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.

Worsening demographics

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.

*Chart updated to reflect 2013 numbers available in DOI’s 2017 pension report.

So it’s not just fewer taxpayers contributing to pensions, there are now fewer government workers contributing as well.

Increasing costs

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.

Downward spiral

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:

Cover photo credit to: geralt (pixabay.com)

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What’s with the dip in number of both actives & retirees in 2013?

For the downstate plans, if that’s not clear.

Andrew Szakmary

The compound annual growth rate in required state contributions to the pensions between 2019 and 2045, according to your chart, is roughly 3.2%, which is likely lower than the growth rate in nominal GDP. Moreover, the contribution growth rate after 2045 will likely be much lower still because by that time most of the new pension beneficiaries will be Tier 2 and the Tier 1 folks will be passing away. In what way is this unsustainable?

debtsor

Yes, every professional who has looked at Illinois’s pension issues, that’s every bond issuer, every analyst, every actuary, every accountant, all of them, they are all wrong, because guess what, Andy says its sustainable! Hey guys, the math and finance guys are ALL WRONG, Andy says everything is OK! Andy says we are NOT ranked 50 out of 50 in fiscal health, because ANDY SAYS SO!, go andy, go andy, go andy! Andy gets a pension from the state, there’s no way HE thinks its unsustainable, he thinks IL can afford to pay its retired government employees EVEN MORE!

nixit

So for the next 25 years Tier 2 pension benefits will not be enhanced? They were already enhanced for safety personnel.

Astonished

Andrew, do me a favor and try to BANK that GDP.
Are you aware how GDP is calculated? Perhaps you don’t realize that when Uncle Sam borrows a trillion dollars and spends it, that trillion is COUNTED as GDP but the debt issued is NOT backed out of the calculation. GDP isn’t like a balance sheet or even a P&L. The entire premise was created to fool those who find large abstractions challenging.

Willowglen

Andrew – I can’t follow your assertion. A 3.2 percent in contributions is a tough hill to climb. Especially since that estimate, if I am reading correctly, is based on state numbers and not the realistic ones provided by outfits like Moody. Moreover, the health care benefits are pegged at over 70 billion? How is this sustainable with a budget of around 40 billion annually? I am also not sure of the connection between contributions and national GDP, but even if there is one, isn’t one of the rational inferences that can be drawn from the article that due to… Read more »

MikeH

Perhaps he’s the one on Capfax who insissted that math is for Republicans….

s and p 500

This is like the movie “Venom”, in that scene were Tom Hardy turns into the parasite that eats up the thug who is trying to collect protection money from the Chinese lady in the grocery. The Chinese lady is more surprised than horrified and Hardy says “I’ve got a problem with a parasite”. There is a big parasite on Illinois’ budget and that parasite is unfunded pensions. The parasite is bigger than the entire budget so it’s going to get harder to ignore.

Hank Scorpio

Kudos to Ted, John, and Mark for aggregating and presenting this data. Your efforts are appreciated. I just wish you got more mainstream attention.

riverbender

As most Democrats will tell you that issues like these “are some other generation’s problem.” This all will be an inheritance to our children and grandchildren thanks to the Illinois Democrats.

Poor Taxpayer

The only answer is a U-HAUL. The best day is the day you leave and never look back. Send Post cards to all your friends in Illinois and say Don’t You Wish you Were Here?
83 and mostly sunny in South Florida, Zero Income taxes. Laughing all the way to the bank

Benicia

Illinois needs a wall.

Astonished

Two things: This predicament CANNOT be fixed by importing a literally “new people” (immigrants) to shoulder the taxes. It is beyond obvious that replacing the “children of Americans who weren’t born” with waves of culturally alien peoples is cultural and civilizational suicide. Mass migration of the last several decades is a symptom of decay, not a solution to it. Second, your article needs a very minor edit: In the second-to-the-last paragraph, “county” should be “country.”

Astonished

Ever wonder why we don’t all speak Ancient Greek? Do Ancient Greek historian Polybius’ words from 2000 years ago sound familiar to us in our time? “In our time all Greece was visited by a dearth of children and generally a decay of population, owing to which the cities were denuded of inhabitants, and a failure of productiveness resulted, though there were no long-continued wars or serious pestilences among us. If, then, any one had advised our sending to ask the gods in regard to this, what we were to do or say in order to become more numerous and… Read more »

debtsor

Well, I consider myself a well read but not professional or even amateur historian but this is not true, or, your information was old. The ancient greeks were not replaced: https://www.thenationalherald.com/181104/modern-greeks-dna-similar-mycenaeans-minoans-study-finds/ ” According to a recent study of DNA from ancient Mycenaeans and Minoans, scientists have discovered that most of the genetic code is similar to that of modern Greeks.” That’s 5,000 years of history right there, same people, similar language. Polybius if I remember correctly was a Greek hostage of the Romans from a powerful family (and he grew up in some pretty powerful Roman circles too) so when… Read more »

Astonished

I stand corrected, although I prefer a different (and simpler) nuance: what is Greek today and long ago turn out to be more heterogeneous than I understood. Will you allow a more recent support for my premise (that combining a culture yielding low births and open immigration promises Very Bad Things for MY descendants) in South Africa’s experience? Birth rate differential plus black immigration made it impossible to maintain the successful, First World governing system of SA, and no matter how Utopian and well-intentioned, the handover of rule from whites to blacks in SA is yielding disaster (a first world… Read more »

Mike Williams

The state needs more money and it will find a way to get it from you. The public sector has declared war on the private sector and the private sector is unarmed. So what can the private sector do? As in any war, the options are either fight, surrender, or hide. Now, let’s put this in perspective. On one side we have the private sector rabbit. On the other side we have the public sector cobra. For the rabbit, fighting is hopeless as it can’t win. If the rabbit surrenders, the cobra will enjoy an easy meal. The best strategy… Read more »

DOUG

Well said!

Astonished

Mike, what is “the public sector?” Are doctors, nurses, pharmacists, med techs, etc., private, when 80% of their funding comes from Medicare/Medicaid? Are those who work for Raytheon, Lockheed-Martin and the innumerable firms whose primary “customer” is Uncle Sam private or public employees? What about the legions of people who work for “non-profit” or ostensibly non-government social service providers? My point is that most jobs today are not ADDING to the goods available in the private marketplace. Most simply redistribute the loot. This “economy” is a metastatic cancer fueled by the false belief that debt (IOU’s) is synonymous with wealth.… Read more »

Rick

He was referring to who’s property taxes are paying for their pension. A health worker in a hospital that gets a lot medicare billing doesn’t have a pension coming out of my property taxes.

James

I hear both of you, but I have two things to mention neither of you have addressed. First, the reality of life in our country is that nearly everyone pays for every other person’s pension. When your company pays their portion of your Social Security tax as your employer the cost gets passed along to its customers. The same idea applies to their matching contributions to your 401 plan. The customers are paying that as well. Secondly, when you rail against public employee pensions in Illinois the actual amount going towards pension benefits each year is roughly only 25% of… Read more »

Conn

Where are you getting your information from? Illinois carries few bonds on its books. 75% of the long term liabities are from unfunded pensions. There is nothing normal about it.

nixit

An employer’s Social Security tax and their matching 401k contributions are factored into that employee’s overall compensation too. That 75% going toward pension interest payments was borrowed from operational budgets which were used to fund employee compensation at that time. You could say that any increases in wages or health benefits when full pension payments were not being made were merely loans from future employee compensation. There is a common misconception that, if full pension payments were made, that there would have been no negative impact on compensation.There is absolutely no way that is possible. So when do current employees… Read more »

Mike Williams

I stand by my opinion. The public sector is at war with the private sector. The public sector weapon is the ability to tax to fund their excessive, overly generous salaries and pensions. The private sector weapon is the ballot box. In other states, this is a powerful weapon. For various reasons I won’t go into here, the Illinois ballot box weapon in Illinois is unable to fight back against the taxation weapon.

Astonished

True enough. My point was to highlight that few people are not in some way benefiting from tax-system redistribution of wealth, and that borrowing (including underfunded pensions, public or private) is enabling a lot of rationalization and stupidity. The power to tax is the power to destroy. IL’s system is a perfect test of this ancient axiom. It is obvious that politicians will not turn this supertanker from its collision course with insolvency. Taxes cannot take that which does not exist. Tax income and people reduce it. Tax property value and watch it decline (toward zero.) Take things directly and… Read more »

Freddy

Mike-Good analogy! The private sector are made up of individuals while the public sector are made up from units aka unions. The private speaks with many individual voices but are rarely heard but the public sector speaks with a collective voice which is only heard by the politicians they put into office. The sheep herders (unions) only care about their sheep and do not care about the lone cattle roaming around. If the private sector organizes we could become a stampede of buffaloes which could easily trample sheep and cattle alike.

a-nony-mouse

I live in NorthEastern Illinois. I would like to disagree with your entire comment.

But I can’t. You, Sir, are 100% correct.

DantheMan

Obviously, some groups in Illinois are going to screwed over (please pardon the language). For now, it’s just the taxpayers. Later, it will be the people receiving pensions in addition to the taxpayers. The only questions that matter now are when and how much.

Astonished

Your point boils down to V. I. Lenin’s famous dictum: “Who, whom? Who is doing what to whom?” This is an excruciatingly ugly reality. While Illinoisans partied in the complacency that rests on Americans like a mind-numbing blanket, a pandemic of “Bad Ideas” spread, infecting people with what amounts to collective insanity. The rot is so deep that few people even see it, and it’s gone on for so long that most think this is a permanent condition. It’s not.

riverbender

How true unless the politicians find a way to capture the welfare benefits of the fastly expanding free stuff army.

Astonished

Money is fungible. Welfare is DEFINITELY going to “legal” weed, which is taxed to the hilt. Ditto the lottery, which is just state-run gambling that mostly preys on the ignorant poor.