By Ted Dabrowski and John Klingner
The argument that “nothing is going to happen in Illinois until things blow up” got a major boost this week when the governor of the nation’s most fiscally upside down state said no to pension reform. Gov. J.B. Pritzker once again rejected calls to put a pension amendment on the ballot in 2020. Illinois’ constitution currently prohibits any reforms that “diminish or impair” pensions.
Never mind that Illinois has been in a credit rating free fall for more than a decade and is now just one notch from a junk rating. Or that Illinois is the nation’s extreme outlier when it comes to public sector retirement debts. Or that Chicago, Illinois’ economic heart, is in even worse shape.
A rejection of pension reform by Pritzker means Illinois will continue its slide toward insolvency.
Illinois’ retirement debts are already one-third of the state’s annual economy – the worst in the nation.
Ditto retirement costs as a percentage of budget. No state consumes more of its budget for pensions like Illinois does. At 26 percent of budget, Illinois’ pension burden dwarfs those of its neighboring states. Pension costs are crowding out everything in its way.
And Chicagoans are already drowning in pension debts – more so than residents in any other major city. According to Moody’s, each Chicago household is on the hook for nearly $140,000 in overlapping state and local pension debts.
Expect more Chicagoans to flee as tax rates jump to help pay for those debts.
Pritzker’s alternative to real reform is to simply pretend that tiny changes will somehow help the crisis. “There are a lot of other ways to address pensions, and we’re going to go after each and every one of them,” he said.
But Pritzker’s “lots of other ways” – which include buyouts and pension consolidation – will do little to nothing.
For example, Illinois’ pension buyout scheme, where workers give up future pension benefits in exchange for immediate payouts, has been an absolute failure. Illinois politicians originally projected buyouts would save the state save over $400 million in 2019. Actual results showed savings of just $13 million.
And while Pritzker calls his recent pension consolidation bill “momentous” – it’s anything but. The consolidation of assets for Illinois’ 650 downstate and suburban public safety pension funds only impacts $12 billion of Illinois’ $280 billion in official pension debts. That’s less than 5 percent of the total official retirement shortfall Illinoisans are on the hook for.
If you were hoping for some sort of sense from the governor in light of recent events – Lightfoot’s request for a state takeover of city pensions and his own consolidation commission’s warning about Tier 2 – any chance of that is clearly dashed.
Illinois path toward insolvency just got steeper.
Read more about Illinois’ worst-in-nation pension crisis:
- US stock markets up 200%, yet Illinois pension hole deepens 75%
- New 2019 pension reports: Illinois’ shortfall worsens to record $137 billion, pension costs exceed $10 billion for the first time
- Moody’s new report shows Illinois is nation’s extreme outlier when it comes to pension debts
- “Wealthy” Chicago households on the hook for up to $2 million in debt each under progressive approach to pension crisis
- Why Chicago’s Lightfoot should push for a pension amendment, not tax hikes