The state of Illinois got a much needed jolt in the arm at the end of June, when its credit rating was boosted, pulling it back from its general obligation debt to Baa2 from Baa3 by Moody’s Investors Service, supported, in part by tax revenue, bounce backs from federal coffers, and a rebound in the state’s economy.
Gov. JB Pritzker crafted a budget that increased pension contributions and paybacks of emergency money from the Federal Reserve, giving some much needed juice to rumors' that it was going to be the first in the nation to be at risk of having its bonds cut to junk.
Pritzker noted at the time, “it’s a huge note of progress for our state,” and added, “Illinois’s fiscal condition is heading in the right direction for the first time in the 21st century.”
Coupled with Fitch’s raised outlook to positive to negative, praised the state’s “fiscal resilience,” according to Bloomberg, but also noted that Standard and Poor's along with Fitch are “still one notch above junk,” and retains “the lowest credit rating of all U.S. states.”
Earning high marks was the payback of $3.2 billion in monies borrowed from the Fed’s emergency loan program; and got a booster shot of $8.1 billion from President Biden’s rescue funds.
Still looming on the horizon is the rating, toward the bottom, for unfunded pension liabilities, according to the American Legislative Exchange Council, a conservative membership organization that espouses “limited government, free markets and federalism” ranks Illinois 49th for total liability, on a per capita basis, of $31,980 per person.
The right leaning website, The Center Square, in a recent email noted that “Failing interest rates and weaker than expected investment performance have also been hampering the state’s pension plans.”
Taking the conservatives' take in hand, Illinois still has work to do, and pension reform is among them.
While the right likes to blame the malfeasance on the shoulders of Pritzker, others like News Gazette columnist Tom Kacich, have traced much of the blame on Republican governors and university presidents who kicked the can down the road.
What a can: $317 billion was the number from Moody’s in June 2020, and that reflected a 19% increase at the end of FY 2019, and currently the state has from the total of 5 retirement systems $144 billion in unfunded liabilities, and needs $10 billion just to stay afloat.
On the other side of the equation, its largest city and the driver of the state economy, Chicago, has a pension debt obligation of almost $1.1 billion in 2020, according to the city’s audited financial reports, according to a recent report from local public television station, WTTW.
The bad news: Chicago owes $32.9 billion to all four pension funds belonging to police, firefighters, municipal employees and labor, they noted, quoting the 2020 Certified Annual Financial Report, an increase of almost 3.5% from 2019.
If the devil is in the details, then this growth was anticipated, said Chief Financial Officer Jennie Huang Bennett, since the required payments are based on actuarial estimates, and as the station noted, “helped balloon the city’s structural deficit,” beginning in 2020.
That withstanding the debt is still “significantly” underfunded per Chicago’s Annual Comprehensive Financial Report for 2020.
While critics have complained about the city’s tardiness in releasing the report, it’s easy to see why the bad news takes so long, with the revelation that firefighter’s funds has the “lowest level of the four, at 19%..”
The city’s mayor, the much beleaguered, Lori Lightfoot noted that it is the biggest problem with Chicago finances, and promises to “force a reckoning” in Springfield, but city hall observers and economists wonder what she can get from Pritzker without jeopardizing their relationship, and on the heel of the aforementioned financial success Pritzker managed to eke out.
Some in the local media have speculated that the changing role of Chicago mayor has deviated so much from yesteryear, if she can muster the power to go to Springfield, even hat in hand.
It should be noted that while she has not offered a specific plan, changes to the pension system “can only be changed with an amendment to the Illinois Constitution.”
Much like the state's increased contributions ,”the city will pay its four pension funds $1.8 billion, approximately $91 million more than in 2020, from its $4 billion general operating fund,” according to plan.
Paralleling the state, Chicago got $1.4 billion in aid from the government” and “ended the ear with $197 million in cash on hand, $12 million more than expected,” in a quote from Bennett.
Covid took Chicago, and other US cities to its knees, and it took in $405.5 million less than expected in general funds, and created a $886 million hole in the budget.
Facing this dilemma requires even more than good intentions, many have said, but even getting to the road that is paved with them may take a miracle.
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