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dir="ltr">A conference of economic minds in Chicago warned that states with underfunded pensions like Illinois are more vulnerable to the next economic downturn.
The nonprofit Volcker Alliance conference Monday in Chicago examined ways states can avoid a financial crisis similar to the last recession. Most speakers pointed to pension debt as what will likely be the cause of emergencies.
Finance professor Robert Inman from the University of Pennsylvania joked that he was happy to only be visiting Illinois because each resident is on the hook for around $12,000 in public retirement deficits. The outstanding debt – and tax hikes needed to pay for them – directly suppress the value of a home because they add costs without adding value, Inman said in his presentation.
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“As you collect those taxes, it’s going to lower the value of the home because there’s nothing to show for it,” Inman said. “With a family of four, your $200,000 house is going to be minus $40,000.”
Illinois, Inman said, shares many similar budgetary challenges with other governments that have had budgetary crises, like Detroit, Greece and Puerto Rico.
Josh McGee, vice president of public accountability with the Laura and John Arnold Foundation, said recent infrastructure underfunding and teacher strikes over pay can be partially blamed on pension costs crowding out other education spending in the classroom.
“We haven’t been maintaining buildings. We haven’t been paying for school supplies. A big cause of that is that more and more of our resources are going to pay down debt into the pension systems,” he said. “Around 70 percent of the government contributions going in public pension systems is going to retire debt and not for new debt earned by current workers.”
Most speakers blamed pension deficits on politics and poor budgeting. Moody’s Investor Services estimates Illinois’ pension debt to be $250 billion. Other estimates have put the figure at $130 billion.