A False Choice in Illinois
This Friday, the Illinois General Assembly will convene a one-day special session to address the state’s overwhelming pension liability. Illinois faces a pension funding crisis of at least $83 billion by conservative estimates, and that number increases by $12.6 million per day according to the governor’s budget office. The nonpartisan Illinois Policy Institute puts the unfunded liability at more than $203 billion when local pensions as well as state and local bonds and health care benefits are included.
The General Assembly appears to have chosen to avoid the hard decisions, and will consider a bill to make minor changes to only two of the state’s five pension programs, and to avoid the municipal unfunded liability entirely. The only pension reform bill currently on the table would require active and retired state legislators and employees to choose between a guaranteed 3 percent cost of living adjustment, or continued access to health benefits in retirement (current contracts provide both). This meager proposal is projected to save $30 billion over 40 years, far short of the liability gap.
Governor Pat Quinn has been pushing for a more comprehensive package that includes the teachers’ and universities’ pension systems, which represent a surprising 75 percent of the pension liability, but despite being released in April, has not been offered as legislation before the General Assembly.
Unfortunately, neither of these proposals addresses the core problem: the continued reliance on defined-benefit pensions and health insurance. In ALEC’s State Budget Reform Toolkit, the authors recommend states freeze the defined-benefit programs, and move new employees to defined-contribution plans, such as 401(k)-style accounts. Indiana has saved millions of dollars by offering employees Health Savings Account (HSA) plans, which give employees greater control over their health costs, while encouraging saving and investment.
In the next fiscal year, Illinois’s contribution to retirement benefits will consume an astounding 39 percent of the budget. This is a serious problem that will require tough decisions in equal measure.