Illinois pensions: Overpromised, not underfunded

The unions, politicians and civic groups all say that the state – and by extension, taxpayers – has failed to put enough money into government-worker pensions to keep them solvent. That story has been repeated so often it’s become the accepted cause of Illinois’ pension crisis.

We’ve always been suspicious of that claim given the power of Illinois’ public sector unions, the willingness of politicians to appease them, and the generosity of Illinois’ pension benefits.

As it turns out, we were right. Illinois’ pension crisis isn’t due to too little money in the pension funds. Instead, over-generous pensions handed out by politicians are what’s bankrupting Illinois.

Promised pension benefits are now more than 1,000 percent higher than they were in 1987.

Those benefits are overwhelming the state’s economy and taxpayers’ ability to pay for them.

Not normal

Total pension benefits have grown at an annually compounded rate of 8.8 percent over the past three decades, or 1,061 percent in total.

That’s six times more than the state’s revenue growth over the same time period, eight times more than median household income growth, and nearly ten times more than inflation.

That’s not normal. Don’t let any politician or union official tell you otherwise.

Illinois’ pension growth is an outlier. Benefits grew the third-fastest of any state between 2003 and 2015, according to data we analyzed from Pew Charitable Trusts. Only New Jersey and New Hampshire pensions grew faster.

What they don’t want you to know is that Illinoisans have already put their fair share, and more, into pensions.

Pension assets, buoyed by taxpayer contributions, have grown 7.2 percent a year for three decades, or 644 percent in total. They’ve grown five times more than household incomes over the entire period and nearly six times more than inflation.

And between 2003 and 2015, Illinois pension assets grew the seventh-fastest in the nation.

That’s not surprising given that Illinois taxpayers have put $24 billion more into pensions compared to what Gov. Jim Edgar’s 1996 pension plan originally called for.

If pension benefits had simply grown at the more moderate rate of 5.4 percent – still more than twice the rate of inflation – from 1987 on, Illinois pensions would be fully funded today. There would be no crisis.

Politicians and unions should stop trying to guilt Illinoisans into paying more to pensions through ever-higher taxes. The real problem is, and always has been, the enormous growth in benefits.

If Illinois is to regain control of its finances, retain its taxpayers and grow its economy, pension liabilities need to be cut.

But with recalcitrant unions and an inflexible constitutional clause standing in the way, lawmakers must employ new tactics. They can freeze salaries, reduce headcounts and cut the subjects of collective bargaining in order to reduce future payouts.

Illinois’ government unions will then have a choice. They can either negotiate with lawmakers to restore those cuts in consideration for a reduction in pension benefits, or they can live with the changes.

But make no mistake, those changes won’t end the crisis. Irresponsible increases in benefits leave no choice but to cut benefits further, which will require either a constitutional amendment or federal bankruptcy.

Obstacles to those options are a discussion for another day, but for now it's time to end the narrative that forces ordinary Illinoisans to shoulder the entire burden of fixing the pension crisis.

It's only fair.