avoid failing “Safe Harbour” equivalency


  12. - Blake - Wednesday, Mar 3, 21 @ 2:22 pm:

    ===Not allowed. Sorry.===
    Okay. Thanks for answering.


  13. - A Jack - Wednesday, Mar 3, 21 @ 2:25 pm:

    I worked at one of the retirement systems before I retired. I did some calculations on Tier One retirees and determined that a large majority of them will be retirement age over the next few years. Most are baby boomers and the majority of the rest where born in the 60’s. In nine years Illinois will see a large decrease in Active Tier One employees. So it is just a matter of time before Illinois digs itself out of this hole.


  14. - The Dude Abides - Wednesday, Mar 3, 21 @ 2:43 pm:

    A Jack is correct. More Tier 1 retirees are dying every year. In another decade there will be a lot less of them around than there are now.


  15. - cover - Wednesday, Mar 3, 21 @ 2:51 pm:

    = Yet, the GA is more worried about naming streets after their friends, making buildings safe for birds, and making sure landscapers are licensed. =

    Or formally establishing a constitutional right to fish, like that Clay County judge “found”… I wish I was joking, but no:

    https://www.ilga.gov/legislation/billstatus.asp?DocNum=7&GAID=16&GA=102&DocTypeID=SJRCA&SessionID=110


  16. - FranklinCounty - Wednesday, Mar 3, 21 @ 3:05 pm:

    Too the “just wait 10 more years and we will start digging our way out of it” crowd:

    The risk with taking that approach is population decline. As fiscally responsible states continue to poach companies and taxpayers from this state, that 10 year deadline gets farther and farther out of reach.

    Looking at tax receipts as a stable, predictable number over 10 years is a fool’s errand. Especially here.


  17. - Perrid - Wednesday, Mar 3, 21 @ 3:18 pm:

    @Anyone remember, I believe the plan was for the unfounded liability to grow until 2028. Rich has posted a chart a few times in the last few years showing that.


  18. - Perplexed - Wednesday, Mar 3, 21 @ 3:21 pm:

    == In nine years Illinois will see a large decrease in Active Tier One employees. So it is just a matter of time before Illinois digs itself out of this hole. ==

    This doesn’t account for the need to shore up Tier 2. Nor does it account for the still-too-high assumed rates of return or the increased longevity of upper-middle-class Americans.

    Aren’t we deluding ourselves if we say that all we have to do is turn calendars and this enormous pension crisis will inexorably vanish?

    Not to mention all the Chicago funds that are flirting with insolvency.


  19. - Etown - Wednesday, Mar 3, 21 @ 3:26 pm:

    You would have thought more than 2 years into Pritzker administration there might be a plan but nothing but crickets and same goes for House and Senate Dems. Glad they’ve at least addressed property tax issue over last couple years with a powerful task force.

    What a joke


  20. - A - Wednesday, Mar 3, 21 @ 4:15 pm:

    ==might be a plan==

    Any suggestions? Ideas?


  21. - Oswego Willy - Wednesday, Mar 3, 21 @ 4:23 pm:

    === The risk with taking that approach is population decline. As fiscally responsible states continue to poach companies and taxpayers from this state, that 10 year deadline gets farther and farther out of reach.

    Looking at tax receipts as a stable, predictable number over 10 years is a fool’s errand. Especially here.===

    Explain the constitution as it pertains to debt.

    Thanks.


  22. - TheInvisibleMan - Wednesday, Mar 3, 21 @ 4:52 pm:

    This seems like something wirepoints or IPI is going to use to try to confuse people with.

    Suddenly people are going to be repeating “the unfunded liability is over $300B”.

    And I will know right then to stop listening to anything they say, so maybe it’s a good thing wirepoints is still around.


  23. - Keith - Wednesday, Mar 3, 21 @ 5:43 pm:

    I’m a Tier 1, born in the 80s, with 16 years in at my agency, and am truly one of the last Tier 1s there. In fact, the majority of the members in my bargaining unit are now Tier 2 by a greater than 75/25 split. The starting salaries have risen substantially from the $40K I earned when I started (soon to be $55K at this contract’s close), but I honestly don’t know if I’d take my position again, even with the elevated salary, when considering the now 67-year old full retirement age requirement (or 45 years of service) and other diminished retirement benefits.


  24. - Charlie Wheeler - Wednesday, Mar 3, 21 @ 5:47 pm:

    Point of Information

    I believe a link to the Moody’s report can be found on the COGFA web site, at https://cgfa.ilga.gov/Upload/2021%20February%20Moody’s%20Economic%20Forecast.pdf

    Charlie Wheeler


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