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“We cannot solve our problems with the same thinking we used when we created them.” – Albert Einstein

19% of Illinois’ Budget Goes to Pensions, and That Number is Going UP

Upward ArrowBack in June I wrote a post pointing out that in fiscal year 2016, a full 19% of the Illinois’ budget was allocated to contributions to its 5 pension plans. That was then.

This is now. A new report from the Commission on Government Forecasting and Accountability (COGFA) released in November states that the pension contribution for fiscal year 2017 will increase by $291 million from the current year, and will consume 24% of Illinois’ general revenue budget.

Doug Finke of the Springfield Journal Register reports:

“The increase is substantially less than the $681 million increase in pension contributions that were required this year. It is also substantially lower than the nearly $1 billion annual increases seen in 2013 and 2014.”

To read Doug’s article, you would think that a mere $291 million increase is something to celebrate. After all, it’s only a fraction of the billion dollar increases seen in 2013 and 2014. But reading further brings the bad news:

“But while the increase for next year isn’t as steep, the total contribution is still a concern…The issue is the state contribution is about 24 percent of the general fund (outlays),” [COGFA Executive Director Dan] Long said.”

Does anybody think that if the state didn’t have to pay 20% of its total budget outlays to its pensions, it would have anywhere near the budget crisis it has today?

Things aren’t going to get better any time soon, either. As required by Public Act 94-0004, in determining the required State contribution under State law, the State’s actuary must determine what level of future contributions is needed to make a projection of the System’s funded status in 2045 be at 90%. According to the COGFA report, the State’s contribution to the 5 state pension plans (based on the funds’ 2015 valuation) will increase from $7.9 billion in fiscal 2017 to $17.3 billion in 2045.

Consider that last sentence. The state’s contribution to the pension plan 30 years hence, based on what we know now, is 220% higher than this year’s contribution, which takes up 24% of the state’s general revenue budget. Even if this projection does nothing more than track inflation, the state will ultimately become nothing more than a giant pension plan that performs incidental state services. I don’t know about you, but to project beyond the next election is a fool’s game, let alone 30 years down the road.

And what if the pension plans aren’t underfunded by $111 billion, as COGFA states in its report? What if the underfunding is 2 or even 3 times that amount, as some economists are saying? We’ll discuss that in the next post.

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