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By: Mark Glennon*

“Net position” is the government accounting term used for a balance sheet snapshot.

The chart shows net positions, in billions, for each of the last ten year ends, taken from the most recent CAFR, the Comprehensive Annual Financial Report, for Illinois, the City of Chicago (which are plotted on the right axis) and for Chicago’s two largest overlapping units of government, Cook County and the Chicago Public School District (which are plotted on the left).

Some of the drop in net position results from changes in pension assumptions and restatements resulting from changes in accounting standards. In particular, the drops from 2014 to 2015 are due largely to restatements based on new government accounting standards for pensions.

However, that doesn’t mean those losses should be disregarded. New assumptions and standards represent an admission that prior ones weren’t fairly presenting financial condition. Had the new standards been in place earlier, the losses would only have been pushed back into earlier years.

Aside from the terrifying trend, the chart also exposes the silliness of “balanced budget” claims. All these units of government, to my knowledge, operated under budgets they claimed were balanced in each of these years (except the State of Illinois for 2016, during which it had no budget).

I asked Bill Bergman of Truth in Accounting for his reaction to the chart:

It’s fun, or sad and scary, or all of the above, to consider what this means for a citizen of the City of Chicago.  That person is not only a citizen of the City of Chicago, but is also impacted by the financials of the Chicago Public Schools, Cook County, and the State of Illinois.   Adding things up, back in 2007, he was being told that things were basically flat.  The latest aggregate net position came to over $250 billion — negative.  That’s a lot of dough.

Importantly, he added, “The accounting changes aren’t over.  We have yet to recognize retiree health care and other retirement benefits on the balance sheet, for example. We have a lot of ditch-digging ahead of us.”

Here’s a promise: The trend will continue. Recent tax increases will have little impact. Only drastic policy reversals, which aren’t in the cards with this General Assembly, would turn this around.

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

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erik

We’re in free fall and the general public is completely ignorant of the magnitude of the problem. My little hometown rag, “The Pantagraph”, breathlessly reported yesterday that Rauner opposes SB1 because he’s against more funding for poor Chicago schools (typical AP story….repubs bad, dems good). Step up Bruce! Scream it from the rooftops! Educate and inform the electorate. What do you have to lose???

Sandy

I love this comment! I feel precisely the same way!

Doug
So how does this end? 1. No change, keep raising taxes, death spiral, societal breakdown, riots. 2. No change, get bailed out by Federal Govt. to the chagrin of states like Texas, Florida, ect. 3. Dramatic pro growth changes like tax freezes, reductions in govt. spending, change pensions to 401ks, right to work state legislation (essentially a Red State). 4. Federal Government to approve BK for States to avoid death spiral and societal breakdown, get a fresh start. 5. Pass Illinois Constitutional Convention shifting burden to munis which can declare BK, get a fresh start. 6. No Change, some munis go BK, pension funds go BK, pensioners… Read more »
Adam

Riots are not a true option. If anything even gets close to that, then police powers would have to be used to lower the pensions for the greater good. The pensions are toast one way or another. Math and reality will win. Reality says riots will not be allowed to happen over pensions. The pensions will have to be lowered when they collapse.

Adam

Riots are not a true option, so forget anything that involves that. Police powers could be used if anything close to riots were brewing. The pensions will collapse, and then they will be lowered, period.

Bross

It is much for political leaders (to hell) to discuss Rauner firing his staff then to deal with numbers…

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