Pension costs to consume 25 cents of every state-budget dollar in Illinois

The state’s 2016 pension cost is projected to increase to nearly $8 billion – or 25 cents of every dollar the state spends during the next budget year.

One of the most difficult hurdles facing Gov. Bruce Rauner and the new administration is stopping the state’s quickly growing pension payments from consuming an even larger portion of the budget. Illinois’ pension costs are slated to consume 25 cents of every dollar the state spends during the 2016 budget year. That means less money for the classroom, roads and public safety.

It’s no secret ballooning pension costs are a significant driver of Illinois’ budget woes. Each year the state’s operating budget has two types of pension costs: the General Revenue Fund, or GRF, pension payment and the debt service paid on previously issued Pension Obligation Bonds.

The state’s total GRF pension cost was $4 billion in 2010, or 13 percent of the state’s GRF spending. The state’s 2016 pension cost is projected to increase to nearly $8 billion – or 25 cents of every dollar the state spends during the next budget year.

Illinois cannot continue to follow this trend. And Senate Bill 1, the state’s recent lackluster attempt to reform the pension system, is currently tangled up in the courts.

If SB 1 makes it through the Illinois Supreme Court, the door is open to continue working toward the bigger, bolder reforms required to put an end to its pension crisis. But regardless of what happens to SB 1, there are reforms that avoid constitutional conflict that political leadership should pursue immediately.

Rauner can and should immediately propose a plan to enroll all new public employees in 401(k)-style, self-managed plans going forward. This move would avoid any constitutional conflict, as it would not impact benefits for current public employees.

At a minimum, Rauner should also allow current public employees to opt out of the current pension plan and enroll in self-managed retirement plans going forward. It’s unfair to force current public employees to participate in a nearly insolvent retirement system in which they have no voice, no control and no escape hatch.

Finally, Rauner needs to test the constitutionality of moving all current public employees into self-managed plans for future work, while protecting already-earned benefits.

These reforms alone will not solve the state’s $111 billion pension crisis. But they would stop the bleeding. And they would show that the new administration is serious about tackling the nation’s worst pension crisis.