Report: Illinois likely to see high public pension debt go higher

Forecasts predict Illinois public pension debt will grow despite the funds having one of their best investment years ever in 2021.

Stock market woes are expected to increase public pension debt nationwide, but Illinois will get hit harder, according to a new report from the Reason Foundation.

Illinois wrestles with the worst pension crisis in the nation. While it has 3.8% of the country’s population, it carries 15.5% of the nation’s pension debt.

Under a 6% loss for 2022, Illinois pension debt would grow to $142 billion from $121 billion, which Reason experts used as the debt despite it being a market rate snapshot in 2021 that changed the next day. An actuarial analysis in 2021 placed the pension debt significantly higher, but would be more accurate because investment returns from multiple years are averaged. Reason calculated a 6% loss would be far from the worst-case scenario: They reported a 12% loss would balloon the market-rate pension debt to nearly $153 billion.

Moody’s Investors Service has an even grimmer projection of pension debt, pinning the real number at $313 billion – and that estimate was before recession worries started driving down the markets.

Ryan Frost, policy analyst for the Reason Foundation, said Illinois’ record pension investment gains from 2021 are about to evaporate.

“Just a minus-6% return basically eliminates all the gains they made from last year, and it puts them on the same poor funding track that they were on before last year,” Frost said.

The authors’ main conclusion: lawmakers need to address public pension debt.

“Going forward, state and local leaders should continue to seek out ways to address and minimize these risks, making their public retirement systems more resilient to an uncertain future,” the report stated.

Pension debt would continue to grow under Amendment 1, a proposed change to the Illinois Constitution on the Nov. 8 ballot.

Amendment 1 would grant public unions in Illinois more extreme powers than they have in any other state, costing Illinoisans an extra $2,100 in property taxes.

Amendment 1 would do so by permanently cementing more union power in the state constitution. More union power to make demands means higher taxes to pay for those demands.

Rather than amending the state constitution to drive up property and other taxes, Illinois should amend it to allow changes to future growth in the state’s public pension systems. The Illinois Policy Institute has a plan that protects both retirees and taxpayers.

When the economy is down and investments fail to keep up with pension demands, taxpayers are left to fill the hole.Illinois’ elected leaders must back pension reforms before the plans start failing retirees or drive up taxes and drive out more residents.