Illinois’ pension troubles have just taken a criminal turn. The SEC hit the state with charges of securities fraud yesterday, claiming that Illinois repeatedly misled investors about the state of its pension programs over the past decade. Between 2005 and 2009, the state issued $2.2 billion dollars in bonds while claiming that its pension funds were adequately funded, neglecting to inform investors that many within the government believed the system was headed for collapse. Instead, the state used creative accounting tricks to disguise the extent of the problem. As the pensions sank deeper into their hole, the state was forced to become increasingly creative.It's about time. This is a nationwide scandal at every level of government, from counties up to the federal government. We have made promises of future retirement and healthcare benefits to public employees that we cannot keep. We can't afford it. It will crush us. And we've papered over those facts with rosy actuarial assumptions of future growth in the retirement plans' portfolios that the last 13 years of flat markets don't justify. And meanwhile the same governments have been incurring debt with even more false promises that they will be able to pay it off.
Illinois needs to be renamed The State of Ponzi. But, then, that name might already be taken by California, or Rhode Island, or Maryland, or New Jersey.
P.S. Note that the states in the most pension trouble are the bluest of the blue states.