Illinois Pension Crisis
Illinois State is battling with a $100 billion pension crisis which is the worst unfunded liability in the history of the nation. Lawmakers in the state are still trying to address the issue. During the recession period, most states faced issues with pension funding but none of them were faced with a predicament that is as severe as what Illinois is facing.
Yet, every day that the issue is not fixed, the burden of the taxpayer grows. The state is faced with a bill that is growing by the day yet, it has not figured out how it is going to make payments for the same.
The pension crisis issue is a matter of simple math. States did not put away enough money that would enable them to pay what they had promised employees during their golden years. Consequently, because majority of the employees in the public sectors are not covered by Social Security, the only retired safety they have is in their pensions.
When recession hit, most states experienced hits to their pension investments and also found they were overburdened. According to the National Conference of State Legislature, since 2009, forty eight states have passed what is considered significant reforms. These reforms make it possible for them to commit to payment of pensions moving forward.
However, this is not applicable in Illinois and the situation is only getting dire. Every day without a solution digs the pension hole in Illinois deeper by at least another $ 17million. Illinois bonds have gone through two downgrades which place them a couple of steps above junk status. Only 3 states, Massachusetts, Louisiana and California have had ratings that are as low as those currently seen in Illinois in the last century.
Because of this low rating, things get grimmer for the state as it will see its cost of borrowing which is already rise rise even higher. State Sen. Daniel Biss, D-Evanston, was among the architects of the new pension law in the state and he affirmed the type of math advocated by financial economists would be hard especially since the state government was already cash strapped.
Based on the assumption that future investments will be low, it would mean the state must move in and invest more money in order to fund its pensions. The situation in Illinois means that if they want to build a new school or bridge, it is going to be more costly and possibly more expensive. It is still unclear whether the state will find its way out of the pension crisis though there are proposals aimed at solving the predicament.
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