By: Ted Dabrowski and John Klingner
Preliminary reports from Illinois’ state actuaries show the state’s pension shortfall worsened to a record $137 billion in 2019. The shortfall grew by nearly $4 billion despite the nation’s strong economy and record taxpayer contributions to the pension funds. The state’s total funded ratio stayed flat at just 40 percent. The data also shows the state’s total pension costs in 2019 exceeded $10 billion, the first time in state history.
The poor results highlight the long-term trend of rising shortfalls and increasing costs that have plagued the state for decades. Last year the state shortfall totaled $134 billion and pension costs equaled $9.4 billion.
Illinois’ official unfunded liability for the five state funds – for teachers, state workers, university employees, judges and lawmakers – has grown by $120 billion since 2000, largely the result of some of the nation’s fastest growing pension benefits. Illinois retirement costs now consume more than 25 percent of the state’s budget, the highest of any state in the nation.
The state’s 2019 pension shortfall increased even though Illinoisans poured more money into pensions than ever before. Illinoisans contributed over $10.1 billion to pay for state pensions and the debt service on pension obligation bonds. Pension costs have grown by 7 percent annually since 2011, more than four times the rate of inflation.
Data from the Commission on Government Forecasting and Accountability shows how pension costs have skyrocketed as a share of the Illinois budget. In 1996, pension costs consumed just 2.9 percent of the state’s general funds. Today they consume nearly 25 percent of the state’s $40 billion general fund budget.
When that budget statistic is compared to other states, Illinois jumps out as the nation’s extreme outlier. JP Morgan recently analyzed pension costs across all states and found no other state has the pension burden that Illinois has. Illinois’ quarter-of-budget consumed by retirements is even worse when compared to its neighbors. Kentucky’s retirement costs consume 13 percent of its budget – half of Illinois’ level. Indiana is at 6 percent. And Iowa’s costs are just 4 percent of budget, six times smaller than in Illinois.
Lawmakers and the unions blame Illinois’ current pension crisis on the underfunding of pensions. But Wirepoints’ research finds Illinois’ state pension funds are in crisis today because of 30 years of uncontrolled benefit growth, not a lack of taxpayer contributions. Those findings are in our report, Illinois state pensions: Overpromised, not underfunded.
A national comparison of more recent data from the Pew Charitable Trusts makes the point clear. Illinois’ accrued liabilities – its total pension promises – have grown faster than almost every other state in the country since 2003. Wirepoints’ 50-state analysis of pension promises showed Illinois had the 4th-fastest growing accrued liabilities of any state between 2003 and 2016. Those findings are in our report, Overpromising has crippled public pensions: A 50-state survey.
That growth in benefits has made it impossible for Illinois to escape the pension crisis. Investment returns and growing taxpayer contributions aren’t enough to fix things so long as politicians refuse to do anything about the growth in pension benefits and the overwhelming pension debt burden that’s already been accrued.
The need for reform
The legislature’s failure to pursue an amendment to the Illinois Constitution’s pension protection clause is perpetuating Illinois’ extreme outlier status and wreaking havoc on the lives of ordinary Illinoisians.
Illinois’ combined state and local taxes are the third-highest in the country. Real home values have shrunk, making Illinois one of the worst states in the country to own property. And all that’s driving people away. Illinois has the nation’s second-worst out-migration rate.
The state’s growing debts confirm what taxpayers already know: tax hikes and ever-larger taxpayer contributions won’t fix Illinois’ worsening pension crisis. Without a significant reduction in retirement debts, Illinois will continue to spiral downward and its residents will continue to flee.
Read more about Illinois’ state and local retirement crisis:
- Moody’s shows Illinois is nation’s extreme outlier when it comes to pension debts
- Illinois’ other debt disaster: $73 B in unfunded state retiree health benefits
- Illinois state pensions: Overpromised, not underfunded
- Overpromising has crippled public pensions: A 50-state survey
- Beyond Harvey: Many Illinois municipalities running out of options
Read all of Wirepoints’ major work on pensions here.
Collectively, the five pension systems have just 40 percent of the funds they need today to be able to meet their obligations in the future, the same as the year before. The university employee fund, SURS, is the best off of the five pension funds at 42 percent funded.
Most notable is the funding ratio of the General Assembly Retirement System which serves state lawmakers. It’s just 16 percent funded. It’s broke any way you measure it. Only a yearly bailout by taxpayers keeps that plan afloat.
Moody’s Investors Service, using more realistic assumptions, calculated Illinois’ pension debts at $241 billion in 2018.