Sometimes we feel like writing a form response to the questions we so often get: When does this blow up? How does Illinois’ state and local fiscal crisis finally resolve?

By “resolve” I mean how things ultimately sort out, for better or worse.

We have lots of informed readers here, including folks in finance and the municipal bond industry. So let’s hear from you.

And don’t give us a glib, short answer like “bankruptcy,” “everybody leaves” or something that vague. Tell us who gets hurt most and what the full picture is. What’s the catalyst? What’s the time frame? How and when does stability ultimately return?

Our answer has long been that it’s a process and not an event – a slow motion train wreck. Termites eating the foundation. Far too many variables are unknown to say when or how things will ultimately turn out, we think, though it’s certain to be enormously painful. That process has been underway for some years. “It’s happening,” as we put it long ago.

That’s apparently not a very satisfying answer because we’re still constantly asked for specifics.

So now we are putting it on you. Have at it. Give us the most concrete answers you can.

-Mark Glennon

 

P.S. No matter how or when Illinois’ crisis comes to a head, Wirepoints is prepping for the post-blowup period by drafting necessary reforms. If you haven’t already, check out our comprehensive pension plan on our Pension Solutions page.

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Alphabet Soup
1 month ago

This is of course the crux of the matter. Everything in this state boils down to this simple fact…Illinois has over 200B in unfunded pension debt! Pension obligations now consume over twenty five percent of the Illinois budget! What does that mean for the future?  This means that Illinois politicians face two unattractive alternatives. First, to continue to increase taxes and or fees and fines, which they have done over the last several years. Two, to cut back spending on government services which given that so many of these services are also set in law or required by the Federal government… Read more »

Marcia
1 month ago

Slightly off topic…but related. Will what is happening in Pennsylvania with this election have potential huge impact regarding Illinois pensions? The Pennsylvania Supreme Court said that…even though the new voting law was unconstitutional…it is too late to challenge. And their response to the Supreme Court is that even though this violates the US constitution it should be ignored because it will disenfranchise voters.

if the US Supreme Court buys this….can Illinois pass a law regarding pensions that violates federal contract laws….and because of the importance to the state, says “ok”. We have new precedent?

Fred
1 month ago

My view on why nothing will happen to forestall the train wreck. The unions have no authority to bargain for retired workers. Even though pension system assets are declining, the retirees are already at the banquet tables with large plates and ladles. No reason retirees should bargain against themselves. Active workers could be FFVs (flim-flam victims) but enough of them know all the words to Solidarity Forever that it clouds their ability to see that they have radically different interests than the retired workers. Voters seem to fear closed schools worse than they do tax increases. With two parents, both… Read more »

Freddy
1 month ago

This is more of a question rather than a statement. Where in the Illinois constitution does it say that John Q. Taxpayer is ultimately responsible for the mismanagement or misappropriation or even the diversion of money earmarked to pensions? More important when did we as taxpayers have the ability to vote for this on any state ballot or referendum? I do not recall ever seeing that on any ballot on a state level. This seems like a vaguely implied interpretation that we are responsible rather than a law. Saying Just Because or It’s always been like that is not a… Read more »

James
1 month ago
Reply to  Freddy

Freddy, you may know that IL voters had a new state constitution presented for their approval in 1970, and that it was passed by popular vote. There were lots of new things in there, and the Pension Clause was one of them. While you may not have voted for it its likely your parents did. In any event we are now bound by all the terms of that document approved by popular vote long, long ago.

Freddy
1 month ago
Reply to  James

That’s true but my concern is that were all the ramifications by voting for it disclosed to the public. More than likely the recipients (in this case union employees) were probably fully aware thru internal union memo’s or in union meetings (no internet yet) that this will benefit them the most and the general public just got bits and pieces by ways of newspapers and local media. The recipients probably voted overwhelming for it with few voting against. Probably some meager enticements for the general public to vote for it but all the info to unions internally. Reminds me of… Read more »

James
1 month ago
Reply to  Freddy

Well, I think your take on it is probably right. Isn’t that always the way things go, though. Essentially its “caveat emptor.” He who is inquisitive will learn; others not so much. Such is life in the larger sense at all times.

Susan
1 month ago
Reply to  James

By your logic, we should return to the legal or at least tolerated policies of sexual and racial discrimination of 1970…because it was the law then. If you counter that well, those bad laws then were replaced with good laws later but the pension protection clause has not been replaced, so therefore it must be ok, then… you are right. The law is the law and it must be enforced. Therefore, you should turn all efforts toward enforcing that law that destroys every Illinois non-public-benefit-entitled human’s property value and livelihood in favor of that discriminatory Law which protects You and… Read more »

James
1 month ago
Reply to  Susan

That’s your take on it and not necessarily mine. The truth, as usual, is in the eye of the beholder.

Susan
1 month ago
Reply to  James

You know who else trumpeted the “It’s State Law” argument in 1970?
George Wallace.
You seem not to realize you sound like a PensionEntitlement Supremacist? Valuing your life and wellbeing as worth more than that of nurses, doctors, grocery store and Amazon fulfillment workers…? And of course children, who must live in a home paid for by an adult liable for property taxes and income taxes?

James
1 month ago
Reply to  Susan

Susan, you just couldn’t keep up the sweet as honey approach to problem solving, could you? No, ye old vile had to start coming forth as usual. I’m SO surprised—not!

Aaron
1 month ago
Reply to  James

wrong! No balanced budget for the last 20 yrs.

The Truth Hurts
1 month ago
Reply to  Freddy

Freddy you need to go back and research the historical reasons behind the amendment. Before the amendment some courts had viewed pensions as mere “gratuities” rather than an actual contract. This struck many people as unfair considering employees were required to contribute to a fund that could be taken away. This caused some states including Illinois to specify that pensions were in fact contractual obligations. They wanted to make clear that whatever you were offered on your first day of employment could not be changed before you retired. This was an amendment that was introduced by Republicans and had bipartisan… Read more »

James
1 month ago

Very well said, indeed. Yowza!

Heyjude
1 month ago

Interesting comment, you have obviously done your homework on this. I wonder about the idea that the pensioners are only entitled to their payment, not the level of funding. In the real world, how can someone be entitled to a payment for which there are no funds? Are public employees really going to the wall for this? Because of course it would ultimately give priority to retirees over the currently working public employees. Do they really believe this can continue into perpetuity?

The Truth Hurts
1 month ago
Reply to  Heyjude

You bring up a very important point in that public employees and their unions have different interest than retirees collecting a pension. That’s why it makes no sense when people demand that unions should negotiate to fix this issue. Union membership will only grow with tier 2 members while tier 1 members retire. Since tier 2 is not the problem there is nothing to negotiate. People mistakenly talk about “when the pension funds run dry” but don’t understand that is more of an assessment on the states overall finances rather than pensioners ability to collect their pension. If pension funds… Read more »

Heyjude
1 month ago

I have been one of those urging the unions to get on board with the idea of reform, because I believe that what they and their members want ultimately controls what happens in Illinois. They are also the main resistance to reform. It seems that they somehow think that the current system can continue, and that they too will ultimately cash in. That seems to me to be a dangerous bet to make. Being of retirement age myself, I certainly understand why it would be unfair to drastically alter current pensions. That is why we need to enact changes now… Read more »

Last edited 1 month ago by Heyjude
The Truth Hurts
1 month ago
Reply to  Heyjude

I understand the union’s influence in Illinois politics I’m just not sure what they can do to solve the problem. Would they be willing to have their members take a pay cut and reduce headcount? Unless they are willing to offer up savings they don’t have much sway over their members or this issue. Just look at the “fair tax” amendment. The unions supported it but wasn’t enough to get it passed. Just like everyone else, union rank and file members will vote for their own self interest regardless what their leaders tell them.

JimBob
1 month ago

Union members and retirees will hold out as long as there is no carrot. Nobody has to give up a constitutional right. However they can “waive” a constitutional right [the basis, e.g., of a plea bargain to avoid a trial]. The difficulty is to find any incentive to get individual waivers. Police funding in Chicago is no carrot to a retired teacher living in Florida. The only carrot I can think of is some sort of federal guarantee. This can be characterized as a bailout but there’d still be no guarantee without an individual’s waiver of his or her individual… Read more »

James
1 month ago
Reply to  JimBob

I disagree that the state has no carrot to offer. They do! All it takes is creativity to find them and work them into new contractual agreements. The state can save pension monies by enticing retirees. You don’t have to be Einstein to find ways to do it. Retirees themselves can suggest a few enticements to give up one thing for something else.

Aaron
1 month ago
Reply to  James

James, please give one example

James
1 month ago
Reply to  Aaron

No, sorry; I could but won’t since everyone here would see themselves as the state’s negotiator and that’s not the case. Anyone can think what they’d like that trade to be, go for it and see what happens if you present the advantage to the other side in what you are proposing. Its going to vary from person to person. Some that seem a good trade may work to mutual benefit or potentially so at least and set a new pension contract. It only requires the state to be open to the idea and let pensioners know that’s the case.… Read more »

The Truth Hurts
1 month ago
Reply to  JimBob

I think it would be pretty hard for Illinois to get a bailout when their income tax rate is 4.95%. The blue states that have higher rates won’t be sympathetic and the red states with lower rates definitely don’t have the desire to help. Sure we are taxed higher in other areas but that tidbit won’t carry over to voters outside our state. The only way a bailout happens is if you make the trough big enough for all the pigs to get some. That may happen but that would require some old school political horse trading across party lines… Read more »

Freddy
1 month ago

What I understand is that thru out all these decades the taxpayers received property tax bills and other taxes year after year and within those taxes is money appropriated to pensions on behalf of state employees. So from a year over year perspective we received bills that fulfilled our obligations for services and pensions for that budget year state and local. Basically we paid in full for any given year not just partial payment. Once the money left our hands did all the money appropriated to pensions really get there. If it did there we would not have as big… Read more »

The Truth Hurts
1 month ago
Reply to  Freddy

“Basically we paid in full for any given year not just partial payment.” That’s the problem though. None of us paid in full and we still aren’t making the full pension payments. Your politicians essentially borrowed from (and continue to borrow) the fund by not funding them correctly. They could have chosen to be honest and cut expenses or raise taxes but they chose the easy route because as you posted earlier many voters simply don’t pay attention. Regardless of why that reality exists the state of Illinois is deep in debt. That debt is the responsibility of ALL Illinois… Read more »

James
1 month ago
Reply to  Freddy

So, ultimately you are also impyling our U. S. Constitution has no hold over anyone in modern times apparently, right? We didn’t sign it, after all.

Aaron
1 month ago
Reply to  James

James, it doesn’t if the budget isn’t balanced or if #2 is infringed.

Goodgulf Greyteeth
1 month ago
Reply to  Freddy

I’m with The Truth Hurts on this one. Voters created this mess. Gerrymandering works only because the stakeholders who fund politicians can rely on the fact that political party identity trumps the average voter’s ability/willingness to consider how things actually will work such that, after they’ve cast their ballot, you can conclude that they have a particle of the common sense that God gave geese. The average voter puts the same quality of thought into picking their political party as they do their favorite NFL team, only they spend less time doing it. Having made their choice, they support both… Read more »

Freddy
1 month ago

I agree only in part “Voters created this mess” Yes voters did vote for this but most of the voters were probably recipients or recipients to be somewhere down the road.They are not going to cut their own throats and pass up a good deal. Were other voters given all the info to make a logical choice? We can only make an informed decision as long as all the info( both plus and minus) is given to us. Was the average non recipient voter advised that the “shall not impair or diminish” clause pertained only to public employees? Most likely… Read more »

James
1 month ago
Reply to  Freddy

Maybe, but let’s look at it from another standpoint: Is any politician obligated to inform the public of the downside of voting for him/her? Clearly not. So, while your point of view makes sense its not a legal obligation of political proponents to disclose reasons for choosing not to vote for anything they propose. To the extent their adversaries choose not to do so it might be considered a form of negligence if you’d care to view it that way but probably not generally chargable as such legally. Whatever comes up for vote its ultimately “caveat emptor.” The voter is… Read more »

Freddy
1 month ago
Reply to  James

Good analogy. That would be something. A politician telling people that they are crooks before we vote for them. Look at what just happened with the Fair Tax. The money spent on both sides was ludicrous. Every time you turned on the TV vote for this or don’t vote for this but if there was a fair tax proposal in 1970 what do you think the results would have been?

James
1 month ago
Reply to  Freddy

Most of us of a certain age were in the dazzled eyes stage of political infancy and surely would have voted in favor of it then. Political events and aging in general have brought us to a stage now where we don’t believe almost any tax increase delivers what’s been offered in the hype given for it.

Old news
1 month ago

Everyone over thinks this….I heard that Illinois is going to fail for the last 50 years. And what has happened….nothing. Biden will cheat his way into office and if Democrats get the senate, Illinois will get a bailout and the cycle will continue for another 50 years…

Heyjude
1 month ago
Reply to  Old news

Please keep watering that money tree for us, we will need it.

Juicy Smollier
1 month ago
Reply to  Old news

Oldie … if you don’t have REAL assets within the next few years, and certainly by the late stage of this decade … you are going to be in a real world of hurt. Mark my words.

Andrew Szakmary
1 month ago

Your proposed state constitutional amendment will not get through the general assembly, and even if it does, it will be struck down by the Illinois Supreme Court based on the contracts clause in the STATE constitution. So the pensions will have to be paid, and as a result there will likely be further tax increases at the state and local level, though I suspect they will be limited because pension contributions as a percent of even current law revenues are not projected to increase much more than they already have, at least not for the state systems. Eventually, albeit many… Read more »

Goodgulf Greyteeth
1 month ago

Correct in a general sort of way only if one assumes that the opportunity-costs of continuing to direct 25-30% of revenue toward pensions for another 30 years won’t create intolerable consequences before we reach your hypothetical tier-2 tipping point. Springfield admits to unpaid debts in an amount equal to about a quarter of it’s annual budget, $7 billion or so (likely far more). Generally speaking, the vendors willing to accept payment delays of up to two years do so because they charge Illinois taxpayers so much that the combination of what they charge Illinois immediately for the service or product,… Read more »

Aaron
1 month ago

What about the balanced budget part of the constitution? What about 2nd amendment infringements? Just ignoring what you want is how it works these days. Soon they will ignore pension protections also.

John
1 month ago

Illinois does not have a fiscal crisis, it has a management crisis. Our state’s GDP per capita is one of the highest in the country. And we tax plenty, in other words, there is more than enough money to run the state and its municipalities. So how will this turn out, well I believe the vote on the Progressive Tax is the tea leaves for how things are going to turn out. The Illinois Dems know this. They know the public is on to their history of mismanagement and corruption and are tired of it. They are using Madigan as… Read more »

Roger Moffat
1 month ago

companies who sell to the State will charge premiums or stop selling the state because they may feel they won’t be paid in a timely manner if at all. 7.5 B of “unpaid” bills currently translates to about 1/6 of the budget and its growing. There is a certain point when no one wants to deal with the State. The bond market downgrading is essentially forcing the premium as a financial industry. When does that same thing happen with health services, food services, construction etc. the State may not go into official bankruptcy but by essentially witholding services and goods… Read more »

Juicy Smollier
1 month ago

I am happy to say I began this thread by months of asking Mark and Ted the who what when where and why of the pensions future. I’ve commented a lot around here since then, and even in this thread, but here is my prediction: Everyone knows in even the global system that no one is paying back this “debt”. That goes from sovereign debts of advanced countries around the world all the way down to a small city, or not-so-small Chicago. So what does that leave us with? Late stage grifting, in order to keep squeezing the last drops… Read more »

Mr_Common_Sense
1 month ago

Privatize any Government jobs that are possible.
SANDY SPRINGS, Ga.

https://www.nytimes.com/2012/06/24/business/a-georgia-town-takes-the-peoples-business-private.html

Goodgulf Greyteeth
1 month ago

This has to be one of the best comment-discussions I’ve ever read. Illinois’ bankruptcy of finances and governance is a wire-cable Gordian knot of intertwined stakeholders, whose only common characteristic is their shared mission of insuring that only Joe-n-Jane Sixpack taxpayer’s ox is gored. It’s hard to envision that torching through a couple of places on the outside layer of that knot is going to result in much of it unraveling anytime soon. The payday-loan bond markets love peddling Illinois’ usurious interest rates to investors. There’s always debt laying around – on Wall Street or in Washington – for Springfield… Read more »

Themis
1 month ago

Agree with all of this. Been hearing that we are just about to hit rock bottom for years and it never seems to happen. I am interested in how people will respond to the temperature going up just a few more degrees (boil the frog). After years of being shown that only chumps follow the rules, people will continue to look for ways to duck regulations, especially those that add cost. Efforts to avoid taxes will accelerate, also. Buy local and pay cash? Bartering? Craigslist? Black/Gray markets? Traveling salesmen? Guilds? Reduce the power of government unions and their dues by… Read more »

Goodgulf Greyteeth
1 month ago
Reply to  Themis

Problem is, public employees really aren’t being laid off. State employees are largely “working” remotely from home – not one laid off from ANY state agency – accomplishing little, or nothing, because they don’t have a state-issued cell phone, or computer, or access to paper documents. Some of us have been doing the best that we can with our personal computers and personally paid private internet services, others simply dither away at home doing next to nothing of any consequence while drawing a paycheck. Meanwhile, the private-sector workforce is ravaged by 15% unemployment “mitigated” by thousands of IDES state employees… Read more »

susan
1 month ago

Version 2 Happy Hollywood Ending: All Unincorporated Illinois Property outside Cook and Lake County incorporates as The City Of Libertaria. The City promptly designates every property within as TIF: blighted, and therefore assessment-frozen for 23 years. TIF-FOR-ALL. Libertaria designates abatement of all TIF incremental tax payments back to the property owner who paid them, pro rata, so each owner can ‘cure his own blight’. This creates a tempting scenario for developers who are not ‘Old-Illinois’ Political Class Insiders bent on strip-mining taxpayers’ resources to profit themselves at no personal risk. State of Illinois must by law pay Libertaria a portion… Read more »

Morefandave
1 month ago

The ultimate cause of the pension crisis was the ability of the public sector unions to persuade the General Assembly over the years to approve outrageously generous pension benefits. That transgression dovetails with the outrageously generous state union contracts, which have pension effects. My recollection is that Rauner was at impasse with AFSCME (the largest state union) when he left office, and that Pritzker caved into the union demands upon taking office. The state’s unwillingness to confront the pension problem arises from the Democrats’ (mainly) fear of crossing the unions and losing their political support (i.e. money), even though they… Read more »

susan
1 month ago

2 versions, Documentary and Happy Hollywood Ending. Here is Version 1, Documentary: 2021-2025: Due to hyperinflation and forced awareness of OPEB obligations and pension obligations attached to local property ownership, property tax rates (outside Cook) rise from current 3%-5% range up to 10%-15% as a function of rapidly falling property values and rising levies. Farmland ownership is rendered unsustainable when p-tax takes too high a percentage of gross revenue: property taxes as a percentage of gross farmland rental income now are roughly equal the ratio of commercial multifamily residential rental properties…but as p-tax rates double and triple, farmland does NOT… Read more »

Taxpaying Citizen
1 month ago

…a slow motion train wreck. Termites eating the foundation. The termites have moved onto the fast-track plan. (See write-up at Roll Call: Retirees’ worst nightmare: Federal backing of pension funds at risk. Looming insolvency of Central States pension plan has stakeholders calling for bipartisan solution) The pension problem for Illinois state, city or county levels; How to maintain your democrat union/pensioner voter base while claiming ‘we did our best but due to unexpected events…?’ This is how I see it playing out: Rule #1): Never let a good crises go to waste. Crisis event: Covid19. 2) Optimization: Covid19 is the… Read more »

Last edited 1 month ago by Taxpaying Citizen
Barb
1 month ago

No governmental plans are covered by PBGC.

Taxpaying Citizen
1 month ago

See: These pension plans are at risk of going broke. Now lawmakers need to agree on a fix Money quote: Solomon said, “This is a loan for retirees who gave up raises, who gave up work rules, who gave up benefits in order to keep their pensions.” The Retirement of Defined-Benefit Pensions Take for instance a police officer hired at 25 years-old who works 30 years and retires at Age 55 having maxed out their pension, eligible to receive 65% of final average salary (which is not an average of 30 years but rather the highest 3 years income), the… Read more »

Last edited 1 month ago by Taxpaying Citizen
Juicy Smollier
1 month ago

Great stuff TC. I think just like Martin Armstrong says, there is no chance or even plan to pay back any of this. The new system will just be switched to. Until then, it’s all grifting. By things of value NOW before the dollar is worth 30-50% less later in the decade, or you only get 30-50% of what you were “planning on” – ironically which is still a good deal for what these guys did, and do.

1 month ago

Ends in inflation regardless. If Dems win GA runoff: bailout via legislation. If GOP wins: bailouts from the Fed, but the public won’t realize it’s a bailout. One thing that will never happen: Illinois politicians biting the hand that feeds.

MJ
1 month ago
Reply to  Jeff

Right, the currency goes down meaning inflation. Print billion dollar bills to buy bread. You cannot contain this when it gets going but who knows when. Future earners can’t possibly pay this massive debt load. It’s ridiculous to think they can.

MJ
1 month ago
Reply to  Jeff

A child in a maternity ward in Chicago has a toe tag, it’s a bill for over $300k. They don’t start paying it until they are 20 something. On top of that they need to live. Forget it.

David F
1 month ago

Service fee on pensions paid to out of state residents.
Pension reform for existing employee’s, new employee’s to a 401. (or make state unions illegal, no more entry)
Forced School consolidation, no district with less than 5 schools if within 10 miles. (some plan)
10% service cut to anything not mandated by law, restoration of funds only it taken from another service.

Juicy Smollier
1 month ago
Reply to  David F

To be honest, the service fee should absolutely happen if pension benefits (even economic) are not substantially diminished. The Feds should do this with SSA for foreign nationals/dual citizens/emigres, I’ve always said, too.

Tony
1 month ago

The biggest issue Illinois is there spending and the elephant in the room that keeps bleeding out called a pension, when someone retires they shouldn’t keep getting an increase for the rest of there life. So if these issues don’t get resolved quickly it will be the same depending on tax payers all the time and if they keep shutting down business who’s going to pay there taxes again they will depend on taxpayers so if these career politicians don’t face the true facts. Unfortunately I see a lot of bankrupt businesses and foreclosures coming to Illinois. When most of… Read more »

Barb
1 month ago

To mitigate the Feds exposure to unfunded government pension plans, they will pair ERISA style benefit and funding restrictions (GERISA) with emergency infusions of cash. All stakeholders will bray like donkeys in the media and smile at their artful solutions in private–no state or local government will have to vote to do anything. Cash flow will ultimately be stopped (because large percentages of revenue streams will be pledged to bond holders and not available to meet day to day obligations). When cash flow stops, the painful job of matching income to expense will finally begin. Bond holders without a pledged… Read more »

Juicy Smollier
1 month ago
Reply to  Barb

Does this happen to Chicago first, Barb?

Robert Hummel
1 month ago

The unions will continue to have the priority. There are very few Illinois politicians who want to push back on them. Unfortunately, The Biden administration will use Federal Taxpayer dollars to bailout the state pensions and the rape and pillaging of the taxpayers will continue.
This is being extremely pessimistic but I lived in Illinois for 25 plus years and have not seen any changes.
This is why the Republicans need to retain Senate control.

Rob Maitino
1 month ago

How will Illinois fiscal crisis turnout? Well, it won’t be good, I’m afraid. There are too many who benefit from status quo, and they vote. This should have been tackled in a major way ten years ago and the pain would have been much less for everyone involved. First, in the near term, taxes will continue to increase. More people who are not getting paid by the taxpayers will leave, as will more retirees. They will take their spending power with them, causing a bigger financial drain. Second, we will have municipalities start to default on pension payments and payrolls.… Read more »

JimBob
1 month ago

Hardass Nixon opened the door to China. Without characterizing Biden’s body-parts(aside from noting that he is even less sure-footed than last week!) perhaps he’s the guy to talk sense to the union uber-lords and their legislative lackeys. Grownups have to let the steam out of the engine [the one pulling toward the train wreck] gradually. We can all win one for the gimper.

SDC
1 month ago

They will continue paying out the huge pensions which the Machine/Combine promised to government workers until the taxpayers speak up & tell them that they never authorized the Machine/Combo to make these promises. The taxpayers MUST stand up to the Machine/Combine who have been playing the taxpayers for chumps while they got the government workers to help them continually get re-elected for decades. The Colonists had to throw the tea into Boston Harbor to tell the King that they’d had enough. At this point, the property owners in IL watch their property values under perform property values in neighboring states… Read more »

Riverbender
1 month ago
Reply to  SDC

I feel that you have the bull by the horns in your opinion. The question then to me is are there enough taxpayers to over ride the voting power of the free state army along with the governmental employees, retirees and union members that support the continuation of the system as it is. The aforementioned individuals provide a formidable voting block that would make amending the State Constitution improbable in my mind. I hope I am wrong but based upon your projection and my inner feelings on voters actually voting to change things I see not much hope in the… Read more »

Morefandave
1 month ago
Reply to  Riverbender

SDC is looking at the wrong end of the bull. W.C. Fields said it’s time to take the bull by the tail and face the situation squarely. And it ain’t pretty.

Never Again, Illinois
1 month ago

Credit rating downgrades to junk and beyond will cause a cascading failure in the bond markets. IL’s massive deficits can only be funded through debt issuance, and as we’ve seen time and time again, leasing state revenue streams (parking meters, tollways) always results in a massive amount of money being left on the table. After credit downgrades, huge buy-side pools of money that the state relies on such as pensions, mutual funds, and hedge funds will no long be able to buy their debt due to investment covenants in their funds (irrespective of the fact that IL debt is a… Read more »

Juicy Smollier
1 month ago

I was going to ask you “How long?” until I saw the last paragraph. Great post, bold prediction. I happen to agree, I’ll just extend it to 2027, but could easily see it happening earlier. I think Chicago is the first to fall, and it’ll be within 15 months – finally a point at which people no longer question the imminence of it, even those bad at math.

Rick
1 month ago

Fair prediction. But one thing not mentioned but probably implied is that right to the end, through all the obvious decline, the government sector and unions will deny anything needs to change structurally at all. And the pension clause will still be in place. And Moodys in conjunction with their masters, will still be market making on our anguish.

Last edited 1 month ago by Rick
Never Again, Illinois
1 month ago
Reply to  Rick

You are correct – I forgot to call that out explicitly. there will be no negotiations by the unions until it’s too late. It’ll end up in court or in a technical default, and by then the horse is out of the barn.

Juicy Smollier
1 month ago

I totally agree with this. They will have wished that they came to the table right now, when they eventually are going to be given a 50%+ haircut. The funny thing is that they think they have a bird in hand. What’s worse? If they get 60% of what the promise is, it’s still a good deal for most of them. That’s just how ridiculous most of these pensions were/are, except for Tier 2, which is a late stage mini ponzi for Tier 1 guys.

Tom Smithers
1 month ago

The answers are different for the City of Chicago vs. small municipality vs. the State of Illinois. A lot of small municipalities will have intercept laws apply to them this decade. These municipalities will continue to hemorrhage residents further eroding their tax base with the remaining citizens now having the means to cover the loss and do not have a diverse economy. These areas are fully on their own. Example Harvey. City of Chicago – Kicking the can looks like what will end up happening. There’s a growing push for POB’s by local alders. Lightfoot does not want to hike… Read more »

1 month ago

When new sources of financing IL debt are exhausted, state leaders will be forced to reform pensions. Voters won’t stand for more tax increases in an already high-tax environment.

Poor Taxpayer
1 month ago

Higher taxes every year forever, is the only answer.
Huge pension money buying luxury homes in Florida while the poor honest hard working taxpayer slaves away on the endless treadmill of life.

Governor of Alderaan
1 month ago

We’ll know the end is near when the politicians stop running for re-election

Platinum Goose
1 month ago

Like Rahm

Juicy Smollier
1 month ago

That’s a great insight, Gov

Flash413
1 month ago

An ever -increasing number of burned out street light will be a clue as no sane business will give Chicago open credit terms to purchase replacement lamps.

Tom H
1 month ago

5 Years. Even after state is rated junk some will reach for yield with still a chance of federal bailout (though unlikely). EVEN THE DEMS KNOW THIS DEBT CANNOT BE REPAID IN FULL. HOWEVER IT’S A NEGOTITATION AT THIS POINT. Those in high-level high-paid positions want to collect as much for as long as they can, while strengthening their long-term obligations owed (Anchor high.) No reason to change until it is forced. So far it is not. Everyone will lose. Pensioners will lose the most and the longer it drags on, the worse it will be for them (for the… Read more »

Juicy Smollier
1 month ago
Reply to  Tom H

Tom, to be clear, what happens within 5 years, major haircutting of the pension benefits? Or dumping people on to SS? Thanks.

Tom H
1 month ago
Reply to  Juicy Smollier

Yes. Of course, the pensions will get slaughtered. In 5 years, they get half their benefits on average. It’s probably 50/50 at this point of having benefits slashed or dumped on SS. Not sure it matters which.

Juicy Smollier
1 month ago
Reply to  Tom H

Solid prediction.

Jeffrey Roszkowski
1 month ago

I believe Illinois will merge with another fiscally responsible adjacent state. The nature of Illinois’ government has created an unsustainable situation, an F- in economics. The government is in a no-win crisis of their own making and their ego-driven arrogance is the great creator of their denial and delusional thinking. The fat lady is in the green room!

Last edited 1 month ago by Jeffrey Roszkowski
Morefandave
1 month ago

Any adjacent state that would merge with Illinois is by definition not fiscally responsible. Kind of like Groucho who would never join any country club that would accept him.

Edward Wezain
1 month ago

In spite of all the articles and studies Wirepoints (and others) have put out the politicians and people of Illinois will not see the state’s financial problems until it is a crisis in which draconian cuts will have to be made. When this does happen, it will happen quickly, probably in a one to two year period, giving people no chance to prepare for these cuts and the inevitable tax increases. The resulting financial mess will then take five to ten years for the state to recover.

Morefandave
1 month ago
Reply to  Edward Wezain

The state has been circling the drain for several years. As a Republican I take some consolation (small) that when it goes down the drain, all the people in charge will have D’s after their name. Is it too late to change the name of the state to Madiganistan before it happens?

Mike Williams
1 month ago

“it’s is a process and not an event” (Wirepoints) I agree it is a process….until it’s an event. I expect there will be a season where all of a sudden the residents wake up to reality. They will start asking about why their neighborhood has more for sale signs than usual, and start putting that together with all the other info. Resident/friends/neighbors will be talking about uncertainty over pensions and hiring/wage freezes. Unfortunately, if the majority suddenly see reality at the same time, there will be a rush to move out and home prices will suddenly plummet. The process will… Read more »

NoHope4Illinois
1 month ago

Wirepoints and Illinois Policy have already published volumes on defining the fiscal issues with possible incremental solutions – no need to repeat that great work.

Sadly, I think Illinois ends up somewhere between Detroit and Puerto Rico. Let’s hope Congress and the State of Illinois realize that BK is an option to work out of fiscal dead ends.

Morefandave
1 month ago

There is no bankruptcy law governjng states.

NoHope4Illinois
1 month ago
Reply to  Morefandave

That’s the point for Congress.

Bill Schmidtgall
1 month ago

You can do band-aids or fundamental transformation. The latter works, the former is ‘death by a thousand cuts’. Transformation of the biggest issues requires that A). Pensions be adjusted to competitive levels (even perhaps below because of failure to fund) for all current pensioners and all employees, because the program is unsustainable, excessive to stop the bleeding before it kills the patient. Some will say, violates a contract, but the contract is unsustainable and was never arms length, but self-serving, then unfunded by the beneficiaries. The constitution clause is a red herring. It was added, it can be subtracted. Do… Read more »

heyjude
1 month ago

Absolutely correct! The big question- will the public employees and their unions come to understand that it is in their own best interest to take some pain now? Or will they continue to follow their current path of destroying the state trying to avoid the inevitable?

James
1 month ago
Reply to  heyjude

I think deals can be made to avert the worst of the expected crisis we all seem to expect. First, the IL Supreme Court in overturning the public pension reducings of SB in May of 2015 found that IL public employee pensions are an individual right given to pensioners, one that cannot be bargained away by any single union since they need no such union even though do belong to such “associations.” So, if is an individual right, there’s no reason that individuals can’t engage in barganining with the state, is there? I can think of reasons they may have… Read more »

heyjude
1 month ago
Reply to  James

No change will happen in Illinois without the consent of the public employees and their unions.

Morefandave
1 month ago
Reply to  heyjude

They won’t understand until were going over the waterfall and their retirees start missing monthly payments.They have a stranglehold on Democrats in the General ASSembly.

James
1 month ago

The underlying problems for IL government could be vastly improved by doing at least three favorable actions aimed at over-riding destructive things that permeate our politics. First, disallow redistricting to favor one political party over another for consecutive voting cycles at the very least. Secondly, enact term limits for legislators. Thirdly, discontinue pensions for new legislators. The latter two suggestions will do more to improve the political climate in IL than most other things in that legislators will no longer seek to forever extend their time in state government, pandering to those who fund them to do so and simultaneously… Read more »

Freddy
1 month ago
Reply to  James

I fully agree with Part 1 and only somewhat with part 2 and mostly with part 3. All good ideas. With Part 2 term limits whats to keep a legislator who cannot be reelected after 1 or 2 terms to cave into every special interest or lobbying group/union demands and vote for whatever they demand in exchange for getting a lucrative consulting/and or lobbying positions in the private sector. No repercussions whatsoever. I propose limits of 2 terms and skip a term or 2 and try to get reelected based on previous legislative work. Part 3 legislators pensions are large… Read more »

James
1 month ago
Reply to  Freddy

I agree with most of your take on my Part 2 wish for limiting legislative terms. I think we might agree that legislators are just starting to get their “sea legs” in their first 2-year term, so I think they might legitimately need at least the right to run for a 2nd term or maybe even a third 2-year term. Beyond that all they can hope to do is strive for even more re-elections to get seniority rights to better assignments, something of value but maybe counter-balanced by trying to make a career of such service with a pension as… Read more »

MHD
1 month ago

Be of good cheer. The country is on the verge of Obummer Redux. And the possible income-er is the best Chinese money could buy. Have no faith in traditional remedies.

1 month ago

The damage done to Chicago is already too great to be repaired. This once beautiful city will not stand tall again in my children’s lifetime. Look at Detroit, look at third world cities and enjoy what we the people keep being tricked into voting for over and over again. The only solution would be for people to either stand up to the political class and retake their own home town… or to simply move to places where productive contributions are more appreciated. My guess is that Chicago will still face all of the same problems 100 years from now. Chicagoans… Read more »

MJ
1 month ago
Reply to  Bruce

Sad. Chicago was my my favorite stop in my biz travel years. I loved the vibe. I wouldn’t go there in a tank column now. Total destruction.

Thee Jabroni
1 month ago

Thank you democrats for your policies and thank you do nothing republicans in this state-its ALL your fault!-but hey,as long as you state employees get your exhorbinant pensions,who cares,right!?

The True Believer
1 month ago

Bailout from senile joe and the blm vp.

Thee Jabroni
1 month ago

When you flush the toilet,hear the sound and watch everything swirling around going down to the sewer,thats illinois in a nutshell!

1 month ago

I have a feeling I’ll need to make this a blog post.

Maybe start with the Chicago pensions, and then the state funds, and then the downstate fire/police….

Juicy Smollier
1 month ago

Yes Mary, which falls first? I’ve always said Chicago is the first domino …

MJ
1 month ago

The answer depends on the federal government money printing policy. They can carry on until the currency collapses which would be the end of it. Illinois has no control of any of this mess. With total US debt now north of 200 trillion it is hard to gage when the wall is hit. So my answer is it will end when the currency goes to zero.

Patti
1 month ago

Illinois has a big problem in that many high income earners are leaving. We moved two years ago and were surprised how friendly state workers were when we got our plates. Then again when we got our drivers licenses. We moved because of all the taxes on taxes on taxes. That includes the tolls. With electronic tolling you pay without a thought. The bigger problem is one-party rule and in Illinois the Republicans don’t offer a viable alternative. People (Chicago) keep voting in the same cast of characters so not much will change. At some point Illinois won’t be able… Read more »

James
1 month ago
Reply to  Patti

There are lots of reasons to move from IL! Still, among all those who live here and constantly complain on this website and elsewhere not all that many will likely do so. There are lots of reasons for that, too, many of which have to do with maintaining accessibility to longstanding relationships and doing things of family significance over a long time period. People love to complain—always have and always will! Many would find heaven not all its supposed to be either. But, moving is an option most won’t take among the elder population (age 60 and up?) in particular.… Read more »

Aaron
1 month ago
Reply to  Patti

The smart ones already left. When you are in Illinois you can’t see the forest for the trees. If you have been inside a cage all your life, you don’t know there is an entire world outside the cage. Illinoisans are the frog in a pot of boiling water and the chef is cooking.

James
1 month ago
Reply to  Aaron

That’s a great analogy. Who could disagree?

Mike Williams
1 month ago
Reply to  Patti

Most people I know in Illinois have a plan to leave. Like you say, it’s often based on graduations. Others want to get in a couple more years before retirement. Some have parents in nursing homes and are waiting for the inevitable to happen, then they will be free to leave as well.

James
1 month ago
Reply to  Mike Williams

But, the reality is that most of these complainers will eventually choose to stay in place and continue complaining. Moving elsewhere won’t appeal to the upper age groups. We all know various friends who decided to move elsewhere where “the grass is greener” only to return a few years later complaining about conditions there and/or their sense of loneliness away from family and long-standing friends. Americans of all stripe love to complain and are forever wishing for nirvana only to discover for most it never occurs. “There’s no place like” home is a hard mind-set to forever dislodge from your… Read more »

Ex Illini
1 month ago
Reply to  James

No one I know has returned. Fifty percent of my family has moved out. The statistics don’t lie, and Illinois is a net loser every year for the last decade. You don’t need 90% to leave. Only 1% a year is having a very negative impact.

James
1 month ago
Reply to  Ex Illini

Sure, I agree that a slow loss of blood still can cause death. Every family who moves elsewhere will not return to IL, but some will. I think that there is correlation with age such that the older ones are more likely to return, glad to be “home” again. Overall, I no idea as to the percentage who return: 14-18% is my guess.

ronald
1 month ago

Pensions may not be diminished, bur they can be taxed. the politicians will start to tax pensions to increase revenue, Really not a good solution…

Riverbender
1 month ago
Reply to  ronald

Leading to taxing Social Security, Roth IRA distributions and the few that have private pensions.
(I hope Pritzker doesn’t see this post because it might give him ideas.)

Flash413
1 month ago
Reply to  Riverbender

Be assured that JB and LL already have their people pouring over every state and major city across the country for new tax opportunities. My humble prediction is that services will be first.

Aaron
1 month ago
Reply to  ronald

Kinda like the budget must be balanced and 2nd “shall not be infringed”. Give me a break. Typical one sided democrap.

KJ
1 month ago

By 2025, Pensions will start missing payments. At some point in the next five years, service providers will refuse to do business with Illinois. Towns will start eliminating Police Departments and schools. Classroom sizes will be 50 kids per classroom and more. The State will choose to underfund Pensions. There is a default progression when the State does nothing. We are currently witnessing the progression with reduction of services. Next is underfunding the Pension payments. A Fed bailout will delay this process a few years. Sadly, Pension reform will no longer solve the problem. Pension reform delays the problem a… Read more »

linda
1 month ago
Reply to  KJ

pensions are already underfunded – that’s one of the main reason state is in so much trouble!

1 month ago
Reply to  KJ

The state already underfunds pensions. They have never made full contributions to ANY of the state funds.

IMRF does get full contributions, but only because that’s not the state making contributions, but local governments….

Grim Reader
1 month ago
Reply to  KJ

Pensions are not underfunded. The payouts are over-promised. Show me any other investment vehicle that pays out 10 to 20 time what someone invests. They don’t exist and that is the problem in a nut shell.

James
1 month ago
Reply to  Grim Reader

Its really possible to do that in the lower ranges of what you’ve stated at least! But, the investment has to be done consistently over a long, long time and having no withdrawals meantime. If you really do the math you’ll see its possible for investments to have that kind of outcome. The problem is that most such investors don’t adhere the requirements of that 2nd sentence and/or encounter unfavorable market winds when withdrawals need to start such as was the case in the 2008-2009 Great Recession.

Goodgulf Greyteeth
1 month ago

Sadly, I think the answer to Mark’s question is an old MTV moment. The Talking Heads that brought Illinois to its current bankruptcy of finances and governance will blather on to insure our future will be the same as it ever was. The buy-votes-with-free-stuff politicians, the “most vulnerable” who think they’re getting “free stuff” and the voters who think they should, the public/private Medicaid Industrial Complex, the reliably accommodating and uncritical media, payday-loan bond markets, Tammany Hall public employee unions and gerrymandered voters who holler and moan all year long, then go into a voting both and pull the same… Read more »

Erik
1 month ago

A federal bailout of Illinois pensions is now likely because: -We’ve now normalized multi-trillion dollar deficits. No amount of money printing appears to phase people anymore. The deficit hawks are long gone. -Democrats will control all three branches of government because our most critical institutions (FBI, DOJ, etc.) are corrupt and massive election cheating is apparently acceptable to a majority of Americans in order to remove orange man bad. The gutless wonders who compose our judiciary have been given cover by the corrupt governors and secretary’s of state of the swing states now in contention and they will not overturn… Read more »

KJ
1 month ago
Reply to  Erik

A bailout only delays a few more years. Total expenses are growing faster than revenue. If the Feds bailout Illinois, Illinois still can’t reduce taxes.

Erik
1 month ago
Reply to  KJ

That depends entirely on the size of the bailout. The dems are eager to repay their most loyal voting block (public sector unions, esp. teachers unions) as evidenced by Biden’s statements that one of his first official acts will be to wipe out charter schools.

1 month ago
Reply to  Erik

I agree that the Dems want to bail out places like Illinois and New Jersey. Their problem is that they can’t shove enough money at these places to fill the hole. They can delay the reckoning for only a few years at the amounts they are likely to get passed. I recall the Detroit bankruptcy, and how, basically, the local Dems there got very little out of the deal. To be sure, Obama had lost control of Congress (thanks, Obamacare!), so he was limited in what he could do…. but seriously, if they couldn’t/wouldn’t bail out Detroit, there is no… Read more »

Governor of Alderaan
1 month ago

Bankruptcy

Bill
1 month ago

It all rests on Georgia.

Keep in mind all, Illinois is a “SOVEREIGN STATE” and as such is not subject to federal bankruptcy law.

Any red lawyers want to step in here? I will be more than happy to take up the historical side of this one…

s & p 500
1 month ago

When or if the state actually declares bankruptcy seems almost irrelevant. In some states a “service bankruptcy” is already underway. CalPERS has defaulted on some pensions. One of the worst service bankruptcies are toxic schools in Philly. Another one is the crumbling Hudson River Tunnel. If that thing collapses or is closed that will be a bigger event than a state bankruptcy.

https://www.inquirer.com/news/inq/toxic-city-philadelphia-inquirer-investigation-lead-asbestos-schools-20170618.html

willowglen
1 month ago
Reply to  s & p 500

S & P 500 – I think Illinois doesn’t end with a bankruptcy, or an identifiable cataclysmic event. I think it is a slow grind to significant poverty and despair, similar to what one can observe in the poorer parts of West Virginia and Mississippi. It will feel incredibly painful because Illinois was once one of the most productive states in the country. I am envisioning Peoria, once the prototypical American town. It will shrink and barely hold on, already adrift in debt.

Marcia
1 month ago

I don’t think there will be real reform unless either 1) voters start voting out everyone who votes for a tax increase (unlikely) or 2) they truly hit the Laffer curve where the tax increase actually decreases “revenue”. Because I think (2) is more likely, I think they will attempt every tax increase they can conceive until they lose money: tax services, tax pensions, increase income tax, increase property tax until they literally kill the state. At this point, there will be no saving even reasonable pensions. Timing will depend on how many businesses they’ve already killed with the lockdowns.… Read more »

Marcia
1 month ago
Reply to  Marcia

Even Washington DC is making massive cuts to their metro transit department….Chicago? No.

The Truth Hurts
1 month ago
Reply to  Marcia

You are dead on Marcia. Not until we are on the other side of the Laffer curve.

PH
1 month ago
Reply to  Marcia

I agree. It will be a bunch of revenue raising half measures for several more years. There should be some discussion followed by intense campaigning in the runup to the next opportunity to put a constitutional convention question before voters, which should happen in 2028. That’s probably the best hope for taxpayers to get relief from the pension protection clause.

KJ
1 month ago
Reply to  Marcia

I believe Illinois is on the wrong side of the Laffer curve. The Laffer curve is not immediate but eventually. Illinois has been raising fees and taxes to stay ahead of eventually. With the 2020 tax revenue issue, I assume eventually has hit and Illinois will have a new normal of lower revenue. Ex for those that don’t know. If Illinois creates a corn tax in August for 80%, the Farmers will still harvest the corn this year. But next year, Farmers will plant less corn. In my opinion, this is how Illinois covered their bills. By increasing Fees quickly,… Read more »

Marcia
1 month ago
Reply to  KJ

I somewhat agree. However they have not killed service businesses yet….so they will try to add that tax. They haven’t chased the retirees out yet so they will try something there. I think they are trying to think up anything. I forgot to add….I think taxpayers will be hit first followed by the poor. Let me give an example. First a bunch of businesses are killed leading to many more unemployed. The unemployed apply for unemployment insurance to get them by. Remaining businesses must pay higher premiums but….they are likely on the wrong side of the curve for most of… Read more »