15 Bullet Points Summing Up Illinois’ Financial WoesAugust 31st, 2012 by Marc Prosser
(August 31st, 2012) On Wednesday of this week S&P downgraded Illinois’ credit rating from A+ to A with a negative outlook. Here are 15 facts to get those who have not been following Illinois financial woes up to speed.
1. A recent report from State Budget Solutions shows that IL has the 5th largest debt of any state at $271 Billion. In case you are curious the other 4 states are CA ($617 Billion) NY ($300 billion), TX ($286 billion), and NJ ($282 billion).
2. IL is now the second to worst state according to S&P’s rating system, with only California rated lower. Moody’s rates IL behind California with the worst rating for a US State.
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3. One of the major reasons S&P cited for its downgrades, is Illinois’ unfunded pension liabilities. Currently the state’s pension system is underfunded by $83 Billion.
4. According to the Chicago Tribune IL already spends more on its pensions ($6.75 Billion) than it does on its schools ($6.2 Billion).
5. Part of the problem is that the state is very generous to its pensioners, giving them a 3% cost of living adjustment each year, and allowing retirement as early as age 55.
6. Another part of the problem is that the return that the pension funds estimate they are going to earn on the money set aside and invested for pensions are too aggressive. For example the the $37 billion Teachers’ Retirement System (TRS) currently forecasts that it will make 8.5% a year on its investments.
7. To try and deal with the problem IL’s state government raised the individual state income tax 67% (from 3% to 5%) and the corporate state tax 46% from (4.8% to to 7%).
8. Instead of paying money into their pension funds in 2010 and 2011 they issued $7.2 Billion of what are known as Pension obligation bonds to help cover the costs.
9. 20% of the state’s general fund spending this year is devoted to pensions compared to 13% just 2 years ago in 2010 according to the St. Louis Post-Dispatch.
10. Underfunded pensions aren’t the only problem. According to Bloomberg they currently have around $9 Billion in unpaid medicaid contributions and bills from vendors that have not been paid.
11.A recent report by the Civic Federation estimates that if no changes are made that shortfall will swell from $9 Billion to $35 Billion in just 5 years.
12.To try and deal with the problem the state’s governor Pat Quinn called a special one day pension reform session where basically nothing was accomplished.
13.The State’s constitution prohibits cutting the money owed to pensioners.
14. Retired governor workers also have health benefits however, which are not covered under the constitution.
15. One of the proposals by the governor is to give people the choice of opting in to lower pension payouts and keeping existing health care plan or keeping current pension level and losing retiree health care.
16. Other things that are being discussed are cutting back the cost of living adjustment, diverting some of the tax revenue that currently goes to local governments to the state, increasing the retirement age and increasing employee contribution levels.