Illinois’ number one fiscal challenge
The single greatest fiscal challenge which state government in Illinois faces today is our underfunded pension system. This is a crisis which was created over a long time, and it is going to take a lot of hard work to fix it. It is the primary issue which all sides need to come together and work on in the upcoming session of the legislature. The longer we delay, the worse it gets: the debt grows and the payments crowd out other important areas of state funding.
Our five state pension systems have been underfunded for many years, but the seriousness of the problem began to take off in the 1990s with the implementation of the “pension ramp” strategy. Under this plan, contributions to the pension fund would increase each year to keep up with benefits until the system was adequately funded. The largest payments were pushed off until many years in the future, when the vast majority of the policymakers who enacted this plan would no longer be in office. Those many years have now passed, and the future is here.
Over the intervening 25 or so years, politicians did not keep up their end of the deal. While obligations continued to rise, contributions did not keep pace. The best example is the “pension holiday” of the Blagojevich administration during which the state skipped a pension payment in order to fund other priorities. The state fell farther behind as the unfunded liability grew.
In 2010, legislation was enacted changing the pension system for new state employees hired starting in 2011, creating a less generous pension system that would save the state money going forward. This new “Tier 2” system used a different formula that would, in theory, help the state keep up with pension costs. But since it only applied to newly-hired employees, it would likely be many years before it had any real effect. The majority of pension costs at the time came from “Tier 1” employees: those who were already in the pension system.
Tier 1 pensioners were promised a compounding 3% annual cost of living adjustment, regardless of what the actual change in the cost of living might have been from one year to the next. That annual 3% raise has been seen by some as the primary driver of the pension funds’ move toward unsustainability. So, in 2013, two years before I took office, then-Governor Pat Quinn signed legislation raising the retirement age for younger workers and changing the flat 3% figure to a flexible amount determined by a formula. It was an effort to bring down pension costs, but it was ruled unconstitutional.
Article XIII, Section 5 of the Illinois Constitution declares that pensions in Illinois are “an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.” This means that once a pension benefit is earned, it cannot be cut. The 2013 effort was unanimously struck down by the Illinois Supreme Court which ruled that it violated that section of the Constitution.
Since then, the question of what to do about our underfunded pensions has been stuck in limbo. Every year, the issue is discussed in Springfield, and sometimes a new idea is considered, but the momentum stalls and, aside from a few small changes, wholesale progress does not get made. Meanwhile, in order to keep up with the growing obligations to pensions, a greater portion of the state budget is appropriated to pensions every year. Pension contributions currently take up 19% of the state budget – that is almost one dollar out of five. That means less money is available for public safety, schools, hospitals and the many other important priorities we have. Without reform, pension contributions will take up a greater percentage of the budget each year.
Our current pension debt is estimated to be $133 billion. To put this into some perspective: in the most recent fiscal year, Illinois collected $22.6 billion in personal income taxes and $8.9 billion in sales taxes. That means the pension debt is almost six times greater than the amount the state receives in personal income tax revenue in a year, and almost 15 times more than the total of sales tax receipts. The pension debt is more than three times as large as the entire state budget for this year. Given those figures it is hard to see any combination of tax increases or budget cuts that would address the pension deficit. The only answer is a wholesale reform of the system. That’s what we need to be working on when we return to Springfield.
The legislature returns for the fall veto session on October 28, and the new spring session starts in January. The pension crisis only gets worse every year that we fail to act on it. There are a lot of different ideas floating around. We need this to be the year we get serious and work together to come up with a solution before pension obligations crowd out even more vital state services.
How much do we owe?
In addition to our pension obligations, at the time of this writing, the State of Illinois owed $6,440,302,076 in unpaid bills to state vendors. One year ago, the backlog stood at $8.0 billion. This figure represents the amount of bills submitted to the office of the Comptroller and still awaiting payment.
Drive-thru flu shot clinic
Flu season is on the horizon once again, and the Livingston County Health Department, in cooperation with the Bank of Pontiac and the Pontiac Chamber of Commerce, is helping local residents get prepared by hosting a drive-thru flu shot clinic on Thursday. Stop by the main branch of the Bank of Pontiac at 300 W. Washington Street between 11 a.m. and 1 p.m. on September 26 for a flu shot. Nurses from the health department will be on hand administering flu shots and offering refreshments as well. Make sure to bring an insurance card and an ID. For more information, contact the Livingston County Health Department at (815) 844-7174.
Did You Know?
I recently visited with Ron Dudley of the American Legion Post 503 in Loda. At the Legion Hall is a historic 48-star flag, which was the national symbol from 1912, when Arizona became the 48th state, until Alaska was admitted to the union in 1959. On July 4, 1960, the current 50-star flag became official following the admission of Hawaii. It was this 48-star banner which our armed forces followed into battle in World War I, World War II and Korea.