Chicago’s police pension bailout in the General Assembly's budget deal this summer could be derailed if the state continues to empty out as Illinoisans flee for better tax climates and opportunities elsewhere, a researcher for a fiscal advocacy group said.
"My impression is that the budget deal made it appear more likely that Chicago could make the numbers that were projected," Bill Bergman, director of research at Truth in Accounting and a blogger on financial issues, told Chicago City Wire. "Whether or not the deal actually made it more likely is another question, given trends in migration that appear to show acceleration, if anything, in taxable income out of the state, and the implications federal tax reform poses for future migration trends."
Bergman recently blogged about Illinois as one of five states, along with Connecticut, New York, New Jersey and Maryland, "rapidly running out of gas" when it comes to taxable income that fuels any government's financial engines. In that post, Bergman referred to recently released IRS data that revealed a significant increase in Illinois' adjusted gross income outmigration in 2016.
Bill Bergman, director of research at TruthInAccounting.org
That increase in Illinois was up "from an already-bad result in 2015," Bergman said. "In the last five years, Illinois ranks second-to-worst in the nation on adjusted gross income outmigration, trailing only Connecticut."
Bergman is not the only financial expert sounding a warning bell about the recent IRS data release. That IRS data revealed Illinois lost $720 million and 21,800 people on net to its neighboring states in tax year 2015, according to a Dec. 5 Illinois Policy Institute report.
And that could be bad news for Chicago's police pension and other taxpayer-supported pensions in the state, Bergman and other financial experts say, some of whom saw it coming months ago. Bloomberg reported shortly after the state's budget deal was reached that Illinois state employee pension debt, then $130 billion, may get even bigger after the budget deal.
Things seemed far more dire for Chicago's police pension fund in June when Local Government Information Services (LGIS), which owns this publication, released projections that indicated that without a taxpayer bailout, the fund wouldn't have enough money to pay benefits to retirees in 2021.
That report was disputed the same month in a statement released by Fraternal Order of Police Chicago Lodge No. 7 President Kevin Graham, who said that Illinois law mandates the pension must be funded at 90 percent by 2055.
"Current actuarial projections prepared for the pension fund to not include a time at which the fund has depleted all assets," Graham said in the statement.
That isn't what the LGIS projections indicated, Bergman said.
"Technically, LGIS doesn't exactly say that the fund will be broke by 2021, even though that is the headline in the article," Bergman said.
"They say that 'Without a taxpayer bailout, Chicago’s police pension fund won't have enough money to pay benefits to retirees in 2021'. It is unclear what they mean by 'bailout', but I believe they are referring to the sharp increase in contributions required under current law beginning in 2020."
Even with last summer's budget deal, much of Chicago's police pension fund's survival is up to the city, Bergman said.
"If the city can actually come up with those required contributions, the plan will not run out of money, and it will begin to show a recovery in its funded ratio," he said. "Given past experience, however, when push comes to shove, one might expect the city to not make those required increased contributions."