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S&P Global Ratings released a report on Illinois pensions this
week. Analyst Joseph Vodziak said Illinois is working through
some of the funding issues.
“It is a big hole, they’ve got a lot of digging to do and
they’re making progress on that and there’s still some risks and
some difficulties on the way out,” Vodziak told The Center
Square.
At around 42% funded, the state-run pension plans have an
unfunded liability of around $140 billion, among the poorest
funded pensions in the country.
S&P projects pension costs to increase by 2.2% over the next
decade. Compounding the funding issues are future other post
employment benefits, or OPEB costs.
“We’ve seen medical costs inflate at a higher rate than the
normal [consumer price index] does. We’ve seen a track record of
that which could lead to higher insurance costs, higher premiums
and the state was going to have to make up that with higher
contributions in the future,” Vodziak said.
Around 1 out of every 5 dollars the state takes in in taxes goes
to the state’s pensions, or a total of nearly $10 billion for
the coming fiscal year.
Illinois’ plan is to increase spending on pensions in the years
ahead to get to 90% funded. Todd Kanaster with S&P said that’s
not fully funded.
“They’re funding the 90% so they don’t have a plan to fund
fully,” Kanaster said. “That tends to be one of the factors for
shorting the contributions for the year.”
With S&P’s most recent report on Illinois pensions, Kanaster
said the agency’s message is progress is being made, but not
enough.
“They are poorly funded, there’s a lot of risk, they’ve taken
some steps both on the liability side and on the asset side to
start to address this, some of these risks,” Kanaster said.
S&P’s pension report does not constitute a ratings action for
Illinois, which despite several credit upgrades in recent years
still has among the worst rated credit in the country.
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