By: Ted Dabrowski

Government officials across the globe are taking steps to confront the spread of coronavirus. Here at home, Illinois state officials are rapidly preparing for the virus and plan to expand testing with the World Health Organization.

But governments internationally are also taking major steps to limit the financial and economic impact of the virus. The chances for a recession have jumped and the potential hit to jobs and wages is now real. The world’s top central banks are preparing for coordinated stimulus moves and rate cuts, and in the U.S., top officials are mulling tax cuts to cushion any blow to the economy. 

And what’s Illinois doing? Even before the virus, lawmakers had no real plan to stop the state’s rapid fiscal decline and they have no plans now. The state is just one notch away from a junk rating. Illinois has zero reserves to weather a recession and the only thing in the hopper is a proposed multi-billion dollar tax hike.

The proposed progressive tax, which will inflict even more pain on an economy where home values are falling, out-migration is at record levels and cities are being hollowed out, was a bad idea even before the appearance of the coronavirus. Any impact of a recession – whenever one comes – will only magnify the failures of that tax.

We’ve already reported over the past two years that Illinois is the least prepared state in the country, along with New Jersey, for a recession. That’s based on an analysis done by Moody’s Investors Service last year. 

‘While current economic conditions are strong, states are aware that a downturn will come eventually and are building reserves to prepare,’ said Emily Raimes, Vice President and Senior Credit Officer at Moody’s. ‘While most states have healthy reserves and inherently strong fiscal flexibility, Illinois and New Jersey both have low levels of reserves relative to the potential revenue decline in our recession scenario. In addition, they both show weakness in their pension risk scores.’”

The rating agency also said that of the nation’s 25 largest cities, two aren’t ready. They are Detroit and Chicago. Both cities are junk-rated by Moody’s.

“…both direct city obligations and those of overlapping units of government – continue to weigh heavily on its credit profile. In this scenario analysis, Chicago’s extraordinarily high fixed costs, coupled with its escalating pension liabilities, make it one of the cities least prepared for a near-term recession.”

What should be most frightening to Illinois lawmakers is how poorly Illinois has done during this 10-year-plus bull market. Despite the massive jump in the stock markets, Illinois’ debts have skyrocketed. When the markets began their rally in 2009, the Illinois’ official pension shortfall for its five state-run funds totaled $78 billion. Today, the shortfall is nearly $140 billion.

It’s hard to think about what the debts will look like when the markets eventually correct.

A recession would further expose the fundamental problem with our pension system. Benefit payments are absolute guarantees, but the assets set aside to pay them are unreliable. Who pays when the assets aren’t sufficient? Taxpayers.

You’d hope the coronavirus and the threat it poses to Illinois’ economy would be a wake up call for Gov. Pritzker to dump his tax proposal. It was never the right idea for Illinois and a potential recession only makes that more obvious. Instead, Illinois needs structural reforms that pull the state out of its downward spiral

It’s impossible to know how the impact of the virus will play out and whether a recession is imminent or not. But one thing we do know. Illinoisans are totally exposed to the risks.

More on why Illinois’ budget, economy and pension funds are unprepared for a recession:

48 Comments
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Poor Taxpayer
2 months ago

The day you KISS Illinois Good Bye will be the best day of your life.
Illinois is DOA, no hope for recovery.
U Haul is the best choice you can make, go north, go south, go east, go west, but go, go, go.

NB-Chicago
2 months ago

I’m waiting for all are wonderful-city/ county/ state workers friends to start filing law suites claiming hazardous workplace conditions and endless disability claims…this will be the trial lawyers association wet dream!!, the gran-daddy mother load of all payouts all on the taxpayers dime….

NB-Chicago
2 months ago
Reply to  NB-Chicago

Fortune: Once coronavirus fades, global businesses are set to face new danger: a wave of lawsuits.
https://fortune.com/2020/03/04/coronavirus-global-businesses-wave-lawsuits/

S and P 500
2 months ago

WSJ has a piece about Harvey, Ill, the town that had its budget garnished to pay pensions

https://www.wsj.com/articles/for-growing-numbers-of-struggling-u-s-cities-the-downturn-has-arrived-11583248603

Freddy
2 months ago
Reply to  S and P 500

Dis you notice what councilwoman Shirley Drewenski said. Her car is worth more money than her house at $46K value. I’ll bet everyone at the school districts makes more than her house is worth. No one at the schools there took a pay cut. Contract after contract each probably larger than the one before. Same here In Rockford. Now budget at $490M with fewer students. Also Rockford has to pay out $11 Mil in damages to 3 people falsely accused of murder.

Poor Taxpayer
2 months ago

If you do not like it then move.
Get a U Haul and kiss Illinois good bye forever.
It will be a great day for you and your family.
Start a new life so the fruits of your labor belong to you instead of a Greedy cop, teacher and firemen.

Mike Mike
2 months ago
Reply to  Ted Dabrowski

To that point labor unions are organized at the local, state, and Federal levels of government.

debtsor
2 months ago
Reply to  Ted Dabrowski

The country is split between Red and Blue states with little room for anything in between. The party in control doesn’t even try to moderate their stances, they just go all out. Illinois took the progressive dive last year and the ramifications are readily apparent, to the detriment of the entire state and all that live here.

Mr_Common_Sense
2 months ago
Reply to  Poor Taxpayer

Poor Taxpayer, Illinois is DOWN IN POPULATION BY 233,000 for the last 6 years.

They are moving out!

IAFF
2 months ago
Reply to  Poor Taxpayer

The firemen deserve every penny! You try picking up 400# Section 8 ferals night after night.

B. Wynters
2 months ago
Reply to  IAFF

IAFF—what does this mean–picking up 400# Section 8 feral? I left in ’79.

IAFF
2 months ago
Reply to  B. Wynters

Way to get out and live life. The majority of calls now are to go pick obese Section 8 residents up off of the floor because they have eaten themselves into oblivion with Uncle Sugar’s EBT card. The savvy ones use them to buy steaks, but pork rinds and Cherry Coke seems to be the diet of choice.

Douglas
2 months ago

I honestly find the central banks rate cuts laughable. If this virus spreads, they can cut rates all day long and it won’t do anything, as cheap money isn’t the problem–it will be fear from consumers in regards to a virus.

Pension lawayer
2 months ago

[Unpalatable] food for thought: If the virus warrants federal disaster relief, how long will it take the governor to ask for pensions to be reimbursed for the stock-drop due to the virus? Drop in stock values is a bit like rise in lake levels! Caused by Mother Nature aided and abetted by Trump, he being often described as a “force of nature.” I think Bernie would buy it.

Mike Mike
2 months ago

Can the DJIA chart be included in the article?

It’s just on the home page for now.

Freddy
2 months ago

Do Illinois pols really care? I doubt it. Should taxpayers? Definitely! Laws have been created where taxpayers are on the hook for the misappropriations and mismanagement of public money. Some examples are Ptell-pension intercept-political maps-gerrymandering-total pension pickup for many especially teachers all made behind closed doors without any public scrutiny-making right to work illegal (I think it’s law now not sure)- unfunded mandates-the infanticide law and many more. Whatever calamity is in store we the taxpayers will pay. We are an open checkbook and our properties just ATM machines.

don
2 months ago
Reply to  Freddy

Not me I left in 2018.

Ben
2 months ago
Reply to  Freddy

There is a limit to taxation. Math always wins. The pensions are doomed during a long recession. It is inevitable.

The Truth Hurts
2 months ago
Reply to  Ben

I see this argument all the time and I agree that there is a limit to taxation. The part I’m always amazed with is when people think that pensioners will be the one to suffer. Pensioners and bondholders are at the front of the line. Most of our budget is spent on the welfare state and they (or the providers that service them) will be paid last.

Ben
2 months ago

At some point it will all collapse, and the pensions will indeed be lowered. It is not possible to pay them once they run to zero. The state would cease to be if they even tried that. It will be game over.

Ben
2 months ago
Reply to  Ben

Also, municipal bankruptcy will have to be allowed at some point as well. Due to Federal law, there is indeed a limit to cuts as well, as well as how late the state can be on certain payments. Pensioners will be quite hurt in time. It is inevitable.

Freddy
2 months ago
Reply to  Ben

I’m curious. I agree that bankruptcy may be allowed someday. What would that entail? Is it only the city portion that could reorganize? Could the school contracts be reworked or only the new ones. Palatine school dist made a 10 year contract with guaranteed raises and little if any healthcare increases. I think they are in the 3rd year of that contract. Any ideas on how taxpayers could benefit from Chapter 9? I had a number of ideas I posted on different articles here and gave them to my local state rep and basically went nowhere or died in some committee.

debtsor
2 months ago
Reply to  Freddy

Chapter 9 for cities is relatively rare, but the city essentially reorganizes its finances, wiping debt clean, rejecting contracts (or renegotiating them) based on an expectation of future revenue, to make the city solvent again. CPS would rip up the teachers contracts. The suburbs would be a little different, they don’t run the schools in most place, it’s the local districts which sometimes encompass multiple town. The school district would need to bankrupt. There is no absolute priority rule in Chapter 9 bankruptcy (it’s a little hard to explain here) But it basically means they can screw any class of… Read more »

Ben
2 months ago
Reply to  Freddy

The Feds will have to allow state bankruptcy, yes, and not just for Illinois. Math will win out in many states – not just here. The next long recession is game over, and again, not just for Illinois, it may be game over for everything anyway, and in that case, we all will die. 22 trillion in debt and counting. This virus may be all it takes to start it all going down..

debtsor
2 months ago
Reply to  Ben

There are potholes on your street because the retired public works employees with lavish pensions have $800.00 a month F-150 payments due every month. The playground equipment at the park is old and rusty because a retired park district administrator just took a two week Alaska cruise with your tax dollars. The desks at your community college are old and used because a retired administrator with a six figure pension just bought a lake house in Michigan. The lines at the DMV are long because a retired bureaucrat is paying his ex-wife alimony with your tax dollars. The gas tax… Read more »

Ben
2 months ago
Reply to  debtsor

None of that changes that there will be a limit to cuts, just like there are a limit to taxes. Also, none of that changes the fact that once the pensions run dry, there will be no way to pay them because there will be no rate of return, and the amount to make that up will be impossible. The pensions are doomed sooner than you think, and there is nothing you can say that will change my mind, so don’t waste your time. You tend to dive in and leave these comments all the time – go away. But… Read more »

The Truth Hurts
2 months ago
Reply to  Ben

“none of that changes the fact that once the pensions run dry there will be no way to pay them” When the pensions get close to running dry the state courts will and have stepped in to force pension payments before all else. Please see East St. Louis and Harvey for reference. Even if the fund does run dry the state will force the city into a pay go system. I hear your argument all the time as if it is the way out. The courts are stepping in and forcing cities to cut all other expenses in order to… Read more »

debtsor
2 months ago

Good comment. Do note that pensioners are unsecured creditors in bankruptcy. They are the very last people to be paid in full, at the very back of the line, with everyone else in front of them.

The Truth Hurts
2 months ago
Reply to  debtsor

Detroit public pensioners were cut 4.5% and had COLAs removed. Not too bad for the back of the line.

debtsor
2 months ago

Exactly, and they still whined and shed leftist tears: https://www.reuters.com/article/us-detroit-bankruptcy-pensions/detroit-defeats-pensioners-appeal-over-bankruptcy-cuts-idUSKCN12322F “Detroit defeats pensioners’ appeal over bankruptcy cuts” 10/3/2016 (Reuters) – A divided federal appeals court on Monday rejected claims by Detroit retirees that their pensions were unfairly cut to help the city end the largest U.S. municipal bankruptcy. The 6th U.S. Circuit Court of Appeals in Cincinnati said restoring the pension cuts would “unavoidably” unravel Detroit’s reorganization plan, which helped the city shed $7 billion of debt and end its 17-month bankruptcy in December 2014. “This is not a close call,” Circuit Judge Alice Batchelder wrote for a 2-1 majority.… Read more »

debtsor
2 months ago
Reply to  debtsor

IL needs more cuts, for sure, but something as simple as the COLA being removed would go a long way. But no, it’s in the constitution that it can NEVER BE UNDONE. That is, unless the case gets in front of a bankruptcy judge, who will trample all over the IL Constitution, which is nothing more than a piece of paperwork, thanks to the supremacy of the feds.

Pension lawyer
2 months ago

They also had major haircuts in their retiree health benefits.

Ben
2 months ago

A long, painful recession will make all you just said impossible while still having a state that doesn’t totally collapse. Bankruptcy will happen. Harvey will be done during the next recession, even if it is a short one, and a long one, the whole state. I am done with you too. Cap Fax is the worst, but some of you don’t get how bad it really is. Even Rich Miller admits the pensions could default, and that is Rich Miller. That is all I need to say. People will just keep running from this state as well as things get… Read more »

debtsor
2 months ago
Reply to  Ben

I don’t know why you’re so angry, we all agree things are dire. We actually have a more dire outlook than you do! I’d rather see the state go BK or insolvent asap. I don’t want to live in a place like Harvey – we’re already halfway there, half the state is a complete dump already! I’m the one predicting the zombie apocalypse, not you. bankruptcy is the easy solution for you.

The Truth Hurts
2 months ago
Reply to  Ben

I appreciate you giving me the last word Benny. People have been saying the pensions were going to collapse for over 50 years. It’s one of the reasons the pension amendment was added to the constitution. Republican sponsors actually believed that it would force our lawmakers to be responsible with the budget and pay into the funds. What’s happened during that time? That’s right pensions have been challenged in the courts as lawmakers have tried to reduce them with ZERO success while taxes have gone up. Taxes will continue to go up. After the last recession what happened? Taxes went… Read more »

John
2 months ago

Truth, you are pretty dumb if you think taxes can rise forever. Ben owned you.

debtsor
2 months ago
Reply to  John

Look at California, NJ, NY – they all have much higher tax rates. The overall IL burden is higher for sure with the nickel and diming we do here. But there’s still a LONG way to go until the middle class is completely gone, and all that remain are the poor who pay little taxes, and the extremely rich who enjoy living in the progressive paradise that we’ve become, and they will defend it until the very end. We already have examples of this on either coast, it’s just that our pension and fiscal problems are worse, the decay will… Read more »

Bob
2 months ago
Reply to  debtsor

And then everyone moves out and the pensions dry up. The ghetto queens wont pay for the pensions.

debtsor
2 months ago
Reply to  Bob

yes but liberal upper middle class families will stay. Major employers like Jenner & Block, State Farm, the various hospital systems, Boeing, Craft, Discover, McDonalds…They aren’t leaving Illinois anytime soon. Eventually maybe, but not soon. Those upper middle class couples are ‘progressive’ and love that abortion is practically on demand, and mobile. in this state, because they’re progressive. They’ll pay the higher taxes knowing that it’s going for a good cause. I mean, Biden just said he’d raise the taxes on everyone who benefited from Trump’s tax bill. Well most working families I know with kids got a larger tax… Read more »

Bob
2 months ago
Reply to  debtsor

Pension issues in NJ are almost as bad as IL.

The Truth Hurts
2 months ago
Reply to  John

You must have missed it earlier in this thread. I get it this thing goes on a bit. I will copy my very FIRST sentence I said the Ben. “I see this argument all the time and I agree that there is a limit to taxation” Here is another statement I made. “Until raising taxes doesn’t produce more revenue the state will continue along this path.” You see I agreed that there is a limit. Before you call people dumb you should at least learn to read. It’s fundamental. My point is there is a lot more pain to come… Read more »

debtsor
2 months ago

The Truth Hurts is correct. The pensions will be paid.
However, they will be paid to the exclusion of everything else. And I mean everything else, including basic maintenance, upkeep, law enforcement, maintaining adequate staffing levels, code enforcement, and so on. Heck, wasn’t it Harvey that stopped paying its phone bills not too long ago? But the state garnished their pension money. The entire state is literally going to go to crap, where nearly everywhere looks like Harvey, but rest assured, those despicable retirees will be living like Royalty across state lines.

John
2 months ago
Reply to  debtsor

No one will live here anymore then. Totally unrealistic. I will be gone if it gets half that bad where I live. Basic services must be met, by federal law. Pensions will not survive in time due to Federal laws that must be met.

debtsor
2 months ago
Reply to  John

When Jenner & Block moves its law firm headquarters out of chicago, then let’s talk.

debtsor
2 months ago
Reply to  Ben

There’s still a lot more to cut that’s why its a long, slow dragged out default. The government can cut staff and employees. The union contract can’t stop layoffs but they can stipulate that those with the least seniority be laid off first. For example, look at the DNR, which has been cut to the bone over the years. The state parks are mostly in terrible shape. There’s little staff to do anything including cleaning the bathrooms. Another example, I was just at the IL SOS on Elston in Chicago the other day. They had three people at the front… Read more »

Ben
2 months ago
Reply to  debtsor

Not true. Hardly anyone will live here that can pay taxes if the whole state looked like that for very long, and the pensions still default. Enjoy.

The Truth Hurts
2 months ago
Reply to  debtsor

Agreed. Pensions will be paid even if it means current employees are cut and other services are neglected. There are so many people that don’t or won’t accept this reality. Look what JB is doing with his current progressive tax strategy. Pass my progressive tax or I’ll cut services. Not “or I’ll cut pensions”.