Illinois’ pensions are crowding out services
The expense of retirement benefits is overwhelming many areas of the state budget.
In the next fiscal year, Illinois’ state higher education retirement expenditures are set to eclipse all other state support for higher education. A similar trend is occurring in Illinois’ PK-12 system, where state PK-12 retirement costs are projected to eclipse state aid to schools in fiscal year 2029. These are among the findings of a recent series of reports from the Illinois Policy Institute showing how state pensions and related retirement costs are crowding out funding for core government services, such as education.
Analysts have been warning about pension crowd out for years. A 2005 paper from the Reason Foundation warned, “Illinois’s rising pension costs are taking up an increasingly large portion of the state budget. Pension contributions are crowding out appropriations for education, health care, and other government services.” In spite of these grim numbers, legislators have failed to act. But ignoring the problem won’t make it go away. The state’s statutory pension contribution has almost tripled between fiscal years 2008 and 2013. It was simply a matter of time before the pension crowd out became undeniable.
Now, public officials are recognizing the writing on the wall.Recently, Gov. Pat Quinn’s budget director, David Vaught, acknowledged “The pension costs and the Medicaid costs are going up more than the rate of inflation and more than the revenue growth. That squeezes everything else out.”The longer state leaders wait to enact pension reform, the more expensive the consequences will be. Last week, Moody’s Investors Service downgraded Illinois’ bond rating to A2 from A1, securing Illinois the embarrassing title as the lowest rated state in the nation. As part of its reasoning, Moody’s cited Illinois’ “weak management practices” and the fact that “the state took no steps to implement lasting solutions to its severe pension under-funding or to its chronic bill payment delays” in the last legislative session.The status quo in Illinois is not working. But pension reforms are occurring across the country, and Illinois legislators should learn from the lessons of other states. Rhode Island has shown that pension reform isn’t about ideology, but math as the democratically-controlled legislature passed sweeping pension reform. As if they weren’t enough, Rhode Island also demonstrated that pension reform can be a political winner with 60 percent of the public supporting the reform law. Multiple states, including Colorado and Minnesota, have modified pension cost-of-living-adjustments for retirees to better reflect the economic reality facing taxpayers and state government. And states such as Utah have incorporated 401(k)-style defined contribution systems into their state retirement systems to increase investment risk-sharing between taxpayers and state employees.
When faced with a difficult choice as a child, my father would remind me of lyrics from the band Rush: “If you choose not to decide, you still have made a choice.” In Illinois, legislative inaction is a choice that continues to come at a very heavy cost.