Illinois' Long-Term Debt Balloons To More Than $300 Billion, Per Moody's

By Cole Lauterbach |, The Center Square

ILLINOIS – Illinois’ long-term debt has passed a grim milestone. Rating firm Moody’s Investors Service announced Wednesday that Illinois’ adjusted net pension liabilities (ANPL) spiked 19% in 2020 to $317 billion. The figure was $261 billion in 2019.

“The new liability is based on the aggregate ANPL of Illinois' five pension systems, which reached $317 billion as of June 30 last year, a 19% jump from the prior year that was driven largely by falling interest rates,” the report read.

Distributed evenly across Illinois’ approximately 12 million residents, that amounts to roughly $25,000 per person.

The state uses a different method to estimate its level of unfunded liability, most recently putting the figure at $144 billion.

Even with the more optimistic estimation, the state doesn’t contribute to the five funds at the level in which they would lower the amount of debt. That’s referred to as the actuarially required contribution, or ARC. Instead, Illinois lawmakers passed legislation to backload their funding payments, paying less than the ARC in recent years with plans to escalate contributions years down the road.

Still, annual payments reflect around a quarter of the state budget.

Moody’s goes on to compare Illinois to other states, saying “Illinois' pension liabilities are the highest among the 50 states, and the state's liabilities and fixed costs for pensions, debt service and retiree healthcare (or OPEB) are at or near the top by almost any measure.”

In addition to falling interest rates, Moody’s also blames lower returns on pension fund investments for the growing shortfall.

“To a smaller degree, weaker-than-assumed investment performance constrained pension plans' asset accumulation and also contributed to unfunded liability growth,” they said. “The state's largest pension system, the Teachers' Retirement System (TRS), reported an investment return of 0.52%, well below its 7% target, for the period.”

Ballooning pension debt is seen as a red flag for the business industry since states have a higher chance of hiking taxes to help pay for the increasing costs.

“I'll be here for the life of the pension plan and they will come after corporations, they'll come after individuals,” billionaire business investor Warren Buffett said in 2019 when calling out Illinois' fiscal situation. “They're going to have to raise a lot of money.”

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