From Illinois News Network

A new report paints a dismal financial picture for Illinois’ public pension systems.

The Pew Charitable Trusts analyzed the pension funding gap for each state as of fiscal year 2016, the most recent year for which comprehensive data were available. The study indicates Illinois is 36 percent funded for future obligations, putting the state near the bottom of the rankings.

“Only Kentucky and New Jersey are worse,” said David Draine, senior researcher with Pew Charitable Trusts. “This is going to be a major budget challenge, not only in the near term but in years ahead. States like Illinois have long had substantial unfunded liabilities from past decisions to treat these benefits on a pay-as-you go basis.

“Illinois has failed to make its full pension payments for many, many years,” Biggs said. “They’ve used various actuarial and accounting tricks to make it seem like they were contributing more than they actually were. The less you fund in the past, the higher the contributions become going forward, and they’re in a position where often they can’t afford to pay them.”

According to the Pew report, Illinois’ public pension systems had about $78 billion in assets against $219 billion in liabilities.

“Illinois passed a constitutional amendment making it unconstitutional to cut pension benefits,” Biggs said. “Now they’re trying to fix their pensions and they discover they can’t make these changes because the courts won’t allow them. There is a long history of bad policy and bad decisions when it comes to public sector pensions.”

That leaves some key questions in front of lawmakers.

If the state can’t find a solution in Springfield, Biggs said the state shouldn’t expect any help from Washington to fill the gap.

“I think it’s very unlikely the federal government is going to bail out a state like Illinois,” Biggs said, “because it’s been known for decades Illinois has been a bad steward of its pensions. The interpretation in Washington D.C. will be: If anyone deserves to be hurt by the pensions, it’s Illinois, because they’ve refused to do the things they need to do.”

Overall, state plans across the country disclosed assets of $2.6 trillion to cover total pension liabilities of $4 trillion. Congress recently passed a law to allow Puerto Rico to restructure its debt and pension obligations, but Biggs warns against such a similar option for states.

“I’m involved right now with the restructuring of debt and pensions in Puerto Rico,” Biggs said. “It is a very difficult, very complicated, and very disruptive process. Illinois would be very, very wise to try to fix its pensions and not go anywhere near bankruptcy.”