By Matt Paprocki | Illinois Policy Institute
Does Illinois finally have a path to public pension reform?
Barrington Township recently placed a nonbinding resolution on the Nov. 5 ballot that serves as a meaningful first step.
The referendum reads as follows:
“Do you support constitutional pension reform to protect workers’ existing retirements and generate savings which could provide property tax relief or be reinvested in the community?”
Illinois’ worst-in-the-nation pension crisis shouldn’t come as a surprise. For years economists have been sounding the alarm that Illinois’ pension problem is growing from financially painful to potentially unsolvable. Now, taxpayers are on the hook for $212 billion in unfunded state and local pension liabilities.
Not only is Illinois’ pension debt the largest in the U.S. as a percentage of the state’s gross domestic product, but Illinois’ government pensions also are the second-worst funded in the nation at 49.5%.
Illinois’ pension spending has grown significantly since 2000, outpacing other categories. Since then, pension spending has increased by more than 584%, while total spending grew by 21% and many vital services to the state’s most vulnerable were cut by 20%. Rapidly growing pension spending still can’t keep up with the growing gap in what’s been promised to government retirees.
What does that mean for residents and businesses in Illinois?
While decades of fiscal mismanagement by lawmakers largely is responsible for Illinois’ current pension predicament, residents and businesses have been forced to cover the growing costs. Those costs become higher property taxes: as pensions eat more state spending — currently $1 of every $5 — schools and other local governments boost property taxes to replace dwindling state dollars and cover their own pension costs.
Residential property taxes in Illinois have increased 215% since 1996. Illinois residents now pay the second-highest property taxes in the U.S. Additionally, Chicago has the second-highest commercial property tax in the nation.
High taxes are pushing people out of the city and out of the state. Population levels in Chicago are the lowest they’ve been since 1920 and the state has lost more than 250,000 residents since the pandemic.
Residents also are hurt by the effect of high taxes on businesses, which provide jobs. High taxes are bad for business. The greater Chicago area has lost seven major companies in recent years, which means thousands of Illinois jobs are headed to states with lower taxes.
It’s a vicious cycle. Pension debt eats up finances that would be used for goods and services. To keep up and avoid cutting services, lawmakers raise taxes. Residents and businesses, overburdened with high costs, flee the state and worsen the burden for those who remain.
Experts describe pension funding ratios that fall under 60% as deeply troubled and warn ratios below 40% are likely past the point of no return. Illinois at 49.5% is at great risk of reaching that point of no return. That means pensions are at risk for our public employees, and remaining Illinoisans face the threat of massive new taxes.
Now, more than ever, the state needs meaningful pension reform.
Of the eight states that enshrine public pension benefits in their constitutions, Illinois is the state that has had the most difficulty when it comes to funding its pensions. In 2013, a series of bipartisan reforms that would have addressed many of the problems were passed, but ultimately rejected by the Illinois Supreme Court as unconstitutional.
A pension reform plan originally developed by the Illinois Policy Institute — based loosely on those bipartisan 2013 reforms — would help eliminate state and local unfunded pension liabilities and achieve retirement security for government pensioners without taking away current benefits. But to implement these, or similar, necessary reforms and solve the pension problem, Illinois needs to change its constitution.
Polling shows a majority of Illinoisans support constitutional pension reform. However, legislators across Illinois have refused to give residents the opportunity to vote on the issue. Without legislative action, a constitutional amendment to reform pensions won’t get on the ballot.
Which is why Barrington Township’s referendum, while nonbinding, is so important.
Local townships giving residents the opportunity to declare their concern about the issue tells lawmakers how important it is to take up pension reform at the state level.
More municipalities throughout Illinois should follow Barrington Township’s example.
Enabling voters to voice their opinions on much-needed pension reform is the first step toward solving the pension crisis and ensuring financial security for pensioners, businesses and residents in Illinois.
– Matt Paprocki is the president and CEO of the Illinois Policy Institute.
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