Creative Commons, Patrick Emerson
Creative Commons, Patrick Emerson
Pension Reform

State of the State: Illinois

Governor Bruce Rauner recently delivered his annual State of the State address – seven months into a budgetary stalemate with Illinois legislators. The governor has tied budget negotiations to a series of reform measures designed to restore the Land of Lincoln’s economic competitiveness.

In his State of the State address, Rauner noted Illinois has already lost more than 300,000 manufacturing jobs in recent years – and factory workers in states like Texas are now more highly paid than Illinois workers.

According to the 8th edition of Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, Illinois’ economic outlook ranks a dismal 40th in the nation. It is no wonder so many residents have sought opportunity elsewhere – over the last decade, more than 600,000 have fled the state.

To reverse the exodus of people and capital from his state, Rauner wants to ease regulation and lower the cost of doing business in Illinois. The high cost of workers’ compensation, he said, is the single biggest driver of Illinois’ job losses. If this cost were just brought in line with that of Massachusetts – “hardly a bastion of conservatism,” as Rauner noted – it would save Illinois taxpayers over $300 million a year, while growing “more careers at higher wages.”

Another focus of the governor’s address was Illinois’ high level of property taxes, which Rauner said are “crushing homeowners and small business owners from one end of the state to another.” He urged legislators to embrace the findings of a task force led by Lieutenant Governor Evelyn Sanguinetti, which identified more than two dozen ways the State of Illinois could empower its cities and towns to reduce costs and ultimately lower property taxes.

Rauner additionally touted his administration’s pension reform plan, which aims to save taxpayers $2 billion a year. While these measures have stalled in the Illinois General Assembly, Rauner indicated a willingness to back less ambitious reforms that would save roughly $1 billion a year.

With a shocking $0.89 of every new education dollar outside Chicago now going to retirement costs, Illinois urgently needs public pension reform.  Otherwise, in less than a decade, Illinois will spend more – in absolute terms – on teacher pensions than it does on all of its downstate and suburban classrooms.

When the State Budget Solutions fair-market valuation is applied, Illinois’ total unfunded pension obligations amount to a staggering $332 billion – $25,740 for every man, woman and child in the Land of Lincoln. The state’s funding ratio, at 22 percent, is the nation’s very worst.

Given the severity of Illinois’ problems, now is the time for bold reform. In his State of the State address, Governor Rauner offered many ideas that, if enacted, would vastly improve Illinois’ fiscal solvency and economic outlook. It remains to be seen, however, if legislators are willing to meet the governor halfway.

In Depth: Pension Reform

Modern, 401(k)-style plans are now commonplace in the private sector. For state workers, however, traditional pensions are still the norm. As former Utah State Senator Dan Liljenquist wrote in Keeping the Promise: State Solutions for Government Pension Reform, this is not a partisan issue, but a math problem. State Budget…

+ Pension Reform In Depth