Illinois taxpayer contributions to state pensions skyrocket

Detroit’s recent bankruptcy is sending cities and states a warning: taxpayers shouldn’t be taken for granted. Unfortunately, Illinois’ long-term pension plan does exactly that. Springfield still believes that taxpayers are passive sources of revenue. While state worker contributions to Illinois’ five pension systems have gone up by 75 percent since 1998, taxpayer contributions have gone...

Detroit’s recent bankruptcy is sending cities and states a warning: taxpayers shouldn’t be taken for granted. Unfortunately, Illinois’ long-term pension plan does exactly that.

Springfield still believes that taxpayers are passive sources of revenue. While state worker contributions to Illinois’ five pension systems have gone up by 75 percent since 1998, taxpayer contributions have gone up by 427 percent over the same period. In 2012 alone, Illinois taxpayers contributed more than $3.5 billion more to the pension systems than state workers did.

Under the current system, Springfield expects taxpayers to contribute $385 billion over the next 30 years. That’s nearly $81,000 per household and more than four times what state workers are expected to contribute.

Illinois taxpayers bear brunt of increasing pension costs
Taxpayer vs. employee pension contributions, 1998-2045

Note: Pension systems include TRS, SURS, SERS, JRS & GARS
Source: Commission on Government Forecasting and Accountability, Annual Financial Reports of all five pension systems 2006, 2012

To make matters worse, $385 billion is an underestimate of the future taxpayer burden. This is because Illinois’ pension funds use overly optimistic assumptions in calculating their unfunded liability, including an expected 8 percent yearly investment return.

In order to calculate a more realistic unfunded liability, Moody’s Investors Service reported Illinois’ current shortfall using a new methodology. Under the methodology, which uses more reasonable investment assumptions, Illinois’ 2011 unfunded liability jumped 65 percent to $133 billion.

For 2012, the Institute – using Moody’s methodology – calculated that Illinois’ official $97 billion shortfall is set to top $200 billion. Such a drastic increase indicates that taxpayers will be looking at total pension contributions far beyond $385 billion over 30 years.

While Illinois’ pension obligations continue to build, Illinois is losing the taxpayers and wealth necessary to pay for them. Comparing 2010 to 2009, Internal Revenue Service data shows that nearly 41,000 more people moved out of Illinois than moved in.

And during the last 20 years, Illinois’ poor governance and lack of competitiveness have contributed to residents fleeing the state. Between 1995 and 2009, the state lost, on a net basis, more than 806,000 people to out-migration.

Detroit expected its citizens to cover for its mistakes. But when weary taxpayers packed their bags, the city of Detroit was left holding the bill. Illinois taxpayers want to see Illinois succeed – but everyone has a limit.