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REPORT:
ILLINOIS PENSION DEBT SOARS TO $137B, DESPITE RECORD TAXPAYER
CONTRIBUTIONS
Illinois Policy Institute/
Vincent Caruso
Illinois’
contributions to its pension funds exceeded $10 billion in 2019 for the
first time in state history – and it wasn’t nearly enough to keep the
state’s pension debt from growing. |
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 Record taxpayer contributions failed to keep up with the
state’s growing obligations to its five pension funds, according to new
actuarial reports.
In fiscal year 2019, state estimates of Illinois’ total unfunded pension
liability rose to $137 billion from $131 billion, despite paying more than $10
billion to the funds – the largest annual contribution in state history. Those
contributions include both pension benefits and interest payments on debt the
state issued to make past pension payments.
While taxpayers poured record amounts into the state retirement systems during
the fiscal year that ended in June, the systems’ average funding levels held
flat, remaining just 40% funded. The record contribution and growing debt came
despite a robust stock market that should have yielded solid investment returns
to the five plans.
State taxpayers can expect to pay more for pensions in fiscal year 2020 with
projected contributions set to reach nearly $11 billion, according to the
reports. The share of the state budget devoted to pension costs will then be
27%, up from 25% in fiscal year 2019. Illinois spends a larger chunk of its
budget on pensions than any other state.
By contrast, pension contributions accounted for less than 4% of Illinois’
general fund budgets from 1990 through 1997.
Pension experts consider a funding ratio of less than 60% to be “deeply
troubled,” while a 40% funding ratio may be a “point of no return,” meaning an
inability to make required contributions or maintain adequate funding levels –
without painful cuts or serious structural reforms.
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If state lawmakers don’t opt for structural reforms
soon, the painful cuts that have already taken place will only
accelerate, at the expense of the most vulnerable Illinoisans. Core
services such as child protection, state police and college money
for poor students have declined by nearly one-third since 2000. Why?
To make room for rising pension costs, which have skyrocketed by
501% during the past 20 years, adjusted for inflation.
What’s more, the severity of Illinois’ pension
crisis could be obscured by the state’s highly generous accounting.
Independent researchers such as Moody’s Investors Service put the
state’s pension debt nearly twice as high as state estimates, at
$241 billion, by using more disciplined analyses.
Fortunately, states such as Arizona and Rhode Island show Illinois
does not have to continue allowing pensions to crowd core services
out of the state budget, or pretend endless tax hikes will
eventually solve a structural pension shortfall.
State lawmakers should reject other states’ failed tax experiments,
and take the lead on reforms that have proven successful in at least
two states. They should give voters a chance to constitutionally
reform the state’s pension system.
Serious reform would entail protecting already-earned pension
benefits, while allowing the state to bring the growth rate of
future benefit accruals in line with inflation.
Without constitutional pension reform, state lawmakers and taxpayers
can expect a fiscal future far darker than the one outlined in these
latest reports.
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