Pension Expert: Illinois Is “The State You Don’t Want To Be”
It takes time to create an unfunded pension liability of $111 billion. In an interview with Illinois Public Media's Brian Moline, Don Boyd with the Rockefeller Institute in Albany, New York, says the state of Illinois' pension system has been underfunded for a long time.
"Illinois has gone many, many years of paying far less than what actuaries recommend. It is not alone in underpaying its contributions, but it is an extraordinary outlier," he says. "Only New Jersey, I think, comes close in terms of the extent to which has chosen not to pay what the actuaries have requested."
Boyd explains how so-called "pension holidays" have crippled the pension system over time.
"The typical plan assumes it's going to earn somewhere around 7.5 to 8 percent a year. Some years they'll do better. Some years they'll do worse. Governments sometimes take their pension holidays after they've done better. The problem is there are undoubtedly years they'll do worse. If you take all the good news and spend it not making contributions, therefore allowing spending increases or tax reductions, that takes the good news, but bad news is bound to come."
He says the worst case scenario for Illinois isn't pretty.
"It's the state you don't want to be. There are a variety of worst case scenarios. They include significant tax increases, or significant service cuts, or significant infrastructure cuts, or some combination of all of those things, none of which is good for the economy."
Boyd says the state must find the money for that unfunded liabilty somewhere through a combination of increased revenue and spending cuts.
"The court was very clear that these pensions have to be paid. We'd all like to think you can solve these problems by eliminating waste and abuse. Undoubtedly in every government there's an opportunity for some of that, but not of the magnitude we're talking."