By: Mark Glennon and John Klingner

The State of Illinois this month released its Comprehensive Annual Financial Report for the 2017 fiscal year. It’s basically the audited actual financial results for the year — 383 pages worth.

The bottom line is what’s called “total primary government net position.” It’s basically the concept of net worth — assets minus liabilities — and reflects the gradual accumulation of losses from year to year.

The state lost $9.9 billion in 2017 by that measure, falling to negative $137 billion. For a little perspective on how much that is, the state’s total revenue is about $38 billion, so it sustained a loss for the year equal to over a quarter of its income.

It’s nothing new. This chart shows the plummet into the abyss over the past ten years:

Four things you should remember about this:

1. It’s not just the state government. Towns and cities across Illinois are sinking, too. The chart below shows The City of Chicago, Cook County, the Chicago Public School District and the state over a ten-year period, which we published last year. We are working on compiling these numbers for other major Illinois municipalities.

Source: 2016 CAFRs for each unit of government

2. It’s much worse than other states. As reported by The Bond Buyer,

[Illinois] runs away with the title for the highest negative net position figure among those reviewed by the auditor, with Massachusetts next at a negative $63.4 billion, then Connecticut at negative $45.4 billion, Kentucky at negative $16.5 billion, Maryland at negative $10.6 billion, and Hawaii at negative $3.4 billion. Delaware and Rhode Island also have small deficit positions. The remaining states are all in positive territory with Texas at $101.9 billion.

3. A booming stock market didn’t help. Growing unfunded pension liabilities comprised much of Illinois loss over the last ten years. Markets boomed in 2017 and the state’s pensions earned over 12%, which is unusual, yet unfunded pension liabilities stayed basically flat and the state still hemorrhaged.

4. It shows why government budgets mean little. In all those years when Illinois suffered huge losses, budgets were “balanced” under the phony accounting standards used for government budgets. Actual results show a vastly different story.

5. It shows why the public in Illinois remains in the dark about the severity of our crisis. Where in the Illinois press were these new numbers covered? Nowhere that we can find. At least two national sources, however, saw the importance and wrote about it immediately, The Bond Buyer and Reuters. The Illinois media likely will cover the budget battle extensively. They usually do. That misleads Illinoisans into thinking the state comes at least within a few billion dollars balancing its books each year, when in fact things are far, far worse.

Correction: 3/28/17. Corrected the 2017 returns for Illinois pensions from 15% to 12%.

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Mr. Common Sense
2 years ago

And just a friendly reminder:
The second you drive that moving van across the Illinois State line, you will not owe one red cent on those ridiculous and obscene pensions.

That is all.
Too-Da-Loo.

S and P 500
2 years ago

The cover of the CAFR is pretty strange. It has a picture of something that looks like a statue of Sitting Bull. In the corner is the state emblem that looks like an eagle is having a losing fight with Squeezy. And yes indeed, the balance sheet shows a negative net position of $137 billion. What most people don’t get is that is an actual debt, like the balance on your credit card. It is not just an accounting entry.

jaherzrent
2 years ago

When you are losing on the facts, plead the law. I see a bit of that going on … public employees who have no problem with illegal work stoppages and demonstrations are the first to reach into their otherwise empty bag of principles to pull out the constitution. Or else they argue that public policy should raise taxes so these “servants” can retire in their 50’s with lavish COL-adjusted pensions and lifetime health. And if Illinois can’t do it, the rest of the country should just dig deeper because ANY reduction in the lavish promises (gained through extortion from venal… Read more »

Adam
2 years ago

Hey Mark; a few things: I think people in this state that want things to change, like me, feel totally helpless. You can post all the great articles you want about why things need to change, but the real question is, how do they change? The state constitution makes it impossible to do much at all, as well as the fact that corrupt public unions run the state. The pensions ARE the problem. That is that. If the pension situation is not allowed to be fixed, then the state will not get any better, period. However, as I stated, the… Read more »

James
2 years ago
Reply to  Adam

In response to second question apparently you are assuming its the IL pension funds that have the obligation to pay governmental employee pensions and that if the legislature chooses to ignore paying into those funds that there are no more pension payments due. Isn’t it clear from the Pension Clause that its the obligation of the state itself to make those pension payments in full and when due? So, go ahead and bankrupt those pension funds. That doesn’t stop the state’s obligation to pay them from other sources. Besides, isn’t an outright non-payment year after year and making no plans… Read more »

Adam
2 years ago
Reply to  James

Math and reality will win over the state constitution in the end. That is fact. Taxes can only go so high. The pensions are completely doomed as is. What is written on a piece of paper means nothing to math and reality. In the end the courts will have little say in the matter once the pension funds run to zero and taxes cannot go any higher. That is just the facts.

Adam
2 years ago
Reply to  James

Also, I am not assuming anything. I KNOW that the state will have to stop paying into the pensions in time. They will have no other choice. What happens after that is reality hitting the public unions in the face and forcing reductions because there is no longer any other choice.

Erik
2 years ago
Reply to  Adam

Unions do have a choice. They can sue the sponsoring governmental body and appellate court judges will set new unpayable property tax rates to try to push the pensions to solvency (e.g. Harvey, IL).

Adam
2 years ago
Reply to  Erik

Taxes can only go so high in reality, so that simply won’t work for very long. Again, math and reality will win out in the end. Taxes CANNOT go up forever, which the greedy unions seem to think is possible. Of course, that is just head in the sand thinking that has no basis in reality. Most people simply cannot pay much more in taxes. The pensions lose in the end.

Erik
2 years ago
Reply to  Adam

Unions and appellate court judges don’t care about our ability to pay higher taxes. History proves that.

Adam
2 years ago
Reply to  Erik

At some point they will have to. People won’t be allowed to starve in the streets, and people will just keep moving. In the end the pensions lose because they have to in order for a true disaster not to happen. You can keep doing mental gymnastics all you want Eric, but the pension do lose in the end. All financial experts agree on that. Only public union stooges think the pensions will allow taxes to go up forever. LOL

Erik
2 years ago
Reply to  Adam

We all lose in the end Adam. It’s going to be ungodly painful for all of us.

Adam
2 years ago
Reply to  Erik

I can move if needed as well, and I will if I have to. But, again, something will have to be done with Illinois and many other states. This is a much larger issue than just Illinois. Public pensions in general are DOOMED. Starvation in the streets is not an option. Taxes cannot go up forever, and we are almost to the point where they cannot go up much more already. That is reality.

nixit
2 years ago
Reply to  Adam

Adam – The state will not stop paying into the pensions, per se. Rather, the pension systems will morph into a pay-as-you-go system without investment returns to help fund payments to the annuitants. I’m pretty sure this is how the pension systems were funded 40-50 years ago…the state would budget to fund pensions with as much money that was coming out and hope to eek out some stock market gains in the process. Back then, I’m guessing the active/inactive ratios could support that. But pension payments will continue with other things get squeezed out. I don’t think anyone can bankrupt… Read more »

Adam
2 years ago
Reply to  nixit

The state can stop paying into them if it chooses, but what happens after that is not for sure. Either way, I am tired of people acting like nothing will be done and this farce will just continue forever. Math and reality will win. The pensions lose. The real fun is when the pension funds collapse and I say “I told you so” to some of my public union friends.

Adam
2 years ago
Reply to  Mark Glennon

The Berniecrats will also lose to math and reality. Math and reality will dictate how this goes once the pensions go bust, not left wingers or right wingers, both of which are delusional in their own ways. The greater good for 95% of the population of the state is what wins out in the end. There is no other way. People with public pensions lose more than anyone else once all this hits the wall, with that I have no doubt. Mark, I know you cannot give me an exact date for the pensions failing, but I would think you… Read more »

Erik
2 years ago
Reply to  Adam

Adam – My thoughts on your questions:

1.) No. The state constitution says what it says.

2.) I am not optimistic that pension collapse and state bankruptcy will fix our problems. The hope that it will rests on the assumption that we’ll emerge from bankruptcy with a higher caliber political class. We won’t get a legislature full of fiscal conservatives given our voting base, and it won’t be long until we’re right back in another fiscal crisis.

Adam
2 years ago
Reply to  Erik

The state constitution does not trump reality and math; it will lose in the end. They will be forced to remove the clause in time anyway, and federally they can do something as things get worse for the pubic pensions that will also trump state constitutions. They will have to allow something. Erik, something will fix it, one way or another. You need to give examples of what you think will fix it if you disagree, but if you don’t have any, then I would say bankruptcy is still the best and most realistic option.

Erik
2 years ago
Reply to  Adam

Adam – My example is Detroit. They emerged from bankruptcy with a very workable situation. They then continued to elect the same caliber politicians who over-promised and overspent, and are again flirting with insolvency.

Look at our voting base in Illinois. The free stuff army outnumbers the taxpayers. Are they going to vote for fiscal conservatives? I haven’t given you an example of what will fix Illinois fiscal nightmare long term because I’m not sure there is a fix.

Adam
2 years ago
Reply to  Erik

It may be a fed bailout. Who knows? IL is too big to fail either way. They will have to do something. People that just act like they are going to let one state fail and all the rest continue are out of their minds. Plenty of other states will have their public pensions collapse in time anyway. In the end the public pension issue most likely will have to be handled at the federal level. Well, unless the entire global economy just collapses and then it is game over. Then the states will go down with everything else, but… Read more »

Erik
2 years ago
Reply to  Adam

Do you think the citizens of fiscally healthy states will stand by and allow their federal tax dollars to be used to bail out profligate Illinois? Don’t count on it.

Do you think the promise of bankruptcy and reorganization will slow down out-migration? Not likely.

Adam
2 years ago
Reply to  Erik

Do you think they are going to let citizens of Illinois starve in the streets? If you say yes, then you have zero brains. Not going to happen. Illinois is too big to fail, period. If Illinois goes down, then other states with pension issues only go down quicker. In the end, 75% of ALL public pensions are set to fail in 30 years in ALL states, not just Illinois. Illinois is just first in line. If you think there is going to be some sort of Mad Max scenario in Illinois where people are staving and eating their neighbors,… Read more »

Mark M
2 years ago
Reply to  Adam

Adam, I don’t think Illinois will end up in a state of anarchy, but the State will be smaller in population by a large measure, and poorer and overall a bleak place to live. Detroit may not be an appropriate comparison because the rest of the State of Michigan will not face the ruination the State of Illinois will be experience. Your colloquy with Erik above shows me one thing – no matter how difficult or upsetting – Illinois residents need to move. To those saying they can’t, well can’t is a relative term, especially given, as Erik points out,… Read more »

Adam
2 years ago
Reply to  Mark M

It simply isn’t realistic to say everyone needs to move Mark. That is not realistic at all. I will move if my company moves, and if my company stays, then I will stay. But to think that every company and every person is going to move instead of the pension issue being fixed is just flat out unrealistic and unintelligent. The state will have to continue to function down the line, period. Moving is an option, but it isn’t a fix for the state as far as pensions, but there will have to be one.

2 years ago
Reply to  Adam

Illinois has two options – and we will not choose until the crisis becomes a real CRISIS! 1. bankruptcy – let a court decide 2. IL Constitution amendment – there is a max taxpayers should be expected to pay, (we should have a say in that),. Do those in the funds want any say on how future pensions (even those already collecting pensions) are cut? should it be a stop to COLA increases? Every pension cut proportionally (like to 35% of what they would otherwise be entitled? Cap pensions? Recompute pensions based on the salary of 5 year prior to… Read more »

Rick
2 years ago
Reply to  Adam

Technically the so called pension clause is already not being followed. When the different administrative levels of government as a whole finally reach a point of having to cannibalize each other financially. Then maybe there will be some change. Government can’t keep moving money from one pocket to the other forever.

Jessica
2 years ago

“It shows why the public remains in the dark about the severity of the crisis”. Bingo.