Overruling public pension reforms enacted in 2013, the Illinois Supreme Court ruled the state’s constitution forbids lawmakers from reducing and suspending automatic pension increases and other benefit boosters promised to public sector workers.
There are at least 656 municipal and state pension programs in Illinois.
State Budget Solutions, a nonpartisan public policy organization focusing on local and state budget issues, estimates Illinois’ state pension programs’ unfunded liabilities exceed $330 billion, or about $25,740 per resident.
Illinois Policy Institute Vice President of Policy Ted Dabrowski says there are limited options for saving the state’s public pension programs.
“There are two things,” Dabrowski said. “One, something that can be done that isn’t in conflict with the constitution, is to move all new workers to 401(k) plans. This is already happening across the country, with Oklahoma the most recent state to do that.”
Benefitting Future Employees
Dabrowski says Illinois and local governments must negotiate with taxpayers’ and future employees’ interests in mind.
“But another thing is the need for tough negotiations,” Dabrowski said. “Clearly, it’s in the best interest of state employee unions, and certainly the workers’ best interest, to negotiate some change. If they’re not careful and municipal bankruptcy does become an alternative in some form, then cuts are going to be forced on workers by federal bankruptcy courts.
“Clearly, it would be better for the workers to control their benefits than to rely on the politicians who are running the pensions into the ground in the first place,” Dabrowski said.
‘What Not to Do’
Jonathan Williams, director of tax and fiscal policy at the American Legislative Exchange Council, says Illinois’ pension problems are a cautionary tale for other states.
“As we travel around the 50 states talking about different fiscal reforms, we always have to highlight Illinois, unfortunately, as an example of what not to do.”
Too Late for Reform?
Williams says Illinois’ pension problems will likely continue to worsen.
“It’s inevitable,” Williams said. “There may not be enough taxes that could be raised to pay for the unfunded liabilities at this point. … Not suggesting that you should either, but you’re already looking at skyrocketing tax rates across the board, and then of course the state becomes even less competitive with neighboring states, such as Wisconsin and Indiana, to which Illinois is losing individuals and business already.”
In 2014, 94,956 Illinois residents moved to other states. Chief Executive magazine’s annual survey of business owners’ opinions towards states’ business climates ranked Illinois as one of the worst states in the nation, ahead of only California and New York.
Williams says money for government services will be diverted to servicing pension debt.
“With looming cuts, many of these core services that Illinois residents have come to enjoy over the years are certainly on the chopping block, unless pension reform is enacted,” Williams said. “And that’s why the issue of pension reform should bring together Republicans and Democrats. Democrats that want to grow government are concerned that the pensions are going to crowd out other spending ideas, and Republicans and conservatives are concerned that taxes will go up to an uncompetitive level and you’ll reach the point where too many individuals and businesses will flee the state.”
Warner Todd Huston ([email protected]) writes from Streamwood, Illinois.
Robert Sarvis, Competitive Enterprise Institute, “Understanding Public Pension Debt: A State-by-State Comparison”: https://heartland.org/policy-documents/understanding-public-pension-debt-state-state-comparison/