Sunday 26th May 2019

State senator warns day of reckoning is near as Illinois’ pension liability leads nation

State senator warns day of reckoning is near as Illinois’ pension liability leads nation

FILE - Illinois State Capitol
The Illinois State Capitol in Springfield, Illinois.

Yinan Chen | Wikimedia Commons


Illinois has the highest unfunded pension liability of any state, and a state senator says it’s because policy makers are making the wrong decisions.

Fitch Ratings agency put out their 2017 State Pension Update this week. It shows that Illinois’ pension crisis is the worst in the nation at more than $151 billion. That’s $60 billion more than second worst New Jersey’s liability.

“Six states have long-term liability burdens that Fitch considers elevated [in excess of 20 percent of personal income],” the report said, “with Illinois carrying the highest liability burden at 28.5 percent of personal income.”

Fitch Senior Director Doug Offerman said taxpayers should care because the burden takes up more than 28 percent of all personal income in Illinois, “which is essentially a proxy for the wealth level, the resource base of a given government.”

Some Illinois lawmakers have been warning for years that the pension liability is going to take up a quarter of every tax dollar the state brings in.

Fitch Ratings Senior Director Karen Krop said Illinois’ problem has gotten worse over the years with delayed payments, pension holidays, and even statutory ramps from the era of former Gov. Jim Edgar.

The recent income tax increase on individuals and corporations, bringing in an estimated $5 billion more a year to the state’s coffers, doesn’t seem to help the state’s massive liabilities, especially with other necessary spending, she said.

Lawmakers “did not over solve the budget in terms of bringing spending below the projected revenues,” Krop said.

This summer, over the governor’s veto, lawmakers imposed a $36 billion budget that spends every bit of the estimated $5 billion tax increase. Rauner’s office said the budget is already $1.7 billion out of balance.

“Pensions have been a rising demand on budgets but in most states, pensions are a much lower demand on budgets than other rising areas of demand, such as Medicaid and education in some places,” Offerman said.

Illinois also has to battle growing Medicaid costs along with the massive pension debt.

“For the last several years the [pension] increases did grow faster, and I would say do crowd out other spending that might have otherwise taken up organic revenue growth,” Krop said.

State Sen. Dan McConchie, R-Hawthorn Woods, said people are already fleeing Illinois because of its high tax burden.

“Whether it’s through their property taxes or because of the recent income tax increase, they just can’t afford to [stay here],” McConchie said. “This day of reckoning is fast approaching us. I don’t think we want to wait until the absolute last minute to try and do everything we can to really right the ship.”

Recent IRS data indicates that Illinois lost more than 40,000 wage earners on net in the 2015 tax year, following a trend of net losses year after year.

McConchie said the health of the state’s pension funds relies on policy makers who have a history of kicking the can down the road making pensioners nervous.

“And this is why certainly we need to have a safety net, but at the same time we definitely need to have the ability for people to control their own future and to control their own retirement,” McConchie said.

The solution is to move employees from politician-controlled defined benefits to to employee-controlled 401k style plans, he added.

Earlier this week, Moody’s Investor Services announced it is considering weighing pension debt more heavily when it evaluates a state’s credit worthiness. Such a move could make Illinois the first state whose bonds fall to junk status.

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