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Johnson: Pension debt state's financial albatross

The state’s financial health will deteriorate further unless state employee pension debt is addressed, the Illinois Agricultural Legislative Roundtable was warned last week.
Kay Shipman 
Published: Jan 31, 2012
“If we don’t deal with this (pension debt) issue, the other issues don’t matter,” reported Tom Johnson, president of the Taxpayers’ Federation of Illinois.

Johnson used sobering financial data to support his claim.

Illinois has the dubious honor of having the nation’s top unfunded state employee pension -- an estimated 38 percent funded. Current pension fund assets are not enough to pay for existing retirees let alone cover retirement benefits for current state employees, according to Johnson.

If current economic trends and pension formulas do not deviate, the state would spend 60 cents of every $1 in tax revenue collected for pensions by 2045, he noted.

Johnson calculated the state’s current total debt is $170 billion, including capital program debt.

Although the temporary 2011 income tax increases generated $7.3 billion, the state didn’t make any headway toward getting out of debt, he said. Instead, the current fiscal budget pushed $1.7 billion in Medicaid debt into fiscal year 2013 and overstated anticipated federal revenue by $800 million.

“So now we’ve got to do cuts. Where should we cut? Education (grades) K though 12? Higher ed? Human services?” Johnson asked.

One of the state agencies facing potential cuts considers the status quo to be a positive outcome. H.W. Devlin, acting state agriculture director, admitted the Illinois Department of Agriculture (IDOA) took budget hits last year, “but we’re still kicking.”
 
“If we can come out of the next budget cycle (as) stable without any significant reductions, we’d be happy,” Devlin said. “The governor . . . wants to see us do well . . . he has to balance all these issues.”

The increased income tax rates have raised the state’s average tax burden to 10.35 percent, above the national average of 9.32 percent, according to Johnson.

At the same time, the state’s average wealth has not kept pace and the average tax burden vs. average wealth is out of balance. Once that happens, “we may be overtaxing,” Johnson said.

The Taxpayers Federation supports legislative changes to the state employee pension system and an Illinois Supreme Court decision to determine any constitutionality question about those changes.

Johnson called for a re-engineering of state finances. The Taxpayers Federation is “going to put out ideas that will be shocking to some people,” he said.

“As we come out with some ideas, we’re asking for your open-mindedness. We have to do something. This is the No. 1 problem facing our state.”


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