Report: Illinois pension debt soars to $137B, despite record taxpayer contributions

Report: Illinois pension debt soars to $137B, despite record taxpayer contributions

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.

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 2021 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.

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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