Goodbye to Illinois’ $130 billion pension hole. Now it’s $133 billion. And getting deeper.
Sometimes the clearest warning about Illinois’ fiscal crisis can be communicated using numbers, sometimes with a well-chosen phrase. Here we present both, as reminders during the period before a new Democratic governor takes office with a Democratic mega-majority, that the state’s messes will only worsen. Until lawmakers take decisive action.
First, the awful numbers: For several years we’ve cited the figure of $130 billion to represent Illinois’ estimated unfunded pension liability. Never mind that number, it was $133 billion as of June 2018 — and it’s getting worse — according to a new state report. The Commission on Government Forecasting and Accountability estimates the shortfall in commitments to future retirees will deepen to nearly $137 billion in the current July-to-June year, and to $139 billion in fiscal 2020.
Now a choice word or several: Fitch Ratings in a new report says Illinois has exhibited a “lack of coherent fiscal policymaking over many years” and is guilty of “irresolute fiscal decision-making.” Over the years, lawmakers skimped on payments into the retirement kitty, or avoided making payments altogether, rather than being disciplined about putting enough money into the funds to pay for all the benefits they had promised.
Today, Fitch says, Illinois’ net pension liability plus other long-term debt represent 29 percent of the state’s personal income, the highest of any state (our emphasis) and well above the 50-state median of 6 percent. Oh yes, the annual operating budget — an astonishing one-fourth of which goes to pensions — is also a wreck: Fitch reminds us that about $2 billion of the $38 billion budget revenue is either unlikely to be realized or one-time in nature. Irresolute, indeed.
The costs of lawmakers’ recklessness are borne in many ways. Springfield raised the state income tax by 32 percent in 2017, and still Illinois can’t keep a balanced budget. The current fiscal year is about $1.2 billion out of whack. And despite issuing bonds to pay some unpaid bills, there’s still a backlog of about $7 billion in, yes, unpaid bills. The state is making payments to the pension system, although not as much as actuaries say is necessary, so the shortfall rises. The pension system, which includes government workers and many of the state’s teachers, should be 90 percent funded. Instead, it’s about 40 percent funded.
Illinois, under such intense financial pressure, has the worst credit rating of all states, which makes borrowing more expensive. Employers and residents who aren’t tethered to Illinois have reason to consider going elsewhere before the reckoning comes, in terms of either much higher taxes to pay off all these debts or serious declines in government services. Or both. We imagine that’s one reason Illinois’ population is declining, and why major employers like Amazon choose to locate elsewhere.
Next month, Gov.-elect J.B. Pritzker will take office alongside the Democratic-controlled General Assembly. Once he’s on the job, we’ll be eager to hear his plans for maneuvering Illinois through the thicket. We’ve heard him talk about raising revenue by shifting the state to a progressive tax rate that can extract more money from higher-income earners. That idea strikes us as no panacea. It’s easy to demand more money from taxpayers. It’s also easy to continue borrowing money. Both would weaken the state, and then weaken it further by driving employers elsewhere.
The solution requires a combination of raising revenues (preferably by increasing the number of private-sector workers), cutting expenses, and introducing regulatory reforms to encourage business owners to invest and hire in Illinois.
If budgets are balanced, tax levies are fair, and employers can anticipate the costs of doing business as well as the benefits, Illinois will prosper. Otherwise, the liabilities will keep rising: $133 billion, $139 billion … And the standard of living in Illinois will decline.
This guest editorial was written by the Chicago Tribune Editorial Board and has been featured by many publications across Illinois.