By: Ted Dabrowski and John Klingner
Not even the nation’s longest-ever bull market run has been able to save Illinois’ crumbling pension funds.
Despite a tripling in the value of the S&P 500 index since July 2009, Illinois’ pension shortfall has worsened by 75 percent during the same period.
In 2009, the shortfall in Illinois’ five state-run funds stood at “just” $78 billion. Today, the funding hole is at a record $137 billion, a $59 billion increase. That’s according to preliminary actuarial reports recently released by the state pension funds.
The warning this trend provides is stark: if pension debts in Illinois continue to grow during a period of remarkable stock market returns, imagine how those funds will fare when the next recession inevitably hits.
The state’s overwhelming pension costs are leaving no Illinoisans unscathed. The state’s total combined state and local taxes, adjusted for cost of living, are now the third-highest in the country, according to Wallethub. Home values, adjusted for inflation, are negative and bucking the upward trend in the rest of the nation. And core services are being cut to make room for contributions to the pension funds. Pension costs already consume more than 25 percent of the state’s general fund budget. No other state in the country spends that much on pensions.
At just 38 percent funded, only Kentucky (34 percent) and New Jersey (36 percent) have worse-funded pensions than Illinois, according to the Pew Charitable Trusts’ most recent state-by-state comparison.
Chicago’s pensions suffering even more
Chicago has suffered the same downhill trend as the state, but it’s problems are far more acute.
The city’s pension hole – what it owes to police, firefighters, laborers, municipal workers and teachers – deepened by 150 percent over the decade even as markets gained ground.
In 2009, Chicagoans were on the hook for about $17 billion in official pension shortfalls. Today, they’re on the hook for over $40 billion.
Several funds in Chicago are already in danger of running out of money entirely. The firefighter’s pension fund, for example, is just 18 percent funded. Its assets only cover a little over three years of benefit payouts.
The city’s police and municipal funds aren’t much better off, at just 25 percent funded. Without fresh contributions, both only have enough assets to cover about four years of benefits.
Current retirees will suffer from any collapse – their monthly pension checks could fail to arrive.
It’s important to note that the official numbers provided by state and Chicago officials above significantly understate the true pension shortfalls in Illinois.
Moody’s Investor Service recently released their 2018 calculations of state debt. Under the agency’s more realistic assumptions, Illinois owes over $241 billion in state pension debt – the most in the nation.
And Chicagoans – when you add up all of Moody’s calculated city, state and other local debts – are on the hook for $150 billion in overlapping retirement shortfalls.
A fool’s game
Politicians are trying to hang onto the status quo, hoping that massive tax hikes, whether its a progressive tax at the state level or higher property taxes in Chicago, will keep the plans afloat. It’s a fool’s game.
Illinois has shrunk four years in a row as record numbers of Illinoisans flee the state. Illinois has lost more people to out-migration since 2000 than any other state in the nation save New York.
Illinoisans are now on the hook for more government-worker pension debts than any other state in the country, and more than they can ever repay. But watch out. Without reforms that significantly reduce those debts, expect things to get worse. The burden will grow as more and more Illinoisans flee.
Read more about Illinois’ pension crisis:
- 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