Will Illinois Pass the Pain to Locals? Food Stamp Participation Up in Some States;
Update on State Pension Funding Levels

Categories: Commentary |

February 9, 2015

This week we consider the possibility that Illinois may attempt to solve the State’s problems by inflicting pain on local governments, take a quick look at the latest food stamp participation statistics, and review pension funding levels for States that have filed ’14 CAFR’s.

Will Illinois Try to Pass the Pain Downstream?

Last week new Illinois Governor Rauner released his budget.  The budget included numerous proposals designed to address Illinois’ State and local pension challenges.

One of the proposals would allow local governments to seek Chapter 9 bankruptcy protection. This is similar to previous proposals advocated by some legislators and local officials.

Advocates have cited the need to empower local governments to renegotiate pension benefits with workers and retirees. Unfortunately for bondholders, recent efforts nationally to renegotiate pension benefits via Chapter 9, have often involved bondholders taking more extreme haircuts than pension plans.

Also last week, Rauner announced three new appointees who had been working for the Illinois Policy Institute (a public policy advocacy organization highly critical of past fiscal management in Illinois).  We have agreed with many of their criticisms and even cited their work on the Illinois employment picture in a previous Commentary.

These appointments can be construed positively as a signal that Rauner is serious about fixing the fiscal mess in Illinois.   However, a recent column by Illinois Policy does raise a note of caution.  In the column, the author advocates that one potential solution to the State’s issues is to reduce the portion of individual and corporate income taxes that the State shares with local governments.   The author stated:  “… leaving this potential billion dollar stone unturned would be unwise for a governor facing a budget crisis”.

One of the factors that makes the credit of States resilient is the multiple levers they can pull to adjust their fiscal position.   If the Governor’s bankruptcy proposal is approved, and he chooses to pull the local aid lever, it raises the risks of investing in local Illinois bonds.

Despite Recovery, Food Stamp Participation Rises in Some States

Last week the Department of Agriculture released Food Stamp (SNAP) participation rates for November 2014.  Consistent with other positive signs in the economy, most States show continued declines in participation rates.  From November 2013 to November 2014 the average State rate of participation declined by -1.6%.

That said, there are 12 States reporting year-over-year increases in participation:


While we have previously observed in our Commentary that the connection between food stamp participation and poverty measures has weakened, we believe it still remains a valuable indicator of overall economic weakness.

State Pension News is Not All Bad

We are now 224 days past June 30, 2014, the end of the last fiscal year for most municipalities.  For municipal analysts, this means that we have entered “CAFR season”, the time of year when those municipalities finalize and disclose their annual financial statements.

Of particular interest is each municipality’s pension funding situation. As we update the DIVER Pension Database with the most recent data, we will give periodic updates regarding the funding picture.

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At the State level this year, the news so far is good.  Of the 26 States that have reported 2014 pension statistics, 18 have higher pension funding levels than last year and 5 have worse funding levels.

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Of the States reporting so far, Washington is the laggard in terms of change in funding level.  In the past year its funding ratio declined from 95% to 88%.   While the change is dramatic, Washington is likely to remain among the 10 best-funded pension plans.

A look at the details shows the funding decline was driven by large increases in liabilities in most funds that were not matched by increases in assets.

This week the Lumesis team will be in Austin TX.


Have a great week,

Michael Craft, CFA


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