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Illinois was in an actuarial mess long ago. Covid-19 makes it harder to ignore says Wirepoints.

The chart by Michael Cembalest shows Illinois was paying about 25% of its budget for pension costs. 

Before Covid-19, Illinois should have been paying over 50% to be sound on an actuarial basis. Now, the true costs are 58% of the budget.

Illinois has the worst funded pension plans in the nation. That was true before Covid-19 as well. 

New Jersey, Hawaii, Connecticut, and Kentucky are next in line. But no other state comes close to having that much of their budgets swallowed by retirement costs.

McConnell Says Let the States Go Bankrupt 

In a Hugh Hewitt interview last month, Senate Majority leader Mitch McConnell Pushes Bankruptcy.

HH: I think people do not understand how badly mismanaged some states have been, and their unfunded liabilities. And if they were in the private sector, they would have to reorganize under the bankruptcy code. But there is no bankruptcy code chapter. Do you think that we need to invent one for states so that they can discharge some of these liabilities that were put in place by previous governors like, I mean, Jerry Brown ran a giveaway program for public employee unions that was just astonishing, and as did Gray Davis, as did, you know, a lot of Democratic governors, Illinois is probably the worst, and Connecticut. 

MM: Yeah, I would certainly be in favor of allowing states to use the bankruptcy route. It saves some cities. And there’s no good reason for it not to be available. My guess is their first choice would be for the federal government to borrow money from future generations to send it down to them now so they don’t have to do that. That’s not something I’m going to be in favor of.

Unfortunate State of Bankruptcy Code

Unfortunately, states do not have the ability to declare bankruptcy under current law. 

Cities and municipalities do have the right, but only if the states allow it. 

According to Pew, Only 12 states authorize cities to file  without conditions, and another 12 permit filing with certain stipulations.

“For 50 years, Detroit’s economy,  its physical infrastructure, and its social structure had been on a steady decline. And the political system did nothing whatsoever about it,” says Richard Ravitch, former lieutenant governor of New York, who helped New  York City avoid bankruptcy in 1975 and has been advising Detroit officials.

By the time the state got involved in 2011, it was too late. The police chief described the situation as not only a  financial crisis but also a “service delivery insolvency,” characterized by high crime rates, broken streetlights, thousands of abandoned and blighted structures and lots, and closed parks, among other problems.

Illinois Cities in Same Situation as Detroit (by Population Rank)

  • Rockford (4)
  • Peoria (7)
  • Danville (61)
  • East St. Louis (81)
  • Kankakee (86)
  • Melrose Park (89)
  • Harvey (96)
  • Blue Island (109)
  • Evergreen Park (124)
  • Cairo (461)

All of those are dead or dying cities. All but Rockford and Peoria turn up in a Wirepoints report on Troubled Pension Plans.

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Illinois Insolvent Pension Plans

Public Safety Pensions across Illinois

In What's Next for Illinois, Wirepoints mentions Rockford, Harvey, Palos Heights, East St. Louis, Peoria, Danville and dozens of other cities (see graph at left)

Rockford's is the fourth largest city in Illinois with a population of 147,881, nudged out of third place by Joliet with 147,957.

Illinois is Insolvent: State Requests a Pension Bailout From Congress

On April 17, I commented Illinois is Insolvent: State Requests a Pension Bailout From Congress

No Bailout

Illinois does not deserve a bailout. Its pension woes are of it own making and have nothing to do with the coronavirus.

Three National Priorities

  1. Bankruptcy legislation that allows municipalities to file when they want to, not when dictators like Illinois' House Speaker Mike Madigan allow them.
  2. National right-to-work legislation that supersedes state legislation.
  3. Scrap Davis-Bacon and all prevailing wage laws

Explaining Dysfunctional Illinois in One Word, One Idea, One Person

I mentioned those priorities on Jan 9, 2017 , in Explaining Dysfunctional Illinois in One Word, One Idea, One Person

 McConnell is correct, at least as pertains to municipalities: "There’s no good reason for it [municipal bankruptcy] not to be available," said McConnell.

There is a Reason, But Not a Good One 

Republicans could easily have passed all three of those priorities when they held both houses of Congress. 

But they didn't. 

What are McConnell's and Trump's excuses for that?

Mike "Mish" Shedlock