Illinois, the adopted home state of President Barack Obama, will spend more on government workers’ pensions than education by 2016, according to a Fox Business report.
Illinois owes $83 billion in unfunded liability for its five pension systems, and the state is positioned to spend more on its government pensions than education, according to a report released by Governor Pat Quinn’s office, according to a Fox Business report.
A study by the Illinois budget office compiled by a “district-by-district analysis” shows if lawmakers don’t embrace comprehensive pension reform, students will have to take a back seat to government pensioners.
Governor Quinn released has called a special session of legislators to discuss pension reform on August 17, according to Fox Business.
The state’s pension programs are grossly underfunded Illinois faces severe underfunding with a funded ratio of 43.4%; a ratio of about 80% is considered properly financed. Based on fiscal 2010 fiscal data shows Illinois’ government pensions are funded at a lower ratio than any other state, according to a June 2012 report by the Pew Center.
Illinois sets aside 12 per cent of its fiscal budget to float the underfunded pension and credit rating agencies may lower the state's rating without reform, according to the report.
Illinois is already rated in the low one-letter A grades by Moody's Investors Service, which is the worst level among states it rates, according to the Fox report.
Illinois, New York, California and Maryland maintain the highest state tax rates in the country, and Illinois boosted its taxes 67% last year.
Studies show government workers receive far more than employees in the private sector when it comes to retiree benefits.
According to the Fox report, proposals for Illinois pension reform could mean capping abuses of government workers retiring as early as 55 that receive almost full pay, raising the age of benefits eligibility to a normal retirement age and reducing the cost of living increases to pension payouts by one percentage point.
Illinois’s ominous credit-default spread raises market pressure on fears the state will eventually not be able to service its bond debt.
“Under current actuarial assumptions, required state pension contributions will rise to over $6 billion in the next few years if no comprehensive pension reform is enacted, which will continue to result in significant cuts to education,” said the governor in a released statement.
“Fast-rising pension costs will cost downstate and suburban school districts far more than assuming the responsibility to pay for their compensation decisions over time,” Quinn said