By: Ted Dabrowski and John Klingner
Moody’s Investors Service has updated its state-by-state pension liability report and if there’s one key takeaway, it’s that Illinois is the nation’s extreme outlier when it comes to pension shortfalls. Moody’s says Illinois’ state pension shortfall fell by 3.6 percent in 2018, similar to the national average, but that small reduction did nothing to drop Illinois from its worst-in-the-nation ranking.
The Moody’s report is one of those cases where the data speaks for itself. Line up the country’s 50 states and Illinois is likely to be the outlier.
Take pension debts. Illinois has a $241 billion shortfall, down from $250 billion in 2017, in its five state-run pension funds, according to Moody’s methodology.* Illinois’ pension shortfall not only dwarfs those of notorious New Jersey ($113 billion), but also those of far bigger states California ($231 billion) and Texas ($133 billion) and those of its neighbors. Iowa has just a $5 billion shortfall, Wisconsin, only $11 billion.
On a per capita basis, Illinoisans are on the hook for more pension debts than residents in any other state. At nearly $19,000 per person, Illinoisans face a retirement burden 6 to 12 times bigger than most of their neighbors. The national average for pension debt is just $2,903 per person.
To get a sense of how large those debts are relative to each state’s budget and economy, Moody’s compared retirement shortfalls to each state’s tax revenues and its GDP. Unsurprisingly, Illinois’ massive shortfalls translate into a massive share of each.
Illinois leads the nation, by far, for pension shortfalls as a percentage of annual state revenues (own-source revenues). At 505 percent, no other state even comes close.
Even Kentucky, which is embroiled in its own pension crisis, has shortfalls equal to just 300 percent of its revenues.
Illinois is yet again the nation’s extreme outlier when pension debts are compared to the size of the state’s economy. Illinois’ pension shortfalls equal almost 30 percent of the state’s GDP. Meanwhile, Indiana, Missouri, Wisconsin and Iowa’s shortfalls are all less than 10 percent of their GDP.
Moody’s report also contains new data on each state’s retiree health obligations (known as OPEBs) as a result of new GASB reporting requirements. Wirepoints will follow up with a report on the OPEB numbers shortly.
The numbers above only include the debts of Illinois’ five state-run pension funds. They don’t include the debts faced by Chicago, Cook County and hundreds of other Illinois cities.
Illinois’ crippling pension debts are all part of serious fiscal and demographic crises that continue to tear at the state. Illinois is already the worst-rated state in the nation and Moody’s puts the state’s credit just one notch away from junk. No state has ever been rated junk in modern history.
Compounding those financial problems is the fact that residents continue to leave the state in record numbers. The state’s out-migration crisis is second only to New York, with Illinois suffering a net loss of 1.5 million residents since 2000.
That situation is unlikely to change given the state’s political leadership has rebuffed calls for an amendment to the Illinois Constitution’s pension protection clause. Without that amendment, pensions benefits for government workers can’t be reformed – not even for benefits that have yet to be earned.
Nobody is winning from that stance. Retirement security for government workers, especially in the city of Chicago and other municipalities across the state, has collapsed. Property taxes continue to rise despite already being the highest in the nation. And the possibility of a progressive income tax threatens to send even more Illinoisans over the border.
The silver lining for Illinoisans? Things that can’t go on forever, don’t. When the pain gets so bad and politicians finally run out of can-kicks, reforms may finally have a chance.
*The biggest driver of the difference between Moody’s calculations and states’ official numbers is the discount rate – the rate used to determine just how much the states owe in pension benefits. Moody’s uses far lower rates than most states assume – which it says is a far more appropriate measure of risk.
Read more about Illinois pension crisis:
- Senator Heather Steans’ Empty Rhetoric Defines Springfield’s Failure on Illinois Pensions
- Illinois Hit By Record $47 Billion Loss, Ignored by Regular Media. Why?
- Illinois’ financial decay spreads to cities across the state
- Illinois’ shrinking tax base: $310 B in accumulated losses from out-migration (Part 3)