“Membership in any pension or retirement system of the State, any unit of local government or school district, or an agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.” — Article XIII, Section 5, of the Illinois Constitution, added in 1970.
Gov. J.B. Pritzker couldn’t help but gloat a little earlier this summer when Illinois’ worst-in-the-nation credit ratings got their first upgrade in over two decades. Under Gov. Bruce Rauner, as Pritzker noted, the state endured punishing downgrades that raised borrowing costs and dimmed the business outlook.
The Illinois economy finally is doing better and now, when the state is in a position of relative strength, is the time for pension reform.
Unless the state curbs growth of its unfunded obligations to retirees, its credit rating is doomed to fall again. We will face higher taxes, lower services, weak job creation, continued population loss and the real prospect of government pension funds running out of money to pay full benefits.
The future of the state depends on reform, and for many Illinois residents, it’s personal. One in 10 adults in the state belong to a public pension system. They, especially, should be demanding change to stabilize their financial futures. Instead, their union bosses continue stonewalling and Pritzker, having taken a bow for the short-term progress he is making, appears content to allow a slow-motion disaster to unfold on his watch.
As readers of this page know, politicians created this mess years ago by promising much more than they’ve delivered. For decades, the state has failed to contribute the amount needed just to stay even with its obligations to public employee retirement systems.
It still uses gimmicks to mask the truth: The pension funds rely on bloated estimates of how much investment income they’ll earn in the future. Participants pay in an unrealistically tiny fraction of what their benefits are worth. Plus, the state has set its minimum funding goal at only 90% instead of the obvious 100%.
While he lauded the short-term rating upgrade, did Pritzker tell Illinois retirees the state’s not even trying to make good on everything they’re owed? Of course not.
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The official numbers show the funds are down $144 billion — and sinking — but the reality is far worse. Using realistic projections, Moody’s Investors Service, the same agency that just upgraded Illinois’ credit rating, said the state’s five public employee pension systems are a whopping $317 billion short of what’s needed. Add to that the billions more in unfunded obligations from smaller-scale pensions at the local level, plus more billions for retiree health care.
At the rate it’s going, Illinois won’t ever be able to tax its way out of the problem. The numbers are too big for that and getting bigger. To those who believe Uncle Sam will save us: Why would the 49 other states, including those that took action to address their underfunded pensions, bail out the one state that won’t face reality?
As in decades past, the current leaders of Illinois do not want to do what needs to be done: The state must amend a provision added to its constitution in 1970 that has made real progress practically impossible. When Gov. Pat Quinn took a run at reforming pensions, the Illinois Supreme Court smacked down even his modest reforms, citing this same Article XIII, Section 5. In 2020, a measure to amend the constitution filed in the General Assembly to allow for reducing future benefit growth went nowhere. It needs to be revived, and voters given the opportunity to approve it so that the future cost of benefits can be reduced.
This is an especially good time to act. After years of decline, Illinois is getting a boost as the national economy improves and a friendly administration showers federal money on the state. The latest credit rating upgrade shows Illinois can do better than it has. It can do right by its retirees and taxpayers if it takes advantage of this temporary upswing to attempt some commonsense reforms and set the table for a brighter future.
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