Print Friendly, PDF & Email

By: Mark Glennon*

Let’s suppose you’re smart enough not to trust what the government says about how far underwater public pensions are — even using the new accounting standards that are more conservative. Suppose, instead, you change one key assumption — the “discount rate” — to use what all reputable financial economists say you should use.

Do that and our pension liabilities become utterly absurd. Illinois, Chicago and Cook County pensions stand out.

That’s basically what Prof. Joshua Rauh of Stanford University’s Hoover Institution did in a major study of state and local pensions across the country released yesterday. His study calls it Market Value of the Liability, or “MLV.” The full study is linked here.

The basic idea is that, since pension liabilities are guaranteed hell-or-high-water, which the Illinois Supreme Court says is the case for all state and local liabilities, then the investments backing up that guaranty should likewise be guaranteed — safe, secure and low yield. So, the study looks at unfunded pension liabilities from the same perspective: The proper discount rate is what you could earn on Treasury bonds with a duration comparable to what’s owed on the pensions.

Among the study’s conclusions:

•  Illinois pensions have just 29% of what they need to meet promises made, which is the worst in the nation, having a total MLV unfunded liability over $360 billion instead of the reported liability of $188 billion.

•  Chicago pensions have 19.9% of what they need, the worst of any major city. It’s pension debt is over $90 billion as opposed to the $45 billion officially reported.

•  Cook County’s pension debt is only the second worst among counties in the nation (behind Wayne County, Michigan), being about $30% funded. It owes about $18 billion.

Truly staggering is what the study says about how badly those pensions continue to be underfunded. In other words, how much more would it take from taxpayers just the keep these pensions from sinking further into debt?

•  For Illinois, the state would have to contribute “well over twice of what it actually contributed.”

•  Chicago “would have had to contribute a full 44.5 percent of its own revenue.”

•  Cook County “would have had to contribute more than 40 percent of its own revenue budgets just to prevent unfunded liabilities from rising.”

Keep in mind this is about unfunded liabilities, which are for obligations on work already performed.

Oh, and the study doesn’t cover healthcare liabilities. For Illinois, that’s roughly another $50 billion, entirely unfunded. Those liabilities are discounted at 4.5% per year even though no investment assets back them up. And we really don’t have any current numbers on how big that liability is because the state hasn’t published an actuarial report on them since September 2015. Meh, why bother?

The study also does a nice job explaining why the new government accounting standards failed. Official actuarial reports remain terribly misleading.

You should already know that our pension obligations are insurmountable even using the government’s numbers. The only two ways to reduce those obligations are a state constitutional amendment deleting the pension protection clause or federal bankruptcy.

With these new numbers you can, well, I don’t know, have a good laugh.

*Mark Glennon is founder of Wirepoints. Opinions expressed are his own.


Sort by:   newest | oldest | most voted

Could you give any estimates of when the State of Illinois, the City of Chicago, and the Chicago Public School System are no longer able to: 1) borrow money, 2) pay the monthly salaries, and 3) avoid declaring insolvency (bankruptcy). The City of Detroit declined and reached a point where it couldn’t pay the salaries coming at the end of the month. Thanks!

Two interesting comments below regarding accountability. One is from a pensioner stating “teachers, workers, and districts have always paid into the system.” There’s truth to that – the “I did what I was told” defense – albeit truth that’s tangled in the collective bargaining web that makes it hard to determine if what they were told was correct. But it’s not like she had a choice. The other is from a taxpayer stating “When I receive my property tax bill which must be paid in full…my obligations to ALL the local taxing bodies are fulfilled.” The argument here is just as valid. Taxpayers were told services cost… Read more »

The Cook Cook Forest Preserve Pension Fund (Forest Preserve District Employees’ Annuity And Benefit Fund) was not included in the paper’s coverage of Cook County.
The Metropolitan Water Reclamation District pension fund was also not included (it is a separate unit of government from the county).
The CHA pension fund was not included (it’s a separate unit of government and fully or close to fully funded).
The following URL brings one to a web page that lists in its upper right hand corner:
– Excel Data Tables
– Appendix (includes list of all pension funds studied).
– Press Release

A few corrections and clarifications. The Cook County Forest Preserve District is a discrete unit of government, separate from Cook County, and its pension fund was not listed in the report’s appendix. The Metropolitan Water Reclamation District pension fund is listed in the report (it is mostly in Cook County). The CHA pension fund is a private non governmental plan (thus it is not included). The RTA / Metra / Pace pension fund was also not included but since it is a regional mass transit system not limited to Cook County, to be included one would have to assign a proportionate share to Cook. Illinois has the… Read more »
Jeanetta Mattinglu

you can laugh but it is my pension I live on


I doubt the pensioners would get much if they tried monetizing their pension benefits. With the threat of bankruptcy very few would be willing to pay much up front for them. Unless, of course they legally must be paid no matter what, then the state becomes a very real death spiral.

First, teachers ARE taxpayers. What these studies never point out is that teachers, workers, and districts have always paid into the system. The state of Illinois, under both Democratic and Republican leadership has never lived up to its expectations. Teachers have no other option but to use the TRS and those who have paid into it throughout the years should receive their full pension. Does the pension system need to be reformed? Yes. But changing the Illinois constitution so that the state does not have to live up to its obligations is not only wrong for teachers but opens up the door for the state to default… Read more »
Suzanne D

Ellen — your union reps sat at the table negotiating these pensions even as the actuaries were saying that pay-outs were not sustainable. Ask them why they ignored their fiduciary responsibilities to the rank and file. Actually, no need. Their big paychecks and pensions were predicated on getting the rank and file out to make sure the State’s political kings remain in power. Quid pro quo.


We have to start conducting grand jury inquiries just like the state’s of California is doing. They’re not just boo hooing they are lock’in them up. Oh yeah it will be painstaking work but it has to be done. The people– the fiduciaries have to be held accountable. Illinoisians have get off this oh well that’s just the way things are. Let’s collectively contact AG Sessions and get them subpoenas flying.


The state constitution allows unlimited benefit and pay hikes to pensions that were already underfunded.
For decades both occurred in almost every year, while there was a constant cry of not enough money for public education.
The taxpayers were duped.

Tough Loive

Wow …. a severe case of denial.

Ellen, #1- did YOU pay into the fund? Most teachers did NOT pay into it, not even THEIR OWN portion, that was “picked up” by the district, aka taxpayers. #2- if the Dem and Repug “leadership” did not put in enough $$$, for overly generous pensions, 4-6 times the MAX of SS at an age 10-15 years younger, then you need to go after THEM. Last, if there are no $$ then there are no $$, period. Ask Puerto Rico how your 19% funded pension can be fixed because they followed the same path….

What I do not understand is why the TAXPAYER is on the hook for underfunded pensions. When I receive my property tax bill which must be paid in full (partial payments are not accepted) my obligations to ALL the local taxing bodies are fulfilled. If the money I pay is DIVERTED (as Sen Steve Stadelman-Rockford recently noted at a town hall) that is NOT my problem. I paid in FULL!! Look to where or who the money was diverted -stolen- lent- borrowed not me the taxpayer. Why is that I am responsible for low returns of pension funds. Management fees on Illinois are about $313,000,000 a year… Read more »
Anthony Kripas

Problem is the pension fund was borrowed against by the legislature. These individuals say they can’t pay however they have not deposited the monies over decades. Contracts are legal and binding on both parties but it seems this study fails to reflect key monetary points. What are the amounts borrowed? When? How have monies been deposited and their amounts! Pension reform needs to address these issues first and foremost.


Borrow is the wrong word.
An example of borrowing from a retirement plan is when someone withdraws money out of a 401K in the form of a loan.
Can’t borrow something that is not present.
The underfunded amount by definition is not present in the pension fund.