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S&P:
GROWING DEBT, REFUSING REFORMS, POPULATION LOSS DOOM ILLINOIS PUBLIC
PENSIONS
Illinois Policy Institute/
Noah Shaar
S&P Global Ratings said Illinois’ public
pension systems are in trouble, and will get worse thanks to the
Illinois Exodus and because state leaders refuse to fix the problems. |
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 S&P Global Ratings upgraded Illinois’s bond rating for the
first time in 25 years, but the slight bump came with harsh criticism of how
Illinois handles its public pension funds.
S&P agents argued the public pension systems are in danger because the pensions
have massive obligations, the politicians won’t fix them and thousands of
taxpaying Illinoisans are moving out.
Despite spending more on pensions than any other state, Illinois does not have
nearly enough set aside to pay for projected growth in future pension benefits.
Illinois reports it owes $144.2 billion in net pension debt to the five
statewide systems. Illinois’s debt projection assumes pension fund investments
will return between 6.5% and 7% per year, depending on the system. Moody’s
Investors Service, which uses more realistic risk assumptions in line with
private sector accounting, calculates Illinois’ net pension debt to be $317
billion.
That’s the difference between every Illinois household owing nearly $30,000, or
owing over $65,000, for state pensions – which doesn’t include local government
pension debt.
 S&P’s analysts blamed the state’s 90% funding goal as one of the missteps. Best
practices recommended by experts unanimously recommend a 100% funding target.
Also contributing to the pension crisis is a decline in payroll headcounts in
state and local government. Fewer people are paying into the systems as the
number of retirees grows, leaving taxpayers to make up the difference.
Retired teacher John Hasten, of Marshall, Illinois, sees it in the largest of
the statewide systems, the Teachers Retirement System.
“Now that there are fewer children in Illinois schools, there are fewer teachers
paying into the system, exacerbating the pension problem,” he said. “In
contrast, [the Illinois Municipal Retirement Fund] is the most secure pension
system in the state. Why? Because the amount of money required to be paid by
employers and employees must be actuarially sound. Each year the amount to be
paid into the system is adjusted to make it so.”
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Illinois population loss is also a factor, with the
2020 census showing the state lost population for the first time in
200 years. When working families leave Illinois it narrows the tax
base that supports the pensions.
The sad truth: the tax burden and pension crisis contribute to the
population loss, resulting in a potential death spiral for the
financial wellbeing of the state. The politicians, according to S&P,
lack the will or desire to reform, meaning the population loss and
pension crisis will only get worse.
For pension reform to occur, the state must amend
the Illinois Constitution. The amendment proposed in Illinois
Forward would preserve the earned benefits of workers while
adjusting future benefit growth, such as pegging the cost-of-living
increase to inflation rather than providing a 3% raise that
compounds yearly.
Those changes to future, unearned benefits would save Illinois $50
billion through 2045 and eliminate 100% of the pension debt over
that time. It would also stop the dysfunction that feeds pensions
and crowds out the needs of the state’s most vulnerable, such as
abused children, adults with disabilities and low-income college
students.
“I just know that, at one point, communities had access to a lot of
great services, and I don’t think there’s access to that catalog of
things that used to exist, so the loss of very important services
persists,” said Cjay Harmer, a school behavior interventionist in
Lakemoor, Illinois. “It’s not fair to the families. It’s not fair to
the people involved when services aren’t provided and the state
doesn’t follow through with what they say they’re going to do and
services have to be cut.”
Amending the Illinois Constitution to allow changes to the pension
systems would not only improve Illinois’ credit ratings, it would
allow the state to keep its promises to its people.
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