By: Ted Dabrowski and John Klingner
There’s a perfect demographic storm brewing in Illinois that threatens to take retirement security for government workers from bad to worse: Illinois’ boomer generation is hitting retirement age just as Illinoisans and their wealth are migrating out of the state at a record pace.
Without a growing workforce to fund the increasing demands of pensioners, expect pension solvency concerns – already the highest in the nation – to jump.
Illinois’ demographics are all moving in the wrong direction. The state’s natural increase in population (births minus deaths) is down by half since the turn of the century. So is international immigration. And the state’s population is shrinking, too, as evidenced by the recent U.S. Census and IRS out-migration data.
Meanwhile, the number and share of residents 60 years and older continues to grow. And the pension funds themselves are close to becoming upside down: soon many funds will have more beneficiaries in them than active workers.
All of the above means Illinois will have fewer workers to fund ever-larger pension demands.
Demographic-loser states like Illinois, Connecticut and New Jersey are seeing people and wealth disappear at the very time they need more residents and workers to help with their enormous pension debts.
In contrast, states that are winning the competition for people and incomes – like Florida, Texas and South Carolina – will have an easier time dealing with increasing pension demands. More working-age residents and more wealth will lessen the impact of growing pension costs in those states.
If Illinois lawmakers don’t flip the state’s bad policies on their head, the state will stay trapped in a downward spiral, one where growing government debts fall on a continuously shrinking population.
Couple that with already-high taxes and bad demographics, and Illinois pensions will be impossible for Illinois’ remaining residents to afford.
Illinois’ population loss and its worsening out-migration have gotten all the attention recently. Wirepoints has covered in detail the state’s six-year population drop as well as its record losses of wealth in recent years.
But what’s gotten less attention is the graying of the state – which follows a growing national trend. Illinoisans 60 years and older are expected to grow to more than 3.5 million people in 2030, or almost a quarter of the state’s population, according to the U.S. Census and Illinois’ Department of Commerce and Economic Opportunity.
That’s a marked shift from the start of the millennium when age 60-plus residents only made up about 15 percent of the state’s population.
Illinois’ elderly will continue to grow as a portion of the state’s population in part because the state is losing younger people.
Data from the IRS shows that Illinois has been a net loser of taxpayers aged 35 and under since at least 2012.
The state’s loss of college students has been going on even longer. Data from the National Center for Education Statistics (the latest available numbers are from 2016) shows that Illinois has been losing college students, on net, to other states for at least a decade and a half.
And as Illinois has lost its young adult population, it’s also experienced a decline in new children. Annual births have dropped from over 182,000 in 2000 to 144,000 in 2019. That’s a drop of 38,000 births, or 21 percent, since 2000.
It’s true that births have also declined nationally, but Illinois has been more deeply affected by that decline than other states. By 2019, the state’s births per-1,000-residents ranking had fallen to 30th in the nation, down from 11th in 2000.
The decline in births has reduced Illinois’ net natural increase (the difference between births and deaths) as well. Net natural increase added 73,000 new Illinoisans to the state’s population in 2000. But by 2019, Illinois’ net natural increase contributed less than 35,000 people to Illinois’ total population, a 53 percent decline compared to 2000.
Flipping pension membership
A falling and graying population means Illinois’ growing pension crisis is falling on a smaller base of taxpayers. That’s bad news enough.
But there’s another set of demographics that’s just as concerning: the worsening ratio of active government workers to pensioners.
Illinois pensions at every level of government are coming close to flipping upside down. There will soon be more pensioners receiving benefits from Illinois pension funds than active workers putting money into them. That will put an even bigger strain on pension finances.
According to Wirepoints’ analysis of Illinois Department of Insurance pension data, the active-to-beneficiaries ratio for the state’s five pension funds has declined to just 1.1 workers for every beneficiary in 2018 from 1.7 in 2005.
Chicago’s collective worker-retiree ratio has fallen to under 1.1 in 2018 from 1.4 in 2005.
And suburban and downstate public safety funds have seen their ratio fall to 1.1 in 2018 from 1.6 in 2005.
So it’s not just fewer taxpayers contributing to pensions, there are now fewer government workers contributing as well.
Illinois is losing younger people and its prime working age populations right as the state’s pension crisis is about to get even tougher.
Taxpayer contributions to the five state pension funds alone are set to rise an average of $400 million annually for the next 25 years – consuming a quarter of the state’s budget in the process.
And that’s just based on the state’s official, rosy numbers. According to Moody’s more conservative pension assumptions, annual taxpayer contributions will have to be billions higher just to stop the pension crisis from getting worse.
Considering the clear aging of Illinois and its general loss of people, it’s all the more striking that Illinois lawmakers’ “solution” to the state’s pension crisis is more taxes.
Additional gas taxes, property taxes and more licenses and fees – the list is long – have already been piled onto of what is one of the highest tax burdens in the county. On top of that, Illinoisans are also stuck with falling real home prices, a general lack of economic opportunity, and a political environment rife with corruption.
A state in demographic decline like Illinois can’t afford to drive more people away with an even higher tax burden. It would only make this state more unaffordable to those who live here and more unattractive to those thinking of moving here.
Read more about Illinois’s financial crisis and its history of out-migration:
- 93 of Illinois’ 102 counties have lost population since 2010
- New IRS data reveals winners and losers of wealth migration across 50 states
- New Census data shows Illinois lost population for the sixth year in a row
- Illinois’ demographic collapse: fewer immigrants, fewer babies and fleeing residents
- Leaving Illinois: Leaving Illinois: Does anybody care about people like us?
- Overpromising has crippled public pensions: A 50-state survey
- Why Warren Buffett is right to warn about Illinois: The state’s true retirement costs now total 50% of annual budget.
Cover photo credit to: geralt (pixabay.com)