By: Ted Dabrowski and John Klingner
Wirepoints recently reported that the shortfall in Illinois’ five state-run pension funds failed to improve the past year despite the nation’s booming stock markets.
The government released a report showing the state’s unfunded pension liability barely dropped to $129.1 billion from $129.8 billion in 2016. That was despite above-market returns from the pension funds.
But the bigger story is how Illinois’ pension funds have collapsed – putting both state workers and taxpayers at risk – during one of the longest bull markets in history.
Since the end of the Great Recession, the S&P 500 index has recovered and grown by more than 200 percent, including reinvested dividends, to reach record highs.
At the same time, Illinois’ pension shortfall worsened by 65 percent, to reach $129.1 billion. In 2009, it was $78 billion.
Some of the growth in debt was due to the pension funds changing their actuarial assumptions, including a drop in assumed rates of return in 2016. Regardless, the systems’ overall downward trend is clear.
And the warning this trend provides is even more stark: if the state’s pension debts continue to worsen during a period of remarkable market returns, imagine how those funds will collapse when the next recession inevitably hits.
Not only will state workers’ retirement security be put at greater risk, but taxpayers will be forced to pour billions of extra dollars into the pension funds when they can least afford it. And those most dependent on government services will only experience further pain.
Taxpayers do their share
Not only have stock market returns been favorable for a recovery of Illinois pensions, but so have taxpayer contributions.
Illinois taxpayers have paid almost $24 billion more into the pension funds than Governor Edgar’s original 1994 funding ramp called for. In 2017 alone, taxpayers will contribute nearly $4 billion more than Edgar’s plan required.
In fact, taxpayer contributions have gotten so large they now consume more than 25 percent of the general fund budget of the state. Virtually every core government service in Illinois has been cut to make way for larger pension costs.
Which makes the thought of next year’s election season sobering.
The likelihood of a budget – let alone the passage of comprehensive pension reform – is very dim.
That means Illinois’ pension crisis is only going to get worse. And that’s bad news for every Illinoisan.