Illinois lawmakers: Put pension reform on the 2020 ballot
Weeks after the Illinois General Assembly moved to put a progressive state income tax question on the November 2020 ballot, a Daily Herald investigation illustrated that an entirely different solution is needed to shore up the state's finances.
"Four years ago, 12,524 retirees were receiving more than $100,000 each in annual public pension benefits from six Illinois retirement plans. Now, that number is 21,794, a 74% increase in the number of recipients of six-figure public pensions in Illinois," reporter Jake Griffin wrote.
Of those, 17 will receive pensions of more than $300,000 apiece this year, including 10 former suburban school superintendents.
Griffin underscored that time will only make things worse. As the number of $100,000-plus pensions continues to grow, so too will Illinois' $137 billion unfunded pension liability. Official projections from the state show pension debt maxing out at $145.9 billion in 2028 and declining thereafter, but these projections are based on rosy assumptions that few economists or actuaries believe are realistic.
Because of these faulty assumptions, pension debt always grows faster than the state expects. Just four years ago the state projected that pension debt for this year would be $118 billion, $19 billion less than the state says it holds today. Moody's Investor Services, using more realistic assumptions about investment returns, says the state actually has $240 billion in pension debt. No matter how you slice it, Illinois' pension debt is overwhelming and will only continue growing.
Illinois doesn't need tax hikes - it needs pension reform.
The state spends more than 25% of annual general revenues on pensions and related costs. At the Illinois Policy Institute, we've crunched the numbers and found that to eradicate the liability, Illinois would need to double that amount.
A median Illinois family, one of the hundreds of thousands living in suburbs including Arlington Heights, Elgin, Aurora and Lombard - is typically composed of a married couple with two kids, and a $79,168 annual income, data show. That family already pays $3,712 in state income taxes annually. A tax hike that would make a dent in the state's pension problem would require a 50% increase, forcing them to pay $1,800 a year more.
A progressive income tax, such as voters will consider next fall, cannot solve the state's pension problem. Pension debt is growing too quickly. It would take an aggressive tax hike that hits that family hard to even make a dent in Illinois' pension debt.
But thoughtful, balanced reforms can save both pensioners and taxpayers.
A constitutional amendment that protects earned benefits but allows for adjustments in future, unaccrued benefits would allow the Illinois General Assembly to cut costs while responsibly eliminating the debt. This would secure the retirement benefits workers have been promised and also stabilize the pension funds so those promises can be kept.
Lawmakers, who are scheduled to return to Springfield in January, have months to add a different question to the November ballot for voters to consider. One that will, in the end, offer real relief to suburban families and pull the state out of its pension death spiral.
Families need security, not uncertainty. Until the Illinois Constitution is amended to address the state's pension crisis, instability is the only guarantee. And Illinois residents will continue to vote with their feet.
It's time to fix pensions, not hike taxes. Voters should be given the chance to do that on the 2020 ballot.
Adam Schuster is the director of budget and tax research for the Illinois Policy Institute, a nonpartisan research organization.