Illinois receives quite a bit of attention these days, almost always critical. If it weren’t so well-deserved, I’d start feeling persecuted. In this instance the editors of the Wall Street Journal point to a recent study of public employee pensions:
In a novel analysis, the Illinois-based policy outfit Wirepoints compared the growth of state pension liabilities relative to state GDP and fund assets. Most studies have examined “unfunded†pension liabilities, which is the difference between current assets and the present value of owed benefits. But this obfuscates the excessive pension promises that politicians have made.
According to the study, accrued liabilities—how much states are on the hook for—between 2003 and 2016 grew more than 50% faster than the economies in 28 states and more than twice as fast as GDP in 12 states. Leading the list are the usual suspects of New Jersey (4.3 times faster than GDP), Illinois (3.23) and Connecticut (3.18), as well as New Hampshire (3.46) and Kentucky (3.08).
Between 2003 and 2016, New Jersey’s pension liability ballooned 176%. Unions blame lawmakers for not socking away more money years ago, though lower pension payments helped them bargain for higher pay. The reality is that New Jersey’s pension funds would be broke even had politicians squirrelled away billions more.
Ditto for Illinois, where the pension liability has grown by 8.8% annually over the last 30 years. Yet when the Illinois Supreme Court in 2015 blocked state pension reforms, the judges rebuked politicians for inadequately funding pensions. The solution, according to unions, is always to raise taxes. But no tax hike is ever enough because benefits keep growing faster than revenues.
It probably didn’t help that the Blagojevich Administration had a very bad habit of withholding payments into the state’s public employee pension funds and using the proceeds to increase public employees’ wages, thereby reducing the state’s ability to pay and its liability at the same time.
That 8.8% per year over 30 years is an eye-opener. I’d like to have received that. I haven’t received a raise in four years and I get the impression that annual increases are a thing of the past. Illinois’s situation is particularly aggravated because the state’s population is declining. Every year fewer people are responsible for paying higher state expenses.
I’ve phrased this problem a little differently. I think that the demands of public employees for higher wages need to be moderated based upon the ability to pay of the communities they serve. It makes not a whit of difference if a teacher, police officer, or clerk could make much more money as a lawyer working for a top law firm, a physician, or a financier working for Goldman-Sachs. Sidley Austin and Goldman-Sachs aren’t paying their salaries and pensions and there’s no way to enlist them in doing so. The dwindling populations of Chicago, Peoria, and Rockford are.
