Chambers for Pension Reform
Illinois is at Risk of a Financial Freefall. Real Reform is Needed Now
It is no secret that there is a fiscal crisis in Illinois.
The Comptroller recently estimated that the state has $8.5 billion in unpaid bills. Moody’s cut the ratings on Illinois’ bonds to the lowest of any state. Not only is the state’s budget unbalanced year over year, but according to the Illinois Commission on Government Forecasting and Accountability, Illinois has the worst funded public pension system in the United States. A recent study by the respected Civic Federation found that unless Illinois takes dramatic action to reform its spending, the state will have a staggering $34 billion in unpaid bills in just five years.
This financial distress risks the viability of nearly every function of state government. It also has a terrible impact on employers in the state, whether they are a vendor waiting months to be paid or a business owner that has become convinced yet another tax increase is certainly on its way.
Our Public Pensions, the $83 Billion Problem
To fund the retirement of working and retired public employees, teachers, civil servants, university professors, judges, and even state elected officials, Illinois needs approximately $146.5 billion. However, Illinois’ public pension systems only have $63.3 billion on hand; which leaves $83 billion of its retirement obligations unfunded.
How did Illinois get into this mess? The crisis did not happen overnight, but over the last 15 years of over promises and underfunding;
- Illinois government underfunded and/or skipped annual payments to the pension systems,
- Illinois elected officials enhanced retirement benefits without the funding to back them up,
- Increased life expectancies of public employee retirees,
- Lower than expected investment returns on public pension system assets,
This year, taxpayers will put $4.9 billion dollars into the five systems. This amount only covers the amount of pension payouts to be made this year and does not reduce the unfunded liability. Next year, the scheduled payment increases to $5.8 billion and increases every year. In 2020 the payment totals $7.5 billion.
To put this in perspective, Illinois will have to spend approximately 20% of its annual tax revenue to fund public employee retirement and that percentage is projected to increase to nearly 50% by 2045. Clearly, this path is fiscally unsustainable. Pension costs will crowd out spending on education, public safety, transportation and nearly every government service except interest on our debt. We cannot allow this to happen and must act now.
The Illinois legislature took a step in the right direction in 2010 by reforming the pension benefits for new public employee hires, saving the pension systems billions. However, it did not go far enough. Our pension problem is so large and immediate that we can’t wait for gradual savings from new hires.
In order to truly bring long-term solvency to the public pension systems, legislators need to reform future retirement benefits earned for current working public employees. Current employees and retirees would see no changes to the benefits they have already earned, but benefits moving forward must be reformed to sustainable levels. Only then will the public pension systems be on a path to long-term fiscal stability.
Opponents of pension reform often cite the Illinois Constitution, which guarantees pension benefits, as the reason real reform is unachievable. There is general agreement that the legislature and governor cannot retroactively change benefits already earned. However, whether the Constitution allows altering of benefits to be earned in the future is not a settled question and common sense dictates that they certainly should.
Chambers of commerce and their members realize the importance of this debate and need for action. Chambers for Pension Reform is a statewide coalition intent on providing grassroots support for the issue, something that has not been strong enough to date. Read our Chambers for Pension Reform policy position paper ; something all employers are encourage to sign on to and support. Click here to sign the online petition