State Watch is The Investigative Journal’s monthly review of state auditor findings, public pension disclosures, and local government accountability developments, drawn from official records and primary-source documents.
America’s public pension funds just posted their best funded status since 2009 — and the fine print of that milestone is where this month’s accountability story lives. According to the Equable Institute’s State of Pensions 2026 report, published July 23, the national average funded ratio for state and local retirement systems reached a projected 85.0 percent, up from 81.2 percent a year earlier. Yet the same report shows unfunded liabilities still standing at $1.13 trillion — down only about $210 billion, in absolute dollars, from the 2009 trough — and it classifies the overall system as “Fragile.”
How did funded ratios improve while the debt barely moved? The data point to taxpayers. Equable’s figures show employers now contribute a historic high of 31.83 cents of every payroll dollar to pension funds, and 70.4 percent of employer pension costs go to servicing old debt rather than funding new benefits. Investment returns helped too: the average plan returned a projected 9.37 percent in fiscal 2026, the fourth straight year above the standard 6.8 percent assumption.
The report also flags two structural risks that deserve more attention than they are getting. First, based on Equable’s review of SEC filings for the largest 25 public funds, at least 8.6 percent of disclosed assets sit in a basket of 50 A.I.-related companies — and the institute estimates true exposure at 8 to 10 percent of assets, or roughly $513 billion to $642 billion, once private holdings are counted. Second, 27.1 percent of pension assets are now “valuation-priced” (private equity, real estate, and other assets marked by models rather than markets), triple the pre-financial-crisis share. If those valuations are optimistic, reported funded ratios are too.
California: CalPERS Posts 14.8% — and a September Decision Looms
The nation’s largest pension fund had a banner year. CalPERS reported a preliminary net return of 14.8 percent for fiscal 2025-26, lifting assets to $637.1 billion and its funded status to 85 percent, from 79 percent a year earlier. Public equity gained 24.1 percent and private equity 17 percent, according to the fund’s July 13 release.
The item to watch: under its Funding Risk Mitigation Policy, the CalPERS board has the option to lower its 6.8 percent discount rate when returns exceed the target — and the release states the board is scheduled to take the question up this month. A lower assumed rate is more honest accounting, but it raises near-term contribution bills for the state, school districts, and hundreds of cities already under budget strain. Taxpayers should watch whether discipline survives a good year.
Illinois: Chicago’s “Improved” Outlook Still Includes a $2.9 Billion Pension Bill
Chicago’s budget forecast, released September 3, projects an $882.4 million gap for 2027 — about 23 percent smaller than last year’s $1.15 billion hole, according to WTTW’s report on the forecast. The pension arithmetic behind the headline is sobering: the city faces a statutorily required pension payment of more than $2.94 billion in 2027 ($90.5 million above last year), plans an additional $364 million advance payment, and, per its 2025 Annual Comprehensive Financial Report, owes $36.4 billion to its four employee pension funds. City officials also said a delayed $130 million supplemental pension payment will now be made by the end of September, after late Cook County property tax bills pushed it back. The forecast document projects gaps of $943 million in 2028 and more than $1 billion in 2029.
Statewide, Illinois remains one of only two states Equable classifies as “Distressed,” with an average funded ratio of 56.4 percent; the legislature’s Commission on Government Forecasting and Accountability has pegged the state systems’ combined unfunded liabilities at roughly $144 billion in its most recent special pension briefing.
New York: The Cost of Honest Budgeting
In August 12 remarks to the New York City Financial Control Board, State Comptroller Thomas DiNapoli put a number on years of underbudgeting by the city: more than $6.4 billion in fiscal 2027 expenses — public assistance, rental aid, MTA subsidies, overtime — that were simply not in last year’s plan, part of over $10 billion in new agency needs added in twelve months. DiNapoli credited the new administration for more realistic accounting but flagged thin reserves: about $2.5 billion entering the fiscal year, or roughly 3 percent of city-funded spending, versus the state’s $15 billion rainy-day cushion. He also noted rating agencies cited a since-abandoned plan to use reserves for budget balance in revising the city’s outlook. His office’s full review of the FY2027 financial plan is worth reading in full.
Downstate wasn’t the only focus. Among municipal audits released August 11, auditors found the Moravia Joint Fire District could not support that $589,180 in goods and services were procured competitively, as state law and its own policy require.
Hawaii: A Sitting Lieutenant Governor Indicted
An Oʻahu grand jury on July 24 indicted Lt. Gov. Sylvia Luke on charges of criminal conspiracy to commit bribery, bribery by a public servant, and falsifying candidate committee reports, according to Honolulu Civil Beat’s review of the indictment. The 30-page charging document alleges a businessman promised Luke $70,000 in connection with efforts to secure state funding for COVID-19 testing operations; court records cited by Civil Beat indicate his consulting firm was paid more than $7 million tied to that testing work. Four others were indicted, including a former state representative and a current airports administrator. Gov. Josh Green has called on Luke to resign. These are allegations, not findings: Luke has publicly denied taking $35,000 from any single source, and all defendants are presumed innocent unless proven guilty. The case — brought by the state attorney general’s Special Investigation and Prosecution Division — is a test of whether state-level corruption units can police their own political class.
Missouri: Alleged Job-for-Election Deal in Jackson County
Federal prosecutors unsealed a five-count indictment August 6 charging Interim Jackson County Executive Philip LeVota with honest services fraud, federal program bribery, Travel Act violations, and false statements. The indictment alleges LeVota agreed to give a rival candidate and an associate full-time county jobs in exchange for the candidate abandoning the 2026 county executive race. As the U.S. Attorney’s office itself notes, the charges are accusations and not evidence of guilt.
Ohio: Small-Dollar Findings, Systemic Lessons
Auditor of State Keith Faber’s office issued a steady stream of findings for recovery in recent weeks: $18,877.94 against six City of Lorain employees over leave-cashout overpayments, $3,720.46 against a former University of Cincinnati vice president over an unauthorized donation and personal alcohol purchases, and — most relevant to this month’s theme — $105,057.10 against a former Central State University CFO over penalties from late payments to the pension system. The dollar figures are small; the internal-control failures they document are not. Notably, Equable’s data place Ohio among four states with slow-growing pension assets that remain below 90 percent funded — a structural concern, not a timing one.
Recurring Themes and What TIJ Is Watching Next
Three threads run across these states. First, transparency corrections are expensive: New York City’s $6.4 billion underbudgeting reckoning and Chicago’s pension math show that honest numbers, once disclosed, force hard choices. Second, pension progress is contribution-driven and market-dependent — with A.I.-heavy portfolios and model-priced assets now representing a combined risk that few state legislatures have examined. Third, COVID-era money remains a corruption vector years later, from Hawaii’s testing contracts to pandemic-origin spending flagged by auditors nationwide.
Issues warranting deeper TIJ investigation in the months ahead: which state pension boards will revisit discount-rate assumptions after a 14-plus percent year (CalPERS decides this month); how much unexamined A.I. exposure sits in mid-size state funds’ private equity books; whether New Jersey (56.7 percent funded) and the other structurally pressured states Equable identifies — Illinois, Kentucky, Mississippi, Hawaii, and New Mexico — can close gaps that “market returns alone cannot resolve”; and the final disposition of the Hawaii and Missouri indictments, where records will show whether procurement and hiring safeguards failed or held.
All findings above are drawn from the linked official reports, court records, and primary-source documents; allegations are identified as such, and pending cases remain unproven. Officials named have responded in the public record where noted.