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ILLINOIS
STATE AND LOCAL GOVERNMENTS SPEND MOST IN NATION ON PENSIONS
Illinois Policy Institute/
Adam Schuster
According to recent data, Illinois spends
nearly double the national average on pensions, measured as a percentage
of all state and local government spending.
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 Unfunded pensions for state and local government employees are
a growing crisis nationwide. According to the Pew Charitable Trusts, the 50
states have accumulated a total of $1.4 trillion in unfunded pension
liabilities, or the gap between money in pension funds and the value of promises
made to government workers, not including local pension funds. Only four states’
pension funds have at least 90 percent funding ratios, despite the fact that
taxpayer contributions have doubled over the past decade.
Many states are struggling with pension debt as a result of generous retirement
benefits, unrealistic investment assumptions and a growing number of retirees
living longer. However, Illinois’ pension crisis remains an outlier in its
severity.
The most recent data from the National Association of State Retirement
Administrators shows Illinois’ state and local governments spend the most in the
nation on pension benefits as a percentage of all state and local revenue at
8.71 percent – nearly double the national average.
Illinois and West Virginia also stand out as states where
pension spending has grown rapidly from fiscal year 2005 to 2015.
Total spending compared with total revenues is just one metric showing Illinois’
pension problem is the worst in the nation. Pension debt compared with revenues
is another. Last year, Illinois set an all-time high record for state pension
debt as a percentage of state revenues, at 601 percent.
The state’s five systems have at least $133 billion in pension debt, which does
not even include local pension debt.
Pension-related expenditures now consume more than 25 percent
of Illinois’ state budget, crowding out spending on social services, public
safety and education.
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In addition, a number of local governments are
already hiking taxes and cutting core government services to pay for
ever-rising pension contributions. For example, in 2018:
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The south Chicago suburb of Harvey faced an
intercept of state money owed to the city and had to lay off 18
firefighters and 13 police officers. Pursuant to a subsequent
settlement agreement, the city will divert certain tax revenues
to its police and fire pension funds.
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Chicago faced a more limited intercept of state
money, and its pension contributions are set to spike by more
than $1 billion over the next five years, despite several tax
and fee hikes enacted by Mayor Rahm Emanuel to pay for pensions.
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The city of Peoria had to eliminate 27
municipal workers and 38 public safety positions to make pension
payments. Currently, 85 percent of the city’s property tax levy
goes to pensions, and that’s projected to rise to 100 percent in
fiscal year 2020.
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Rockford was advised to cut police and fire
services and privatize the city water system to make pension
payments.
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Three smaller communities saw special property
tax hikes to pay for pensions: Jerome, Geneseo and Norridge.
Despite the severity of Illinois’ pension crisis,
commonsense solutions exist that would protect both government
workers’ retirement security and taxpayers.
By amending the state constitution to protect earned benefits, but
allowing for changes in future benefit accruals, state lawmakers
could pass a pension reform package that reduces annual pension
contributions and fully funds the pension systems faster than
planned under current law. This plan would enable state and local
governments to honor promises made to both retirees and current
workers – and would not cut a dime from their checks.
A growing chorus of voices has endorsed a constitutional amendment
to enable meaningful pension reform. This includes outgoing Chicago
Mayor Rahm Emanuel and the Civic Federation, a Chicago-based
research organization.
Pension reform is necessary if lawmakers wish to protect those who
will be most harmed by pension insolvency: government workers and
retirees. Through meaningful reform, lawmakers would also protect
taxpayers, stabilize state and local finances, and revive a state
economy that for too long has been held back by tax hikes driven by
pension costs.
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