Editor’s Note: In this report Mike Shedlock references an acknowledgment by the state of Illinois that their best current estimate of the underfunding of their state employee retirement obligations is $137 billion. That’s just the underfunded portion, not the amount of the entire liability. But what is even more staggering is the fact that Illinois has 106,000 full time state workers, but the local governments in Illinois employ an additional 455,000 workers. It is unlikely the retirement health and pension obligations for these workers are underfunded by an amount that would not be roughly proportional, meaning Illinois taxpayers may actually be on the hook for not an additional $137 billion, but over $600 billion. That’s using the state’s own numbers – based on what projected rate of return for their pension funds, 7.5%? How much higher will this liability climb if rates of return were to fall to “risk-free” levels? And why is it that government workers don’t just get social security and medicare like the taxpayers who support them?

Illinois has combined $137 billion in pension and healthcare liabilities on top of $9 billion in current unpaid bills. Yet, Illinois legislators will not even ask 6-figure pensioners to pick up a portion of their health premiums.

The Chicago Tribune reports Surprise! You owe another $54 billion

If Springfield won’t ask six-figure pension beneficiaries to pick up a portion of their health premiums, what are the odds that state legislators will confront their pension monster?

The state of Illinois admits to $83 billion in pension underfunding, a staggering weight on today’s and tomorrow’s taxpayers. Add to that the as yet uncalculated billions in unfunded pension obligations for city, county and other local governments.

A second, often overlooked time bomb merrily ticking for governments nationwide is the cost of health insurance for all those retirees. That number, too, is hard to gauge, because health care costs — like future investment returns — are unknowable. Yet governments typically don’t put aside money for future health care, as they do for future pensions. The culture is to pay-as-you-go.

In Illinois, that means pay-as-you-go-even-more-broke. The Illinois Policy Institute, a right-leaning think tank, now is releasing 133 pages of frightening data. Beyond that $83 billion in unfunded pensions, state government alone faces an unfunded liability of more than $54 billion in retiree health liabilities over the next 30 years.

During the 2011 deliberations, two groups helped block retiree health reform: lawmakers of both parties who have state institutions (and thus state retirees) in their districts, and well-paid lobbyists whose prior careers in government entitle them to, yes, fat public pensions. If that happens this year, we want to read names.

By the last of the IPI’s 133 pages, we conjured one question, then a follow-up:

How could Illinois pols do this to taxpayers?

And come November, will voters finally exact some consequences?

Who is to blame for this mess?

  1. Public unions
  2. Politicians in bed with public unions
  3. Voters who vote for politicians who are in bed with public unions

About the author: Mike “Mish” Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management. His top-rated global economics blog Mish’s Global Economic Trend Analysis offers insightful commentary every day of the week. He is also a contributing “professor” on Minyanville, a community site focused on economic and financial education. Every Thursday he does a podcast on HoweStreet and on an ad hoc basis he contributes to many other websites, including UnionWatch.

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