Behind the numbers New Jersey is poorer than Illinois

In debt-ridden Illinois the Auditor General is looking to scare the populace into reforming (reducing) public benefits so he released a report concluding that Illinois was in the poorest fiscal condition of all the states with a deficit of $43.8 billion based on data culled from Comprehensive Annual Financial Reports (CAFR) for each state.  New Jersey’s equivalent deficit in terms of net assets was $33.4 billion, while Massachusetts’ was $22.8 billion,Connecticut’s was $14 billion and California had a $10.5 billion deficit at the end of fiscal 2011. All of the other states included in the report had positive net assets, with Texas at the top with $97.3 billion.

I guess Illinois must be a fiscal basket case but after witnessing for 20 years a string of otiose reforms and mismanagement of a pension system and for 4 years a dysfunctional local government spoils system that piles up debt regardless of need or legality for political payback, it’s difficult for me to believe any system of government could be worse than what New Jersey’s has devolved into.

In comparing the 2011 CAFRs for Illinois and New Jersey which include Net Asset exhibits for Illinois and New Jersey upon which the Illinois Auditor General based his rankings, I see it a little differently.

Illinois with 5 million more people (13 vs. 8) reports about the same amount of assets as New Jersey ($36.9 billion versus $35.4 billion) but it’s the additional $12 billion in liabilities (81 vs. 69) that puts them in the bankruptcy lead.  However, the entire difference is due to the valuation of Retiree pension and health care benefits.  Based on the Pew Report on those benefits released this week New Jersey has unfunded pension ($36) and OPEB ($71) liabilities that total $107 billion while Illinois has unfunded pension ($75) and OPEB ($44) liabilities that total $119 billion.

I know for sure that the New Jersey pension underfunding number is garbage but how much variation would there be in the Illinois pension number and both OPEB amounts if consistent assumptions and methodologies were applied to both situations?   Under current public sector actuarial valuation rules (i.e. none) states essentially pick their liability number so these rankings are a crapshoot when you consider that the main components of the net liabilities are fiction.

But numbers aside, what are Illinois and New Jersey doing to get out of their holes.  Illinois raised taxes in 2011 and got $4.2 billion in added revenue.  New Jersey is arguing over a 10% income tax cut or a 20% property tax cut.

I rest my case.

17 responses to this post.

  1. You know reality is crashing in, John. How long can New Jersey fake it? Don’t worry, the proposed National Association of Bond Lawyers “considerations” and Actuarial Standards Board guidelines will reveal the truth eventually, or will they?


  2. Posted by Anonymous on June 22, 2012 at 5:14 pm

    John, Yes NJ is in worst shape than other states but these poor fools believe that when the pension funds go bankrupt that will solve all their problems. NJ is in worst shape than they are letting on and that is not just the pension system.
    TL will be always make a lot of noise about the pension and benefits being the main reason the state is failing. Just remember this “An empty wagon makes the most noise” Get ready for the name calling! heh


    • I don’t see pensions and retiree benefits as the reason NJ is going to go bankrupt. It speeds it along but, from what I’ve seen of Union County, any system this dysfunctional is destined to implode given the opportunity. Easy debt is one opportunity and providing benefit promises without paying is another but I see debt as the more fatal cancer since bonds are hard to renege on while public employee benefits (per Judge Hurd) are not.


  3. Please keep in mind these numbers do not include all of the states’ unfunded pension and retirees’ healthcare benefits. The Institute for Truth in Accounting study “The Financial State of the States” determined that less than 15% of these unfunded liabilities are included on the balance sheets of the states.


  4. Posted by on June 22, 2012 at 8:21 pm

    Here is what happens when you borrow to sustain a good life that you know you really can’t afford …take a look at the people ,do you believe they will fund the retirees while they starve. And lets not forget their government is now saying the debt problem has been solved ! .–long-last.html


  5. Posted by Jim on June 23, 2012 at 9:02 am

    It’s hard to believe government is any more dysfunctional in NJ than here in IL. How many ex-governors of NJ are currently in jail? IL has billions in overdue current bills, quite apart from the long term pension liabilities, which exist not because the state didn’t know it needed to make annual payments, but because the politicians chose not to do so year after year after year. Instead, they used pension money to fund other programs without raising taxes to pay for them. Yes, the annual payments to the pension systems are large today, but some 2/3 of the amount is for the debt from the past, not to meet current needs. It’s the dysfunctional past come home to roost.


    • Posted by Tough Love on June 23, 2012 at 9:35 am

      Not mentioned in you comment is the ROOT CAUSE of the problem (and why the cost is so great than sufficient money cannot be found to make the required contributions) …. that the plans are grossly excessive and multiples greater in value at retirement than even the MOST GENEROUS large Corporate pension Plans.


      • Posted by muni-man on June 23, 2012 at 10:31 am

        That’s the fundamental issue they all gloss over – the absurdly expensive, REAL cost of funding these monsters, which is largely why they weren’t funded properly all along (publics would need to have had their contributions increased 2.5x-3x over what they currently pay to achieve a 50-50 contribution split with their employers for proper funding). This BS of taxpayers coughing up $5 or $6 for every $1 publics put in to keep plans funded is pure crap. But I’d seriously wager that when confronted with the stark choice of stiffing major bondholders vs. the pension funds, NJ will continue stiffing the latter, regardless of any court decision. Once they stiff bondholders, they’re instantly persona non grata in the capital markets and one of their major funding venues dries up fast . Likewise, any pay-go tax gouge attempt to support pension payments would be an exercise in futility since TP’s simply wouldn’t accept it and the pols know that. They won’t pass any legislation that would attempt this. The next prolonged market dump should push the NJ plans to the beginning of a real cash flow bind which will then only start to speed up and force some harsh medicine on publics. Publics will then either accept major pension reductions or the plans will eventually fold.


        • Posted by Tough Love on June 23, 2012 at 10:45 am

          While I agree with all you said, you too are falling into a “trap”….

          Public Sector workers earn no less in cash pay than Private Sector workers. Therefore, the Taxpayers should contribute no more towards their pension Plans than what Private Sector workers typically get from their employers. With such private sector employer contributions RARELY being more than 5% of pay, THIS (5% of pay) should be the cap on taxpayer contributions toward Public Sector pensions, not 50% of the total cost (of VERY rich Plans).

          The more generous Plans afforded safety workers can cost a level annual 40% of pay to fully fund the pension over the career of the worker. Even the Plans for NJ’s misc. employees & teachers have a total cost of roughly 30% of pay.


          • Posted by muni-man on June 23, 2012 at 10:57 am

            I don’t disagree with you, but I was just using a hypothetical 50-50 pension funding split, knowing that would still be far better than what a private sector
            worker would get. Economics is slowly taking control of things though (like Il. now passing legislation forcing retirees to start paying for healthcare) and will continue to put ever-increasing pressure on gooberments to force benefit reductions on publics for years to come. They’re simply not going to have much choice because they’re now realizing they aren’t immune from market forces after all.

          • Posted by TREEeditor2 on June 25, 2012 at 12:58 pm

            When did it become a fact that public sector was to be equivalent to private sector. I thought that public service was always paid somewhat less because the workers had compassion to public service and so accepted that fact of getting paid less. When did this inflection point arrive?

          • Posted by Tough Love on June 25, 2012 at 5:40 pm

            TREEeditor2, Considering that the extraordinarily generous pensions and Cadillac healthcare (both during employment and AFTER retirement), when combined with “cash pay” no less than their Private Sector counterparts CURRENTLY results in Public Sector “Total Compensation” (cash pay + pensions + benefits) routinely 25-50% greater than comparable Private Sector workers, I’m quite satisfied to get their compensation DOWN to what we (the Taxpayers) get.

            Equal is fine with me ….. more is NOT.

    • We have variations of all that in NJ but it’s been a pet peeve of mine that arrests and convictions measure the level of corruption for some. How about those who commit the crimes but don’t do the time because they have legalized their actions? McGreevey? Corzine? Even Whitman with her POBs and contributions holidays. We bond illegally but out Supreme Court OKs it ‘just this one time’ and they do it over and over. Here we steal from Open Space trust funds and say it’s fine because we put it in the budget and some Local Finance Board clerk passes it.

      Christie believes Hudson County to be the most corrupt because of the number of convictions. I see those places where the crimes don’t get punished as being worse since there (here) the politicians know they can get away with anything.


  6. […] Largest debt burden of any state in the nation […]


  7. Posted by Academy Member on March 12, 2014 at 7:40 pm

    I take great issue with your claims that Illinois is not Number 1 in unfunded pensions. Illinois is Number 1 and will do anything possible to retain that ranking. Just ask a few of our prior governors who can be easily be reached as they are a “captive audience”.


    • We can agree to disagree but my argument for New Jersey would be that our politicians do much the same (if not more) in gaming the system and they are NOT in prison – or indicted – or even criticized for the most part.


  8. […] If anyone has a copy of the full report please send it over since it would be interesting to see if Fitch ranks any state worse than New Jersey.  Illinois doesn’t seem to be even (or especially) when you go behind the numbers. […]


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