Illinois's Fiscal Breaking Points
40 Pages Posted: 7 Sep 2018
Date Written: October 2011
Illinois has run a structural deficit for over a decade [as of the date of this paper, October 2011]. The state’s unfunded pension obligations are $173 billion, with the fund projected to run out of assets by 2018. Illinois’s Other Post Employment Benefits (OPEB)—largely consisting of health care benefits for public workers—are only 0.1 percent funded, with a liability of $43.9 billion. The state’s ongoing budget shortfalls and rising liabilities are compounded by the fiscal distress in Cook County, where the treasurer estimates that the county’s municipal governments face a combined debt of $108 billion. Further compounding the issue is the fact that the City of Chicago’s unfunded pension liability is $48.8 billion or $42,000 per capita.
This paper begins by examining key fiscal indicators in Illinois and then takes a deeper look at spending drivers within the budget, including Medicaid and the state’s pension system. This is followed by a discussion of the budget rules that guide policymakers in determining their effects on Illinois’s spending. The paper then discusses Illinois’s tax structure and recent reforms intended to stabilize the state’s finances and spur economic activity. The paper concludes with a series of recommendations, listed in order of those likely to have the greatest effect in improving both the fiscal and economic outlook of the state.
Keywords: Illinois, Chicago, budget, employment benefits, pensions, municipal government, state government, deficits, unfunded liabilities
JEL Classification: H2, H7
Suggested Citation: Suggested Citation