Experts Seek Pension Solutions As Municipalities Shoulder Growing Costs

The Center Square

By Kevin Bessler

Illinois is ground zero for the pension crisis and municipalities across the state are looking for ways to deal with growing pension costs.

The state’s pension debt is the worst in the nation relative to the size of each state’s economy. Moody’s Investors Service projects unfunded liabilities in Illinois’ state-managed pension systems will grow to an all-time high of $261 billion for fiscal year 2020 as a result of investment losses caused by the COVID-19 pandemic.

The Teachers Retirement System and the other four state funds are largely funded by taxpayers through state appropriations. Actuaries estimate the cost to properly fund them equals nearly half of the state’s entire annual budget, but lawmakers follow a contribution plan that gradually increases annually.

Tyler Bond from the National Institute on Retirement Security said states and municipalities are turning to other forms of revenue to fund pensions.

“We have already seen a number of states look into using sports betting as a means of funding pension contributions or paying down unfunded liabilities within their pension systems,” said Bond.

Chicago is hoping a proposed casino will help fund police and fire pension plans, a city facing a half-billion dollars in public employee pension expenses over the next two years.

Dan Doonan from the National Institute on Retirement Security pointed to Indiana's pension plan. The state’s Teacher Retirement Fund was late to transition to pre-funding, remaining largely pay-go until the mid-1990s. A new TRF plan was created with the same benefit structure, but would be pre-funded from the beginning. This effectively “partitioned” the existing legacy debt in the pre-1996 TRF.

Hiking taxes is not a popular strategy with Illinoisans. Voters voiced their disapproval of that proposal in the November election when they rejected a proposal to raise revenue by switching from a flat to a progressive income tax.

Wirepoints CEO Ted Dabrowski says cities have been forced to find other sources of revenue.

“Raise new types of fees, pension fees like they did in Danville where they started raising water and utility fees,” said Dabrowski. “They are doing all kinds of things to find the money, yet they have no ability to actually reduce their pension costs.”

Dabrowski said Illinois cities are in a difficult position when it comes to pension contributions.

“It’s high time that the legislature actually allowed cities to either file for bankruptcy or reform their own pensions or their own collective bargaining laws because today they simply can’t afford the level of benefits that they have to pay out, and at the same time pay their active workers,” Dabrowski said. “They just can’t do both anymore.”

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