Illinois Is Ground Zero for the Pension Crisis
It's not just Illinois, but Illinois Is Ground Zero for the Public-Sector Pension Crisis.
It seems [no, it is] not only unfair, but also unreasonably costly, to force hundreds of millions of Americans to shoulder a burden that has nothing to do with them.
Only 4 percent of Americans working in the private sector have access to a defined-benefit pension plan as their sole form of retirement security. The rest of us must rely on some combination of 401(k)s, hybrid plans, or Social Security.
The Prairie State’s pension debt is the worst in the nation relative to the size of each state’s economy. Moody’s Investors Service estimates unfunded liabilities in Illinois’ five state-managed pension systems at $230 billion for fiscal year 2019, equal to about 26 percent of gross domestic product. Moody’s also projects that the debt will grow to an all-time high of $261 billion for fiscal year 2020, owing to investment losses in markets riled by COVID-19.
Hiking taxes or otherwise throwing more money at the current pension system will not solve the problem. Illinois spends more of its revenue on pensions than any other state in the nation but also has the largest gap with respect to what it would need to pay without reform. Voters recognized that income tax hikes are the wrong strategy when they soundly rejected a proposal to raise revenue by switching from a flat to a progressive income tax on the November 3 ballot.
Many of the toughest problems facing Illinoisans stem from this crisis, leaving their home state at the bottom of too many “best” lists and at the top of many “worst” lists.
- The second highest property taxes in the nation, leaving someone with a home valued at the median price of $187,200 paying $4,299 per year in property taxes, according to WalletHub.
- The second slowest growth in home values since the Great Recession.
- The second most debt per taxpayer according to Truth in Accounting, at $52,000 per state taxpayer.
- The “least friendly” total state and local tax burden for the middle class, according to personal finance site Kiplinger.
- The largest raw population decline over the past decade, with the high state and local tax burden the most common reason residents say they want to leave.
Problem With Tiers
There is much more to the article including a discussion of pension tiers.
Those hired before before the 2010 reforms are in tier 1. All groups have excessive benefits but tier 1 is outrageous. Teachers average $2.3 million.
The average tier 1 retiree makes $2 million in retirement.
Illinois’s courts will only allow changes that affect new workers, declaring the benefits of current workers and retirees off-limits, including even the future growth rate of benefits for work not yet performed.
The solution is not pension reform, or higher taxes, but rather bankruptcy reform.
Serious pension reform will not happen unless and until bankruptcy reform happens first.
Pensions are not sacrosanct in bankruptcy. But courts will will rule they are until then.
Bankruptcy negotiation happens at the Federal level, not the state level. But states can opt out.
Illinois is one of the states that did opt out.
Bush did not try, nor did Trump, to fix this at the national level.
Of course, the matter would not even come up under Obama. He made negative progress on union and pension reform.
At the state level, many cities would immediately declare bankruptcy, if only they could. These cash-strapped cities desperately need to shed impossible to pay pension obligations.
If illinois Governor JB Pritzker was serious about fixing the pension mess, he would promote bankruptcy reform.
But he won't. He is another corrupt governor beholden to corrupt unions.