Illinois’ Two-Headed Beast: Pensions and Infrastructure

It is no secret Illinois faces significant financial challenges.

A new Policy Brief [PDF] by the Illinois Economic Policy Institute discusses the costs of unfunded pension liabilities and infrastructure deficits in Illinois.

Full Report: Illinois’ Two-Headed Beast: Unfunded Pension Liabilities and Unfunded Infrastructure Needs

The primary contributor to Illinois’ debts is its massive unfunded pension liability. As pension benefits increased with inflation and economic growth, state politicians put off annual payments and miscalculated funding needs. Today, Illinois has $130 billion in unfunded pension liabilities. Without a change to the state’s Constitution, the state will have to increase revenue by $3.03 billion annually to cover pension contributions over the next decade.

But politicians have created another financial pothole that is equally as bad as the pension crisis by under-funding infrastructure improvements. Since 2002, legislators have swept and diverted over $6 billion from Illinois’ transportation infrastructure funds since 2002, contributing to Illinois receiving a “C-” infrastructure grade from the American Society of Civil Engineers (ASCE). Without a change in federal funding, the State will have to increase revenue by $2.75 billion annually to maintain and modernize its infrastructure over the next decade.

Add in the current general fund deficit, and Illinois faces a $11.38 billion annual deficit. To pay off pensions, invest properly in infrastructure, and continue to pay for essential public services, the State needs $11.38 billion in additional annual revenue.

annualdeficitsIL.PNG

Together, pension contributions, transportation and water infrastructure needs, and the almost year-long budget impasse have plagued Illinois with high uncertainty. The costs of continued inaction are economic stagnation, further job and population loss, threats to public safety, increased environmental risks, and cuts essential government functions such as education.

Recently, Illinois residents took a positive step in voting for the Safe Roads Amendment, which constitutionally guarantees that all revenues raised from transportation-related taxes will be used to fund transportation infrastructure projects. Small and midsize road-building construction firms in Illinois are buying more equipment and supplies and hiring more employees due to the Amendment. However, while the Amendment is a positive step, significantly more revenue will still be needed to close the $2.75 billion annual infrastructure funding gap.

Now it’s time for Illinois’ politicians to have the political courage to take actions that are in the best interest of the state over the long run. Making necessary sacrifices today would improve the economic prospects of Illinois, improve the state’s credit rating, save jobs, and create new opportunities through public investments.

Illinois must tackle its two-headed beast.

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