Each Illinois household can expect to pay more than $56,000 in additional future taxes to pare down debt

New government data show that Illinois’ unfunded government worker retirement debt has reached a record $267 billion, up from $203 billion in 2010.

That means each Illinois household can expect to pay more than $56,000 in additional future taxes to pare down that debt.

The debt includes nearly $190 billion in state and local pension shortfalls, as well as more than $56 billion in unfunded health insurance benefits for retired state workers.

Government worker pensions have been driving up Illinoisans’ tax bills for decades. As a result, Illinoisans now pay the nation’s highest combined local and state taxes, according to a March 14 WalletHub report.

In just the past six years, the total debt Illinois households are on the hook for has jumped to $56,000 from $43,000, or 31 percent. That’s a $13,000 increase for each household.

In reality, per household debt is much higher, as many Illinois households don’t have the means to pay $56,000 in additional taxes. That means the burden will disproportionately fall on a smaller number of middle- and higher-income households. Many of those families, faced with an even heavier state and local debt burden, may not stick around.

And that means even fewer households will have to shoulder Illinois’ $267 billion in state and local retirement debt.

Pension debt grows

Not surprisingly, state and local debt increases have come largely from growing pension costs.

Illinois’ pension funds continue to worsen year after year. In 2016 alone, the state pension funds reported their total debt had increased by $19 billion, despite record stock market levels and taxpayer contributions.

Illinois’ growing retirement debt is largely due to a jump in the state’s unfunded pension liabilities. The state’s pension debt grew by almost $50 billion – or more than 56 percent – between 2010 and 2016. That growth occurred despite the massive cash infusions of more than $40 billion state taxpayers paid into the pension funds over that period.

Illinoisans are also on the hook for over $56 billion in unfunded retiree health care liabilities.

Illinois must stop creating more pension debt

There’s little that can be done immediately to reduce the amount of retirement debt Illinois has already incurred, barring bankruptcy, major concessions from the unions, or changes to the Illinois Constitution.

The $267 billion will have to be paid down over time just like any other debt.

But as long as Illinois’ retirement systems continue to create new pension liabilities, the state will continue to create more and more pension debt.

That’s not sustainable for taxpayers, government workers or the state itself.

Moving away from pensions – and thereby stopping the growth in new pension debt – is essential.

Illinois can do that by moving new workers into 401(k)-style plans, and by giving existing workers the option to move to 401(k)s as well.

At present, that’s the only constitutional way to begin an end to Illinois’ pension crisis.

The state can transition from pensions to 401(k)-style plans as new workers are hired and older workers retire. As time passes, the threat of skyrocketing pension debts will decline.

The good news is Illinois doesn’t have to look beyond its borders for a successful 401(k)-style plan to emulate.

Since 1998, more than 20,000 state university workers in Illinois have been able to opt into a 401(k)-style plan instead of the traditional pension plan. Illinois’ lawmakers can begin to solve the pension crisis by simply expanding that 401(k)-style option to all state workers.

If they don’t, Illinois households can expect to owe even more than $56,000.

Ted Dabrowski

Vice President of Policy

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