The Pension Black Holes

From Wirepoints, reprinted with permission:

Every Illinoisan must see these two charts

Whether you know nothing or everything about Illinois’ state and local fiscal crises, take a moment to digest these two charts below, recently published by the Wall Street Journal.

Focus on the top line in both charts.

They aren’t complicated.

They show how much of total revenue collected by the State of Illinois and the City of Chicago is now being consumed by payments on pensions and other debt, and how much worse it would be if proper amounts were being paid.

After you look at them, take a moment to consider how our political establishment is responding.

You read the charts right.

For the state, about 25 percent of revenue now goes towards pensions and other debt, but that would jump to over 50 percent if proper amounts were being paid.

For Chicago, about 34 percent of revenue is already being consumed by those payments.

Doing it right would take over 60 percent of revenues.

The charts are based on the work of Michael Cembalest, Chairman of Market and Investment Strategy for the asset-management arm of JPMorgan Chase & Co. Wirepoints, alone in Illinois, has been reporting that work consistently for over five years, trying to call attention to it and similar work by ourselves and others.

The “costs” shown in the charts include pensions, retiree healthcare for pensioners (both of which are constitutionally protected in Illinois) and interest on bonded debt (though that interest is a very small part of the problem).

Cembalest’s calculations assume that investments set aside to pay pension obligations will earn 6% per year, which is generous.

Many financial experts say a lower assumption should be used, which would make the numbers even worse.

The implications are catastrophic.

No government can provide a reasonable level of services when it is burdened so heavily by legacy pension and other debt.

That’s especially true for governments with tax burdens already as high as Illinois and Chicago’s. Similar numbers apply to many other towns and cities across the state.

How is the Illinois political establishment responding?

Here’s the central message now being blasted across the state by proponents of a $3.4 billion state income tax increase on high earners: “Illinois is in a $3.2 billion financial hole. A Fair Tax could fix that and reverse the damage.”

That’s an epic lie.

The “hole” isn’t $3.2 billion.

It’s roughly a quarter of total revenue according to this work, which is consistent with our own numbers – about $10 billion – and that’s just at the state level.

Illinois state’s future is spiraling downward.

The new $3.4 billion will go down a nearly bottomless pit.

Much of the Illinois press plays along with the deceit. Nothing to see here. Don’t scare the children. The sky isn’t falling. Nothing a little tax increase won’t solve.

Pension or retiree healthcare reform? No, not one dime of that is needed according to most of our politicians, including Illinois Governor JB Pritzker and Chicago Mayor-elect Lori Lightfoot. They’ve all ruled out the state constitutional amendment that would be needed for that.

Illinois politicians may carry on in their alternate universe, but the national press is waking up.

This state will only change when lawmakers face pressure from both above and below. That’s why Wirepoints needs your support. Help us inform other Illinoisans of the truth by liking us on Facebook and by signing up for our news and research updates below.


The Pension Black Holes — 11 Comments

  1. Why should someone support Wirepoints though?

    They’ve been saying this stuff for years and what do we have to show for it?

    More Democrats in office who are more committed to public sector unions than ever before.

    This lame Hayekian model of social change where “intellectuals” like Dabrowski influence people and somehow the politicians get the message is an utter failure.

    I like Wirepoints’ content but what is it accomplishing?

    You’re gonna share their stories on social media and your right wing friends will like it and your left wing friends will block you.

    It’s 2019. People already know what side they’re on in the pension debate.

    Trying to educate people is a lost cause.

    People aren’t going to get the hint until we start laying off teachers and police officers and selling off public land and infrastructure to pay for the pensions (which will inevitably happen) — and even then they may not get it because there are a of stupid people here.

    The same basic theme of broken pension systems has been posted and reposted by Wirepoints hundreds of times.

    The act is stale.

  2. Agreed.

    The obvious outcome is a dump in real estate values, acquisitions at pennies on dollar a la 2009–with those pennies being supplied by publicly subsidized banks to insider investors allowed exclusive access to the deals—

    And then after that reset in real property ownership the entitlements rules will be allowed to change to become more realistic and sustainable.

  3. Self defense options are not apparent.


    Starving the Beast (deciding, as prey to either die or starve so badly that no meat is left to attract predator).

    But then predators will transact same dump-and-pump as they are now orchestrating.

  4. The Wirepoints article is about a Wall Street Journal article which in turn is based on the work of Michael Cembalest of JP Morgan, most prominently in his series The Arc and the Covenants.

    Most people don’t have a subscription to the Wall Street Journal so can’t read the article.

    It is a good article.


    A sentence that appears in both charts above is a key part to both articles.

    “Also assumes unfunded liability is paid off over 30 years in level payments.”

    Level payments is the pension amortization method used by the state pension funds (and most public sector pension funds in Illinois) and is the pension equivalent of a fixed rate mortgage.

    The main alternative to level payments is level percentage of payroll, which is akin to an adjustable rate mortgage.


    In the 4:11PM comment in the following article is more information the level payments v level percentage of payroll amortization methods, and the Arc and the Covenants series.


    McHenry County Blog

    Analysis of the Mess Illinois Finds Itself – Fact 14

    Posted on 02/26/2019

    by Cal Skinner

  5. I’ll have to agree with An American in that this state is overrun
    with stupid people who are being led by their power mad and greedy masters.

    Therefore the ONLY recourse and the ONLY way to save yourself financially is to flee ASAP
    before the inevitable collapse.

    Not a matter of if, but when, as we are already beyond the point of no return.

    Does this “trigger” you, Little Joey Blowhard ?

    And you, Little Tommy Snowflake ?

    Too bad, deal with it.

  6. Mistake in the 6:56AM comment.

    Will just re-write it.


    Level payments is the pension amortization equivalent of a fixed rate mortgage.

    The main alternative to level payments is level percentage of payroll, which is akin to an adjustable rate mortgage.

    The State of Illinois pension funds, and most pension funds in Illinois, use the level percentage of payroll amortization method.

  7. My relief at closing on another Illinois property this month, is tempered by visions of the remaining properties being sucked into the financial black hole you people created.

  8. We might offer the People of Illinois who are voting for its destruction arent “stupid”, they are self interested self promoting selfish slaves of the Public Domain Overlords.

    While the wage slaves of Illinois plod along praying for relief from the regressive taxes piled on the middle class and working poor the public employees/clientele have grown to the point no amount of Citizen voter turnout will overcome their voracious appetite for the fruit of your labor.

    This has been written about throughout the centuries and millenia of human political thought.

    When the Citizen gives up their authority over those who have their hands on the purse strings then the purse will be used to buy power over the Citizen.

    The only recourse is shattering the illusions of those believing they actually are entitled to power over the Citizen because they’ve created a better class system than any which came before.

    A “fairer more balanced” class system where neither character nor hard work are the determining factor but only how much one can usurp in money and power from the Citizen.

    America has no class system.


    The magic of America is one may rise on ones own efforts or fall on ones own choices.

    No one has control over another’s future.

    Illinois is trying hard to except itself from the American Vision and its politicitians feel utterly safe in doing so.

    Make them feel less safe.

    These are real people who live in real houses on real streets.

    They are your neighbors.

    Help them understand thievery and murder are not society or culture building plans.

    Active Citizens who participate in a free environ promoted by government is the American Plan which saved us all from domination and slavery.

    It is time to teach the “political class” they abrogate that promise of freedom for all at their direct peril.

    Funny how that changes hearts and minds.

  9. Illinois politicians keep kicking the can down the road with regard to solutions for this State’s disastrous financial standing. One of the biggest problems is gross underfunding of various pension funds to the tune of tens of billions of dollars perhaps as much as $150 Billion.

    Contributing to this situation are the extraordinarily high salaries, benefit amounts and pensions for many government workers and retirees.

    Refer to these websites for data on pension amounts and salary amounts.

  10. JB Pritzker will get everything fully funded after he raises the Illinois income tax to a flat 24% for everyone and the tax on fully legal weed will be icing on the cake.

    It’s a genius plan$

    Cut spending?

    That would be gauche, get it?

  11. The state pension funds (TRS, SERS, SURS, JRS, GARS) us the level percentage of payroll amortization method, which is akin to an adjustable rate mortgage.

    Michael Cembalest of JPMorgan Chase uses the level payments amortization method, which is akin to a fixed rate mortgage.

    The current amortization schedule for the state pension funds is bogus.

    That’s part of the Illinois Pension Scam.

Leave a Reply

Your email address will not be published. Required fields are marked *