Prairie State Wire

The leaders of states financially distressed prior to the coronavirus pandemic may siphon off a portion of the stimulus money now gushing out of Washington, warns the fiscal watchdog group, Wirepoints.

A possible prime target area for the money is underfunded state public pension systems. Topping the list is Illinois, with an exploding unfunded pension liability in its five state-run pension systems.

Wirepoints predicts that with the recent stock market crash, the Illinois’ pension deficit will jump to $300 billion plus by the end of June. The state will then likely join other state governments with junk bond status.

“The increase is an additional $15,000 on top of the $90,000 ‘shadow mortgage’ every Illinois household is already on the hook for,” write Ted Dabrowski and John Klingner of Wirepoints.

New Jersey, for example, is looking for a multi-billion-dollar, flexible block grant from Washington, Wirepoints says. That state’s public pension systems are nearly as dire as Illinois’. And they cite recent comments by Chicago Mayor Lori Lightfoot, whose city is already junk rated largely due to pensions, that “this is a B-sized problem, meaning something that can only be solved with billions in needed stimulus support from the federal government.”

Any money from Washington, Wirepoints says, must come with promises of pension reform, something the Democratic-controlled General Assembly and Gov. J.B. Pritzker, a Democrat, have thus far resisted.

Chief among the reforms would be to place public employees under defined contribution plans rather than defined benefit plans, which guarantee a certain amount of money in retirement. Nearly all private sector employees with retirement plans are in defined contribution plans.

Other changes would include cost of living reforms and increases in the retirement age.

Finally, Illinois, and other states with constitutional protections of pensions plans, must commit to removing those protections or lose out on funds from Washington, Wirepoints says.