By: Mark Glennon*
About $26 billion of State of Illinois liabilities for public employee healthcare just vanished – a decrease of over 56% of that liability in one year. Any questions? Never mind, because you won’t find explanations here or anywhere else, but read on.
The long overdue 2023 financial statements are contained in what’s called the Annual Comprehensive Financial Report (ACFR, formerly called a CAFR) published on August 7. It’s the state’s key financial report because it’s audited, based on actual results and is on an accrual basis. That means that, unlike phony state budgets, growing debts are included in the bottom line and borrowed money is not counted as if it’s income.
On the surface, the bottom line in the new CAFR would appear to be good news. The state’s Net Position (which you can think of as net worth) improved from negative $185 billion to negative $170 billion.
Why the improvement?
It wasn’t that the pension situation eased. That actually worsened, with unfunded liabilities increasing $5.7 billion from the fiscal year 2022 balance of $139.8 billion. (Notably, that deterioration occurred despite an exceptionally good year in the markets that saw the S&P 500 returning over 22%, pushing up pension asset values).
The answer is the magical erasure of liability for what are called OPEBs (Other Post Employment Benefits). OPEBs are basically healthcare promises made to state employee pensioners. For nearly 75% of state-employee (SERS) retirees, the state covers healthcare from the day they retire until Medicare kicks in, plus some supplemental benefits thereafter. OPEB liabilities are measured by actuaries much like pensions, except that OPEBs are entirely unfunded. That is, no money is set aside by the state for estimated future healthcare obligations based on work already performed.
That OPEB liability mysteriously dropped by over $25 billion from 2022 to 2023 in the new financials, which accounts for far more than the supposed $15 billion improvement in net position.
Richard Ciccarone, president emeritus of Merritt Research Services, is a frequent commenter on municipal finance matters. Regarding the seemingly good news about improvement in the state’s Net Position, he told The Bond Buyer publication that he’d want to know “how much of that is due to improvement in the pension and OPEB numbers [and] how much of that is better because of an improvement in asset position.”
He needn’t have wondered. The answer is very clear in multiple places in the ACFR. The Management’s Discussion and Analysis Section, for example, says the “State recognized its proportionate share of the OPEB liability in the amount of $20.385 billion as of June 30, 2023, a decrease of $26.226 billion from the fiscal year 2022 balance of $46.611 billion.”
This is the second year in a row that the state’s performance as reflected in Net Position was made to look better by wiping out OPEB debt. For 2022, the state reported over $10 billion less than shown for 2021. I wrote about that at the time here.
That means that, over two years, the state claims its OPEB liability dropped a total of $37 billion — from $57 billion to $20 billion – a decrease of 65%.
That just doesn’t pass a smell test. Debts that big don’t just vanish unless they are paid, and these weren’t paid. The disappeared $37 billion is a huge number. For a little perspective, that’s about 70% of Illinois’ budget.
What is the state’s justification for erasing so much debt?
That’s the unanswered question. Theoretically, the answer should be in the actuarial reports for the state healthcare plans where the OPEB obligations are calculated and reported. You can find them here. But good luck trying to make any sense out of them. OPEB obligations are among the most obscure public accounting topics I have encountered. It should be incumbent on state officials to explain in understandable language why they erased so much debt. I can find none.
I do have suspicions. As I wrote earlier about the previous year’s financials, it appeared that much of the debt reduction resulted from changed assumptions about experience rates, which are how often people are going to the doctor and requiring services. But those reduced experience rates appear to have been measured during the pandemic, when people stayed home and delayed elective procedures. The state also changed its insurance contract to backload payments, which, for rather complicated reasons, lowered the reported liability.
I will keep an open mind about whether there’s some rational basis for erasing so much debt, but somebody is going to have to show it to me.
I spoke to Illinois Auditor General Frank Mautino just after the new ACFR was published. He said the auditor has limited ability or obligation to question the results produced by the OPEB actuaries, which go into the financial statements. He was therefore unable to shed any light on the disappearing liability question.
His main reason for calling me was, commendably, to explain why the financial statements were delayed for so long. He was earlier barred from discussing that until the financials were released. The primary reason for the delay, he said, was the need to correct an error a $1.2 billion by the Department of Healthcare and Family Services and confusion over which drugs were eligible for rebate payments under Medicare Part D. Details are in note 23B of the financial statements in the ACFR. He believes that problem is solved. In addition, going forward, the state is moving from department-level on audits to a statewide approach, he said, which should also save time.
Props to Mautino for his transparency on this and for calling to explain.
Wish we could get the same level of transparency from other state officials on the vanishing OPEB liabilities.
*Mark Glennon is founder of Wirepoints.
UPDATE 8/25/25: We sent this article to Comptroller Susanna Mendoza asking for any comments and answers to the questions raised in it, and saying we thought it’s the Comptroller’s job to explain. We received this response from her press spokesman:
The ACFR uses the Actuarial Report for SEGIP (the State Employees Group Insurance Plan). Below is link to the report. According to GASB standards, we use the actuarial report 1 year in arrears, so we use the FY22 report to record the OPEB liability for FY23. Illinois State Employees Group Insurance Program. (Fyi MAPD stands for Medicare Advantage prescription drug plans). For further questions, you might want to reach out to the state’s Central Management Services Dept which overseas the group insurance program.
That’s just blowing smoke over the issue. Regardless of the date of the actuarial report that was used, the fact remains that OPEB debt was erased as described in the article, which had the effect of making it appear that the state’s financial condition improved by a like amount. And it’s the Comptroller’s job, not Central Management Services, to report fairly on the state’s financial condition.
Audio and summary 
If this bill passes, say goodbye to local control over all Illinois parks and expect to see open drug and alcohol use, needles, no sanitation and fire hazards, but no ordinary park users.
Expect no retraction or apology. This what they do.
illinois residents are tax mules.
Well, okay. But it is a fact that at the federal level, leveling a tax on the income of anyone who is not an employee of the federal government is a grift. A) Only those persons who receive ‘federal’ funds should be taxed, such as politicians and their staff, the military, and government works. Most people DON’T work for the federal govt. B) The IRS taxes on ‘gross income’ (less some deductions, etc.) However, if you read the law, (26 USC Sec. 83) ‘gross income’ is the EXCESS of the amount received from an employer for work performed for the… Read more »
There’s an election upcoming. Say no more.
The state increased the employee and employer contribution rates. It was .5% of pensionable wages for both the employer and employee, but that has been increased to .95%. That makes a huge difference to actuarial liability. That is likely the cause of the decrease. That change was made the year before the decrease, so the timing supports this theory.
Those higher contributions go strictly toward today’s invoices that are pay-as-you-go, which is explained in the actuarial reports. They are not saved or credited somehow to cover future liabilities. The future liabilities are entirely unfunded and not covered by contributions today. And the need to increase those contributions for today’s outlays would suggest that the future outlays would likely be higher, not lower.
It shouldn’t make any difference in the liability.
For an analogy, say you took out a mortgage on a rental property 5 years ago. This year you increased the tenants’ rent.
You haven’t reduced the mortgage liability. You just increased your cash flow to pay for it.
The main problem with the CAFR is accounting for future liabilities and not future revenue. It would be easy to do so, but then endless rhetoric about the manufactured “pension crisis” could no longer be used as an excuse to continually call for increased taxation.
Notice legacy media avoids talking about the “spending crisis”, or they frame it as a necessary evil to avoid going bankrupt. Total nonsense. And what conditions do we have to see financially to trigger bankruptcy? That’s right, they don’t talk about that either.
You seem to misunderstand the accrual concept. Yes, accrued liabilities estimate amounts to be paid in the future. The key is that the work that generates the liability has already been performed. For example, we do not accrue for the future salaries of existing workers. That amount is not owed as of today, since the work has not been done. By the same token, taxpayers do not owe tax today for the income they will earn ten years from now. Yes, government will rely on future tax receipts to pay the bill for the benefits that were already earned. But… Read more »
Frank, I am afraid you’ve gotten twisted upon that. As Prozac below says, it’s like you think that a huge credit card debe doesn’t matter because you will just have to earn enough in the future to pay it off. If tax revenues are to be sufficient to cover the pension liability, they will have to be just as enormous as the liability, which will either mean crowding out other government spending or simply being too much for taxpayers to bear.
” … it’s like you think that a huge credit card debe doesn’t matter because you will just have to earn enough in the future to pay it off.”
Never said the liability amount, including debt, doesn’t matter. We have already talked about how current revenue (from taxation, investment returns, etc.) compares to 10 and 20 years ago. Government spends everything it takes in, that is the problem.
Agree, government spends everything it takes in. So why would you want to pretend that we should count what government takes in 10 years from now to offset the problems they have already created?
It could have something to with the avalanche of early deaths unleashed by the covid19 experimental gene therapy that was foisted on the nations populace..
Bingo. This plus the new 5G networks installed by Obama is a recipe for POOF!
There were many state hiring freezes and state employee cut backs, the bureau of prisons being the largest group of job eliminatations. Could it be that so many former state employees are now on Medicare, so there isn’t as much medical related liabilities? It’s probably not that, the actuaries are probably incorrect. But I’m just asking
Does Susanna Mendoza go “overseas” to “oversee” the books?
Someone please inform Chicago soon lol
@Mark or @Ted Dabrowski or whoever, I’m going to assume this website is operated in good faith so I’ll also assume you’re not in on the joke: read the first letter of each word in the three comments above. It’s a common meme among internet racists, usually on Twitter/X but sometimes spilling over to regular blogs like this one.
Wow. Had no idea. I am not so sure about those but will delete them since they didn’t say much anyway.
We know this is a crock. How?
$37 billion reduction in liability for OPEB is a substantial “diminishment” of employee benefits. How else can a liability be reduced without payment?
And there are only cheers. No screaming about the 1st amendment to the IL Constitution.
There was no diminishment in benefits. That’s exactly why the reduction in liabilities for it is suspect.
Yes, that’s what I meant. Since there can be no reduction in benefits, there cannot be a massive reduction in liability. It’s a crock.
The auditors hid behind the “change in actuarial assumptions”. Materiality should dictate that this should have been thoroughly investigated.
So my question would now be can this be investigated at the Federal level or is it pretty much a done deal as to what was reported.
I think the first step is to try to get clear answers on what reasonable basis they had, if any, for doing it.
With reduction in liability is the state therefore allowed to contribute less to the various OPEB plans? If yes, I would assume the unions & retiries would not be happy? And/or would employee required portion of contributions be reduced?
No. Unlike pensions, these plans are pay-as-you-go; there is no funding set aside to cover the future liability. So, the ongoing payments the state will make for healthcare continue to get paid at the same rate. It’s just that the estimated future cost of that, which is the liability, is magically deemed lower.
And on top of this Financial Report, The Chicago Teacher’s Union is 5 years behind on issuing their Financials. Yet the expect to get $1.6 billion awarded to them
The union wasn’t awarded $1.6 billion. I’m guessing you mean the teachers they represent received a raise in their contract. One thing has nothing to do with the other. Their members are the ones suing to demand the financial audit. So yes, their members expect that their salaries will align with the contract that CPS agree upon. That’s how contract negotiations work. If you want them to release a financial then demand that in court. FYI, even if it was discovered in an audit that gross financial negligence or someone stole money, none of that would matter one bit for… Read more »
1.) Does Mendoza go along with the mautino majic accounting program and keep her mouth shut? 2.) Will the bond market care?
And then do you assume City of Chicago, CPS, CC, etc and all the other municipal OPEBs in the crazy 9,000 units of gov that aren’t covered by state are green lighted to cook the books on thier OPEB funding as well?
Figures lie and liars figure! Transparency denied.
“His main reason for calling me was, commendably, to explain why the financial statements were delayed for so long. He was earlier barred from discussing that until the financials were released. The primary reason for the delay, he said, was the need to correct an error a $1.2 billion by the Department of Healthcare and Family Services and confusion over which drugs were eligible for rebate payments under Medicare Part D. Details are in note 23B of the financial statements in the ACFR.” Emphasis added. Note 24B provides in pertinent part: “ Subsequent to year end, the Department of Healthcare and… Read more »
From the actuarial report: Effective for calendar year 2023, the Aetna MAPD is the only MAPD plan available to plan members. For the prior actuarial valuation as of June 30, 2022, the Aetna MAPD per member per month premium rates were $0 for calendar years 2023 through 2027, and were assumed to increase to $42 in calendar year 2028, and increase ratably to $102 in calendar year 2033. The Inflation Reduction Act caused significant increases in costs and Aetna has increased premium rates for calendar year 2025 from $0 to $43.73 per member per month, before administrative expenses. If prior to the… Read more »
And that backloaded schedule for paying premiums is suspicious. With the new, higher discount rates, the effect is to reduce the reported actuarial cost of those premium substantially.
IL needs an independent audit, not one done by IL Democrats. But they will never allow. Dems need to hide all the fraud.
Honestly, the whole report is crap if not issued by an external auditor. Welcome to Illinois.
Illinois is just cookin’ the books to make its bleak financial situation look better. Nothing surprising about that.
And to help Pritzker’s national ambitions. The Democrat will stop at nothing
If crime isn’t reported or is downgraded, there is no crime. If debt is erased by “promises” and “expected future income”, there is no debt. See how that works?
It’s an ‘Illinois thing’…
Like magically lowering school standards to increase alleged proficiency…
IL magically disappears debt to create a rosier picture of it’s dire financial straits…
History making Fraud. They all should be put in jail. Investors count on honest financial statements. It will be worse than Bernie Madoff fraud. Illinois is the most corrupt state in the Union lead by the public sector thieves. Illinois is stealing from everyone it can, taxpayers, bond holders, and the next generation. Run for your economic life.
There are governmental auditing standards that need to be followed in addition to “just” issuing financials and regurgitating information fed to them. But of course, all while telling the emperor how good he looks in his new clothes. This wasn’t an audit, it was a cut and paste of data. They are talking about billion dollar restatements and fluctuations. Will there ever be accountability?
This is Illinois…..expect anything different??
The smoke and mirror disappearance of Illinois debt is reprehensible and those participants should be terminated and in prison just as any other tax fraud under the IRS. Code.