State Pension Crisis Leading to High-Tax Exodus

Many public pension plans are dragging down their respective state and local governments, and the root of the problem is legislative inflexibility and demographic shifts, stated Chicago resident Jim Bianco, head of Bianco Research.
This time on FS Insider, we spoke with Bianco about the massive public pension funding gap, now reaching a tipping point, and Illinois’ politically-created downward spiral.
The Public Pension Straight Jacket
The reality is, the state of Illinois, where Bianco resides, could become the first ever to get hit with a junk status credit rating.
The cause is the unfunded liabilities associated with public pensions in the state. In 1970, the state of Illinois rewrote its constitution, Bianco noted, and added language forbidding changes to any pension or union contracts the state, city, or any entity within the state entered into.
A couple of years ago, the state proposed some rules to make state pensioners pay more into their pension in return for fewer benefits. The state supreme court said these contracts couldn’t be changed, however. The only way was to amend the state constitution, which is unlikely to happen, Bianco noted.

This post was published at FinancialSense on 07/06/2017.