Illinois’ supersized pension problem
Illinois’ pension problem dwarfs the retirement problems in all other states. Officially, the underfunding of the five state-run pension systems total $100 billion. But when more realistic assumptions are used, the shortfall exceeds $200 billion. Without real pension reform, every Illinois household is on the hook for more than $40,000 in additional taxes just to cover...
Illinois’ pension problem dwarfs the retirement problems in all other states.
Officially, the underfunding of the five state-run pension systems total $100 billion. But when more realistic assumptions are used, the shortfall exceeds $200 billion.
Without real pension reform, every Illinois household is on the hook for more than $40,000 in additional taxes just to cover the shortfall.
The pension crisis is the major contributing factor to the string of 13 downgrades to Illinois’ credit rating since Gov. Pat Quinn took office in 2009. Illinois now has the lowest credit rating of any state in the nation.
In its latest credit report, Moody’s Investors Service highlighted just how out of whack Illinois’ situation has become when compared with the rest of the nation.
Moody’s reported that Illinois’ annual pension payments eat up 19 percent of yearly state revenues, compared to the 50 state median of just 4.1 percent.
Moody’s also reported the extent to which pension debt has overtaken Illinois’ budget. The ratings agency calculated that Illinois’ pension liability was 238 percent of state revenues in 2011. In contrast, the 50-state median was just 51 percent.
It’s no surprise, then, that Illinois is in the basement when it comes to credit ratings.
Unfortunately, the bills being considered by Quinn and the General Assembly do nothing to address the true size of the problem or the root cause of the pension crisis – the failed defined benefit plans.
Neither House Speaker Mike Madigan’s Senate Bill 1 nor Senate President John Cullerton’s Senate Bill 2404 offer any real structural reform. They don’t present a hybrid retirement plan like the one implemented by Democrat-controlled Rhode Island; there is no 401(k) option for new employees; and no optional 401(k) plans for those who want to exit the government-run system.
In fact, Madigan and Cullerton’s plans make things worse by introducing a pension-funding guarantee to prop up the failed defined benefit model. And that just means more taxes.
The Moody’s report highlights the need for a solution that is proportional to the size of Illinois’ crisis.
The Illinois Policy Institute has designed a plan that does just that.