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Monday, June 30, 2008

State of Illinois debt: $14,000 per household

Here's a kindred soul trying to hold the government bean counters' feet to the fire in Illinois. Her latest press release notes:

The report, which was issued almost a year after the State's fiscal year end, indicated that each Illinois household share of the State's debt is more than $14,000, totaling $69.7 billion. This debt includes $42 billion owed the State employees' pension funds and $24 billion of health care benefits promised to retired State employees.

This is ironic in a place where the state is supposed to have a balanced budget every year. Sort of reminds us of the City of Portland's annual "surplus" charade.

Of course, the outrage in Illinois over $14,000 of debt per household is in stark contrast to the general silence in the City of Portland, where the debt for a household of four people is currently more than $35,000.

Comments (10)

That's a new project for you Jack, how much state debt each of us owe?

PDX cityhall's surplus revenue sure does seem like a joke when it was only last week the PDC reported the firm it had loaned some $200 million was going belly up. Sure puts in doubt the supposed $30 million surplus reported for 2007.

State Debt would be an interesting project. I suspect that some of the debt would be offset by the PERS surplus, some of which is generated as a result of POBs sold by some of the enrolled entities, including the City of Portland and State of Oregon. It would be a real challenge to sort this kind of stuff out. Is there even a consolidated document where *all* this information is recorded?

"PERS surplus"? Dare I ask how that effects my share of the debt?

My gut tells me that the state debt isn't that bad. I know I did check into Multnomah County's debt, which is pretty mellow.

As I understand PERS. The money collected is put into the stock market. if the market falls flat the tax-payer makes up the difference.


You're correct about where the money is invested, but there are quite a few steps between the market falling flat and the tax-payers making up the difference. Right now, PERS has a surplus of nearly 6.1 billion dollars stored in a variety of reserve accounts. Long before any taxpayer would be assessed, the reserves would get drawn down. Moreover, PERS' deficit would only become a taxpayer issue if the inflows of money from employers and members did not meet the monthly outgo for retirees. I suggest that there are plenty of safeguards in place to prevent the taxpayers from getting dinged for any short-term shortfall in PERS. Even the vaunted 2003 "unfunded actuarial liability" was a paper shortfall as no taxpayer money was at risk. The investment porfolio of PERS is better managed that virtually all of the investment portfolios in the US, which is why PERS consistently ranks in the upper decile of public employee retirement funds in the US. I don't think I'd spend much energy worrying that you'll have to somehow fund my retirement. I've already self-funded most of it, and my employer (Oregon University System) picked up the tab on the rest. I'm covered until I die. You can rest easy now.

It's easy to be fearless when you tell half-truths. Here's the other (relevant) half: PERS has a "surplus" only in the same sense that the City of Portland has a "surplus". PERS doesn't hold enough money in reserve to fund its pension obligations - not even close. Employers like the state colleges kick-in about 20% of their total payroll costs to PERS each month - and that is funded with (for the most part) TAXES.

The benefits in force reserve is completely (as 100% funded) and can fund all its current pension obligations. The balance in all employee accounts and employer accounts is enough to fund all pension obligations as of today. It has $0 unfunded actuarial liabilities. NO employer holds all the funds needed to meet its "eventual" pension obligations. Yes, PERS does depend on taxes to fund pensions, but it uses the same taxes to fund all services too. So long as public employers have employees and a pension plan, there will be taxpayer obligations. However, there have been no tax increases to cover PERS expenses. The Oregon University System is only paying about 12% of payroll to cover PERS and the Optional Retirement Plan expenses. And moreover, of that 12%, half is employee money, not employer money. It was given to the employees starting in 1978 in lieu of a salary increase. That decision was made by the Legislature and the Governor, not the employees.

The pension liability is "100% funded" by virtue of the fact that nearly every participating entity in the state went deeply into hock to pony up their share of the UAL - transferring the liability from PERS books to theirs. It's still a liablility - and still unfunded. Hocus pocus financial tricks didn't solve the problem. Thanks for the blue-sky depiction of the state pension system, but it just doesn't play well with someone who knows the facts. The chickens are coming home to roost when all those former recipients of federal timber tax revenue start defaulting on their pension bond payments. This will probably start happening in 2009.

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