In one year, Illinois’ pensions added more debt than 25 U.S. states’ entire budgets.
The Illinois Department of Insurance released its two-year report on every public pension in the state. From 2015 to 2016, Illinois’ 671 pension funds added $17 billion in additional unfunded liabilities, bringing it up to $185 billion. That one-year debt growth is larger than 25 state budgets in fiscal year 2016.
“It’s bad and it’s getting worse,” said Bill Bergman, director of research at Truth in Accounting.
The Teachers’ Retirement Fund is the state’s largest pension. At an estimated $71.4 billion in unfunded liabilities, it also carries the most debt. Director Dick Ingram says their main issue is that the older, Tier 1 pensions cost more than lawmakers paid into the fund.
“The albatross that’s still out there is the Tier 1 unfunded,” he said.
Historically, pensions were a way to attract workers, but the generous benefits that many say are no longer affordable, as well as years of “pension holidays” when lawmakers and local leaders didn’t contribute their share into the funds so they could spend on other areas, led to the unfunded liability.
“Whether we bought past service at the expense of future taxpayers is another question,” Bergman said.
To make matters worse, the $185 billion may be optimistically low. Public pensions often say they plan on getting much higher returns on stock investments than they really do. This difference in expected versus actual returns often increases the projected liability.
“This $185 billion, which went up $17 billion last year, is actually far understating the scope of the problem,” Bergman said.
In May, credit ratings service Moody’s estimated that the state’s pension funds alone have $251 billion in unfunded liabilities.
Illinois’ pensions are the least-funded of any state.