The Illinois Supreme Court recently ruled that the state’s 2013 pension overhaul was considered to be unconstitutional according to the Illinois constitution. This is a major blow for the efforts of many politicians attempting to chip away at the state’s estimated $111 billion pension shortfall, which is one of the largest deficits nationally. It is estimated that 25 cents of every dollar from taxpayers goes to the pensions funded by Illinois. This overruling serves as a huge win for many public sector unions in Illinois, but is also a set back from new Governor Bruce Rauner who is facing a significant budget deficit.
The proposed amendments would have reduced retirement cost of living adjustments for retirees while raising the retirement age for younger workers entering the workforce. It also proposed a cap on income that qualifies for the pension calculation. Some estimated that this would solve approximately $22 billion of the current $111 billion deficit that faces Illinois taxpayers. The new regime proposed moving to a 401(k) type of system over time to alleviate the budget pressure on the state.
The difficult financial environment of the government has led to Illinois leading the nation for people leaving the state over the last several years to declare residency elsewhere. Based on census reviews for 2012, Illinois had a net migration of approximately 39,500 residents as compared to Michigan (second place) with 11,000. With a building budget deficit and a smaller population of taxpayers, Illinois will be faced with some difficult decisions to find a solution moving forward.