The deeply troubled world of public pensions in Illinois got another nail in the coffin this week with a scathing report indicating the system is destined for failure, unless political action is taken soon.
Bloomberg reports that the State Budget Crisis Task Force – headed up by Paul Volcker, former U.S. Federal Reserve Chairman, and former New York Lieutenant Governor Richard Ravitch – issued a report indicating that the Illinois system is "destined for insolvency" unless the highly political and inefficient state budgeting process can be reined in and simplified.
"Illinois is unquestionably in more serious shape than any other single state, because of all the years of issuing bonds and the deficits they deal with by borrowing money," Ravitch told Bloomberg.
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Illinois provides a perfect model of all the things that can go wrong with a state-run pension system; it has a paltry 43.4 percent funding status, the lowest in the country. It's also borrowed some $7.2 billion to make up some of the missing finances, and is using borrowed funds future-financed to 2019 to fund the program, rather than using current contributions.
"Without some type of reform that reduces costs going forward, the systems appear destined for insolvency," the task force's report states. "The culture of budget gimmickry and short-sightedness pushes costs off to the future, but eventually that will be impossible – retirees may lose their pensions as funds dwindle."
Illinois officials met in August to try to address the $83 billion in unfunded liabilities and were unable to come to a solution. Both Standard & Poor's and Moody's Investors Service subsequently downgraded the state's credit rating, Moody's to its lowest level.
On the upside, however, Bloomberg reports that Illinois' faltering finances actually make its debt a good investment, as investors who are looking for riskier assets with better returns appreciate the state's bottom-barrel borrowing costs.
Illinois leaders say they recognize they have an issue.
"I never thought that our state would get into this much trouble," Bloomberg quotes Jerry Stermer, budget director for Illinois Governor Pat Quinn. Leaders admit the pension underfunding has increased after seven decades of neglect.
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