By: Ted Dabrowski and John Klingner

If you thought Illinois was already up to its neck in pension debts, just wait until the impact of the Coronavirus is tallied up. The stock market’s meltdown and collapsing interest rates mean the shortfall for Illinois’ five state-run pension funds is about to jump. Moody’s most-recent calculation before the crisis totaled $241 billion.* 

That shortfall will jump to over $310 billion in 2020, according to Wirepoints calculations, if current conditions hold through the funds’ fiscal year end in June. 

The increase is an additional $15,000 on top of the $90,000 “shadow mortgage” every Illinois household is already on the hook for. (See more: Illinoisans overwhelmed by a ‘shadow mortgage’ of pension debts.)

Moody’s recently estimated the impact the market correction will have on pensions across the country. The agency’s report shows that total pension shortfalls nationwide will “exceed $6 trillion, rising between 40% to 50% compared to fiscal 2019 measurements. [The shortfalls] would amount to around 30% of 2019 US GDP.” 

While Moody’s did not report any numbers for individual states or municipalities, the news is particularly troubling for Illinois. The state, Chicago and many of the state’s struggling cities were already suffering from the nation’s worst pension crisis, both in terms of outright shortfalls and on a per capita basis (see Appendix 1), even before the virus hit. In fact, some Illinois pension funds – those with dramatically low asset-to-payout ratios – were already set to face liquidity problems over the next few years.

Now the market crunch, assuming it holds, will send Illinois’ state-level pension debt up to an estimated $312 billion. 

Wirepoints arrived at that figure by using the same assumptions Moody’s used to arrive at its national figures. That included:

(1) Discounting the future pension payouts of the state’s five pension funds (see Appendix 2) using a 2.76 percent discount rate, the same rate used by Moody’s on March 20, 2020. By comparison, the discount rate in 2019 was 3.51 percent.

(2) reducing Illinois’ overall asset base by Moody’s expected average investment losses of 21 percent, as of March 20, 2020.

To be clear, the $312 billion calculation assumes the above discount rate and market losses still prevail on June 30, 2020. Actual results, of course, will be quite different depending on how the current crisis plays out. 

The rating agency’s summary of events so far offers a grim outlook for pensions everywhere:

“Recent US public pension investment losses, which we estimate are approaching $1 trillion, stand to severely compound the pension liability challenge already facing many governments. At the same time, the economic fallout from the coronavirus is reducing revenue levels and threatening the ability of state and local government entities to afford higher pension costs.”

But the biggest warning for Illinois comes from Moody’s comments on potential credit ratings:

“Without a dramatic bounceback of investment markets, 2020 pension investment losses will mark a significant turning point where the downside exposure of some state and local governments’ credit quality to pension risk comes to fruition because of already heightened liabilities and lower capacity to defer costs.” (emphasis added)

Illinois had no room to weather any pension losses before the virus hit. And now the state expects to suffer a multi-billion, multi-year hit to its revenues.

If the market doesn’t recover quickly, Illinois is likely looking at a junk bond rating. That’s going to have a lot of consequences for pensioners and ordinary Illinoisans alike.

*The state says the official shortfall for its five state-run funds is just $137 billion.

Read more about the impact of the Coronavirus on Illinois:

 

Appendix 1

Appendix 2

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peter
1 month ago

No bailouts for Wall Street and no bailouts for government insiders. Let them go bankrupt

Poor Taxpayer
1 month ago

The Virus will let Illinois taxpayers off much easier than the Greedy Cops, Teachers, and Firemen on HUGE PENSIONS, living a life of luxury in Florida. Laughing all the way to the bank.

Poor Taxpayer
1 month ago

Locked Down, good time to be packing up your stuff to leave as soon as this is over.
Start a new and much better life elsewhere.
Illinois is a goner, DOA, no hope what so ever.
Lots of talk (wasted breath) about fixing the problem, but it will NEVER HAPPEN.
Unions will SUE right away. The only hope is moving out of state.

Fedupandpacking
1 month ago

I will say the teachers and state employees in general have no sense regarding how the rest of us live. During that last recession in 2008 a Park District Employee was complaining how he was only getting 3% that year when no one else in the private sector was getting one at all. He was also agast when his son got a job and only got a week vacation and 4 sick days. There is truly a disconnect. I do know that when my kids went to private school and then entered public high school they were so far ahead… Read more »

Fed up neighbor
1 month ago

Amen amen someone else sees the big picture, and yes people will leave in droves even more so when this is over. I’m retired (not a teacher) and looking elsewhere

Fed up neighbor
1 month ago

Man all the negative votes, unions must really be shitt-ng in there pants. Oh well parties over boys and girls.

Poor Taxpayer
1 month ago

The courts can order that the pension must be paid. But the courts CAN NOT ORDER the money to appear. Keep writing checks till the start to bounce.
States Should be allowed to go Bankrupt. Let the courts decide what is fair for everyone. Remember the taxpayer is all taxed out, they deserve a break. People are fleeing Illinois in record numbers and it is only making matters worse.

Mike Salva
1 month ago

I voted with my feet 20 years ago and left Taxistan. Best financial decision I ever made. I was sick and tired of being a Tax Mule for the public sector unions in Illinois.

James the one thing you and your union can’t control is the outmigration that has been happening in Illinois for the past 6 years. Hope you are not counting on 100% of your hard earned pension for your retirement in Florida. One word – Haircut!!!

Rick
1 month ago

At what point does this translate to a bounced check to a cop or service Union member? Seriously, none of this madness will get get an ounce of structural attention until a check bounces.

Governor of Alderaan
1 month ago
Reply to  Rick

Never. It will translate to massively higher taxes though

Bob Out of Here
1 month ago

Passing JB’s fair tax will take care of the shortfall.

Freddy
1 month ago

Checkout Bloomberg’s article today “Pension funds will take a big Coronavirus hit”. It should say taxpayers will take a pension shortfall hit.

Mike Williams
1 month ago

Capitalism has a built in correction mechanism. If a business fails and demand still exists for their product, another business will recognize the potential for profit and fill the void (produce the product). In a state like Illinois that is unfriendly to business (and taxes the @#$% out of everything), the more likely scenario is that the new (or replacement) business will produce the product in another part of the country. I’m a big believer in capitalism, but the Illinois population apparently prefers something closer to socialism based on how they vote. It’s just one more reason I keep repeating… Read more »

DantheMan
1 month ago
Reply to  Mike Williams

Socialism is a financial system that relies on extremely high taxes to provide free services. Illinois has been successful in leveling high taxes on it’s population and will undoubtedly raise them again. So what service is free in Illinois? Is college free? Is health care free? Is transportation free? Are public events free? Illinois doesn’t seem to like capitalism, and it doesn’t provide any of the benefits of socialism. This Illinois system is unique. It’s a totally new financial experiment where high taxes = nothing free. There must be something to it because that’s what Illinois voters support.

Illinois Entrepreneur
1 month ago
Reply to  DantheMan

You’re right on the money! The reason socialist countries get some value is that in socialist countries public employees accept job security and soft working hours and good benefits in exchange for lower than market rate compensation.

Here, our public employees get it all, including above market rates of compensation. In addition, there are loads of unnecessary units of government and patronage jobs that really are there to support politicians getting reelected (The Machine). Because there is no money left after this, we end up paying again for minimal, crappy service.

This state is awful.

debtsor
1 month ago

Free? You loser, you’re just not part of the ‘free’ crowd in IL. Free Medicaid is a 1/4 or more of our budget. Plus free food stamps, free child support collection, free schooling, free lunch at school, free daycare, now chicago is giving away free rent. It’s all free, you’re just in the wrong class. Get on the free train, it’s awesome, you can vote yourself more benefits if you just ‘always vote blue’.

s and p 500
1 month ago
Reply to  Mike Williams

There’s a little bit of hope. Taxpayers in Calif. rejected Measure EE and Prop 13 to fund schools after they honked their horns for the teachers’ strike.

https://calmatters.org/education/2020/03/california-prop-13-school-bond-defeated/

debtsor
1 month ago
Reply to  s and p 500

Hopefully this trend goes national. Unlikely though, not when people I know tell me “anyone but orange man”

nixit
1 month ago

Everyone needs to be reminded that pension liabilities increased even during an unprecedented bull market run with the largest state contributions ever.

James
1 month ago
Reply to  nixit

Wouldn’t the payment on your house or car do likewise if full payments were not made earlier?

nixit
1 month ago
Reply to  James

Are we back to comparing pensions to depreciable assets whose ownership is transferable to any 3rd party? We’ve moved way past this false comparison on this blog, hun.

The days of the state either making low “early Edgar pension ramp” payments or skipping them altogether are long behind us. The point is we did everything right (making larger pension payments every year), under the best possible circumstances (historic bull market run), and we still fell behind. That’s the takeaway.

James
1 month ago
Reply to  nixit

nixit, I have no problem with agreeing superficially at least with what you’ve said here. You likely know those “full payments” were only the size allowable politically and never full in an actuarial sense, and that’s essentialy how its been for many, many decades. Then, we had a few years of total pension-payment skipping which exacerbated the problem. Still, I do agree that “we are where we are.” We have to either get it solved–whatever that means–or live with the consequences.

debtsor
1 month ago
Reply to  James

It’s both the underpayment AND the ridiculously high payouts – for everyone in the system. Both together make a nightmare. Pensioners should not have the equivalent of a guaranteed million dollars or more of state income for life upon retirement. Even the hardest working, frugal saver with a modest paying corporate job has extreme difficulty saving a million dollars for retirement.

James
1 month ago
Reply to  debtsor

You’re going to be surprised here, but really I don’t necessarily disagree with that point of view as you’ve chosen to express it. What I really hate is the truly despicable gaming of the system by people who already make truly huge salaries while employed. Those are the few often cited on Wirepoints, so you know the general idea. Although, the number of such people is almost statisticaly insignificant, its still maddening. Now, who really “deserves” a “pension” of, say, $250,000 per year? I say “no one.” If there were a way to put a cap on what’s pensionable then… Read more »

debtsor
1 month ago
Reply to  James

James, statistically insignificant? Are you not familiar with Illinois’s six-figure pension club? Why are you spreading lies?

94,000+ people earn six-figure pensions and that figure grows larger every year.

I can’t believe you are teaching. there is an old saying that applies to you:

“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

― Upton Sinclair

Freddy
1 month ago
Reply to  James

I told something similar to my local rep and senator. Rockford paid the highest in the state for pension penalty spikes at around $3M so far. I suggested to them anything over a 6% pension spike law should be put in a 401K or could be cashed out and pay tax’s. Many in Rockford Dist 205 had 20% spikes. My local rep said maybe we should increase the penalty % but I said taxpayers would end up paying even more. They took it under advisement but went nowhere. Tribune had an article called Pensions and Penalties Taxpayers Socked Twice a… Read more »

debtsor
1 month ago
Reply to  Freddy

I know a retired suburban school teacher who earns more today staying at home doing nothing than he ever earned actually teaching.

To James, this is ‘success!

Illinois Entrepreneur
1 month ago
Reply to  James

I would take it a step further James, and strongly suggest that pensions should be abolished altogether. Why am I–the taxpayer–paying for your retirement, when no one does that for me? You can afford to save 10% of your salary like the rest of us, rather than buying boats, second houses and third cars. You work for the government, and you should not be compensated in the upper echelons of private sector comp averages. If your career is about maximizing money, then you shouldn’t be working for the government. You are supposed to be a “public servant” not have the… Read more »

James
1 month ago

The public pensions are financially supported in three ways; from deductions of employee paychecks (or like amounts where their contracts require the employer to pay that cost), the return on the investment portfolios of the various pension systems and the state’s direct apparitions to its pension systems. The first of those three is likely the most controversial here with most saying that employees are not contributing to their pension systems when their contracts with their employers require the employer to take on that responsibility directly. The counter argumeent is that employees rightly claim that any cost associated with their work… Read more »

debtsor
1 month ago
Reply to  James

What you’ve said is true. And you live like a king compared to the rest of the population who is footing the bill.

James
1 month ago
Reply to  debtsor

That’s “part” of the bill. If the earlier state pension contributions had been actuarially sound in their sizes rather than lower for political expediency the pension funds assets’ would be much larger and produce a positive income that would theoretically now support all, or nearly all, of what’s now being paid by the state, the folly and direct consequence of ignoring actuarial contribution rates. So, now the citizens pay ever more year to year by the state paying less every year than they were presumably advised to do since roughly 1917. We are where we are today because the mathematics… Read more »

Susan
1 month ago
Reply to  James

Nurses are compensated at around half the true rate of teacher compensation (salary per hour, multiple type insurance premiums paid on behalf, present value of annuity suficient to generate lifetime 3%COLA-with-survivor-rights.) Not only are nurses’ hourly compensation rates obscenely lower than public sector teachers, nurses are TAXED at obscene rates (property tax and income tax) to pay for teachers early “retirement ” and OPEBs. Nurses are not the only private sector workers so burdened, but they are the ones in the news right now that every politician is pissing himself expressing “gratitude ” towards. So the point is: If society… Read more »

James
1 month ago
Reply to  Susan

Those who presume that teachers only do their jobs 8 hours a day and 9 months a year as is the popular opinion have never been there and done that. It takes LOTS of time away from the classroom to think, plan, prepare and evaluate what you do as a teacher. Its not a 9-to-5 job. Just ask anyone in their first few years where that’s especially true. Its true but to a lesser extent for the veterans as they are more likely to know what they want to do, how they want to do and how to change course… Read more »

JimBob
1 month ago
Reply to  James

Wrong again. Teachers wanted raises and unions bargained for more money in the pocket and less in the pension fund. And the deciders on contribution levels were the politicians those unions supported. Unions and union members knew about the shortfall and failed to do anything about it. Furthermore, actuaries did what they were told by politicians. I tend to agree with blaming the actuaries because they were supposed to be your guardians. But actuaries generally recommend a range of contributions and politicians select the contribution level. Your post is like blaming Henry Ford for greenhouse gas emissions and climate change.… Read more »

James
1 month ago
Reply to  JimBob

I don’t blame actuaries for the state’s precarious position with regard to their pension systems. I blame the people who are supposed to give serioius credence to what the actuaries have to say, the legislators and governors who make the botttom-line decisons as to how the state spends its money. If those people continually value their own political security more than they do the public’s welfare, then any such person ought to have appropriate repercussions for doing so. Apparently the laws permitting that were never written and/or the general citizenry were never all that inflamed about it to make it… Read more »

Susan
1 month ago
Reply to  James

Nobody thinks teachers do their jobs 8 hours a day 9 months a year because we can read union contracts: 6.5 hours a day maximum 6 full-week months a year. (170 days ÷7 days/week ÷4weeks/month).
Lots of “time away from classroom ” to think? Thats what those 2 paid hours of non-classroom time a day are for, right?
Never once have you asked what orher professionals are required to do to “think, plan, prepare, and evaluate “.
Do you even want to know what medical professionals do in their uncompensated time to “think plan prepare and evaluate “?

James
1 month ago
Reply to  Susan

Again, your vitriol stems from the simple fact you’ve likely never been there and done that. Consequently you haven’t a clue as to what teaching requires of those who do it. You spout your point of view with vigor and a feeling of authority when in reality you have no experience to be an authority. You haven’t a clue to weigh forth on any of it. By the way the teacher contracts only apply to time spent at the place of one’s employment, and the job requires much more attention, thought and preparation beyond those stated hours as I’ve said… Read more »

1 month ago
Reply to  James

uh, huh. Most of the teachers have the same lesson plans year after year and I have direct knowledge of this from teacher aids. And won’t do anything additional unless they get paid or a stipend

James
1 month ago

I’d say that’s somewhat true but far from totally so. You’re implying that the totality of it never change apparently. That’s simply not true. It always requires tweaking and often major amounts of it, all requiring time. Then, at the outset I suppose some in the public might well think that any beginnning teacher is given the whole enchilada as to what to do and how to do it. Nope. You’re only given broad-stroke guidance as to what the district has as its goals, what the school has as its goals and what your department has as its goals. You… Read more »

1 month ago
Reply to  James

I’m sure every teacher in Illinois will say they work their fingers to the bone, just like you do James! I have first-hand knowledge that teachers have the same lesson plans year after year and will not do anything additional, like supervising playground at noon on a rotating basis, once every three weeks without additional pay.

James
1 month ago

Charlotte, if I remember your source correctly its a teacher’s aide. While that might well be considered “1st-hand knowledge” you have to ponder how true it is. Maybe it is true and maybe not. What I mean there is that the teacher’s aide likely copied the teacher’s lessons and/or materials for some period. I’d say its unlikely she personally knows more about the historical creation of those material, merely assuming that they are precisely was the case in prior years. What I’m saying there is that its also possible, and maybe likely, that the teacher reviews her materials from time… Read more »

debtsor
1 month ago
Reply to  James

Yes James your work is so hard and tireless and underappreciated. none of us have ever had to go to school, or deal with their kids’ teachers, or know any teachers. It’s basically slave labor, and harder than dealing a medical professsional on the front line of the wuhan virus crisis.

James
1 month ago
Reply to  debtsor

I”m not asking you to compare one guy’s job to another’s job, doofus. Life is far more complicated. I’m just trying to tell you the truth as one who’s done it. You may well see it otherwise, but then you’ve not done it. So, how much truth can there be in your version as an outsider?

debtsor
1 month ago
Reply to  James

James, you’re peeing on my leg and telling me that it’s raining. You keep telling me, that as a non-teacher, I can’t possibly understand what its like to be a teacher. You’re asking me to disregard the union contracts that lay out how much work you actually do; you’re asking me to pay no attention to my interactions with my childrens’ teachers; you’re asking me to forget the 20+ years I spent sitting in classrooms during my lifetime. I simply can’t comprehend what it takes to be a teacher. No, James, you are wrong. I can absolutely understand what it… Read more »

James
1 month ago
Reply to  debtsor

Well, as I’ve said elsewhere all you have to do is talk to a large sample of teachers and particularly those in their early years of it, sort average what they have to say about it. If its such a plush and easy job then more would seek to do it and more would stay with it. Neither is the case. So, isn’t it clear at all to you that there’s more to the story in the negative sense than you seem able to grasp as an outsider? You see and think abouit teachers from afar in the sense that… Read more »

Pension lawyer
1 month ago
Reply to  James

If you judge the efforts of public school teachers by their merits and their success in teaching fundamental skills, those who DID make the effort seem to have been spinning their wheels. But teachers resist evaluation. The incompetent ones can’t be fired, practically speaking. The seniority system blocks teachers with energy, creativity etc.from positions where they could make the education system better. Of course you can blame the parent (or sometimes two parents); you can blame nutrition; you can blame noisy environments that hinder learning; you can blame the multiple failures of everybody but yourselves even though you are part… Read more »

Pension lawyer
1 month ago
Reply to  James

They could have done it at the bargaining table. Less pay more in the pensions. Money comes from the school district. % of payroll used for pensions was going up and up. Unions know how to work the legislature and the school board and the voters. This is a problem that could have been fixed but for teachers thinking that taxpayers had an unlimited supply of money and that those teachers deserved more of it. The politicians you blame … did you vote for them? You can’t sue them when the pensions stop because they are immune from lawsuit. You… Read more »

debtsor
1 month ago
Reply to  Pension lawyer

Yes, exactly pension lawyer. These teachers ‘vote blue always’ and suddenly they found out these same democrats (many of whom are under federal suspicion or indictment) have given them a short term benefit to their long term detriment. And if you look at the spending habits and financial situation of most teachers, you can see that is exactly how their live their lives too. The nicest cars on my block are all parked in the teacher’s parking lot. But they’re living paycheck to paycheck in the meantime, counting on that million dollar pension to come one check at a time.

James
1 month ago
Reply to  debtsor

Well, there you go again–using one person’s story to “prove” a point presumably thought to be true for larger samples literally everywhere. Your group selection is far from statistically significant. Think not so much about what’s true in your immediate area but if it were considered far more widely.

James
1 month ago
Reply to  Pension lawyer

So many here tend to blame “the union.” There is no “the union” unless you are thinking only of the massive CPS system’s teachers. Otherwise the 900-or-so school districts in this state all bargain with teachers as single bargaining units. Its likely true that they all know what their neighboring districts have agreed to do, and that the competitive nature of bargaining requires some things to be similar. Still, there are differences. Its also surely true that the CPS system has far, far more sway with state legislators than do the smaller school districts. But, let’s not conflate what’s true… Read more »

debtsor
1 month ago
Reply to  James

” I blame the people who are supposed to give serioius credence to what the actuaries have to say, the legislators and governors who make the botttom-line decisons as to how the state spends its money. ” Wait, you mean the DEMOCRATS that have mostly controlled the state for 40 years? Madigan has been speaker of the house ALL BUT TWO YEARS of his career in the legislature. Sure there’s an Edgar Ramp and all the other Republicans, it’s a bi-partisan problem, but the overwhelming majority of the time has been Democrat controlled. 14 years of Democrat Trifectas in the… Read more »

James
1 month ago
Reply to  debtsor

I think my statement as you’ve quoted it is sufficient. People of every striipe and location may vote for the person of choice. What you have to do is convince enough people to vote your way. Individual rants may make you feel better, but generally they won’t solve the problem. Now, if you have 1,000 people ranting maybe it will have a bigger impact. Rally your troops!

debtsor
1 month ago
Reply to  James

” What you have to do is convince enough people to vote your way. ”

Or just gerrymander districts for Democrat control. Are you familiar with how insanely gerrymandered IL districts are? Its one of the worst in the country. So many districts don’t even have Republican candidates running because every district that could be drawn with a republican minority was drawn with a republican minority. So rallying the troops is useless when the battlefield is not in your favor.

James
1 month ago
Reply to  debtsor

I couldn’t agree more. But, still, you can’t accomplish a different agenda without rallying the troops for favorable voting results. I didn’t mean to suggest that would easy; almost no goal worthwhile having is ever easily accomplished. Still, some heroes plug on. I have to give it to Bernie Sander on that sense of commitment. He’s impervious to the idea of quitting in spite of odds vastly against him.

debtsor
1 month ago
Reply to  James

“I have to give it to Bernie Sander on that sense of commitment. He’s impervious to the idea of quitting in spite of odds vastly against him.” When you’re Constantine XI Dragases Palaiologos the last emperor of Byzantine, fighting the foreign invaders, until they strip the armor from your dead body, that is commitment to an idea when the odds are vastly against you. The Byzantine Empire of 1000 years wasn’t going to surrender to the Turks. But when you’re Bernie, running to force America into your own version of a socialist dystopian nightmare, that’s tyranny. Or at least where… Read more »

James
1 month ago
Reply to  debtsor

Seriously, you shouldn’t be an American. Think of a country more compatible with your views.

debtsor
1 month ago
Reply to  James

Right back at you, James. I hear the weather in Venezuela and Cuba is great this time of year.

1 month ago
Reply to  James

he’s impervious to the idea of quitting because he is waiting for another payoff, or dacha. The man has never done one honest day of work his whole life

JimBob
1 month ago
Reply to  James

What reprisals are likely to be encountered by those who speak out or by their children? Get on the enemies list of public employees and their unions and you are likely to wake up with flat tires and broken windows. Public employee unions like to break stuff up and disrupt society. (So do private sector unions but they aren’t that powerful anymore.) Why do you think most who post on this site don’t give their names and addresses? What do union members do to “scabs” — same as pro-choicers do to pro-lifers (and vice-versa). We no longer seem able to… Read more »