NCPA - National Center for Policy Analysis

Illinois to Spend More on Pensions than on Education

August 13, 2012

The state of Illinois faces at least $83 billion in unfunded liability between its five pension systems, and is on track to spend more on its government pensions than on education by 2016, according to a new study released by Governor Pat Quinn's office, says Fox Business.

Illinois faces severe underfunding in its pension system.

  • It reported a funded ratio of 43.4 percent, far below the 80 percent considered healthy.
  • Based on fiscal 2010 data, Illinois had the lowest funded ratio of any state, according to a June 2012 report by the Pew Center on the States.
  • Among states, Illinois stands out for setting aside a huge 12 percent of its annual budget just for its chronically underfunded pension.

Credit rating agencies have threatened to lower the state's rating unless lawmakers ease the strain on the budget.

Meanwhile, Illinois joins New York, California and Maryland in having the highest state tax rates in the country. Illinois was dinged last year for boosting its taxes 67 percent.

Ideas for Illinois pension reform include capping abuses of government workers retiring as early as 55 years old and collecting nearly full pay every year; raising the age of benefits eligibility to a normal retirement age; and reducing the cost of living increases to pension payouts by one percentage point.

Meanwhile, Illinois government workers are entitled to solid state retirement health benefits. Illinois' gaping credit-default-swap spreads suggest market fears that the state will face an inability to service its bond debt.

Source: Elizabeth MacDonald, "Illinois to Spend More on Pensions than on Education," Fox Business, August 6, 2012.


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