Illinois’ public schools are caught in the middle of the pension crisis
Gregory Kearney, Joshua D. Rauh:
The results for Illinois were especially stark. In 2023, pension contributions absorbed on average of more than 21% of the portion of expenditures related to employees covered by the pension systems (this is spending on instruction, administration, operations and other categories directly linked to covered employees).That is the second-highest burden in the country. Since 2015, this share has risen by more than five percentage points. Adjusting for inflation, Illinois schools’ pension contributions increased by $1.9 billion over this period, while total associated education expenditures including those contributions grew by only $1.3 billion.
This has put growing pressure on other important education expenditures. If pension spending’s claim on the budget were still at 2015 levels — 15.3% — Illinois school districts would have had an additional $1.72 billion in 2023 to use for educational costs with a direct bearing on student learning — think salaries for new teachers, new classroom resources or additional support services such as counselors or teacher aides.
Worse, these numbers probably understate the actual problem significantly. This is because the funding ratios largely depend on optimistic investment assumptions embedded in pension accounting, with the state mostly assuming long-run returns of roughly 7%. And if actual returns fall short of the rosy assumptions, the state’s required contributions made on behalf of school districts will jump.
In our analysis, we addressed this uncertainty by re-estimating Illinois’ unfunded liabilities using market-based Treasury yields — a relatively conservative benchmark. The resulting change in the projection was substantial. Under this approach, annual pension contributions would need to increase from roughly $7 billion today to more than $15.7 billion. That would push the budgetary burden of pension contributions to nearly 37% of all covered employee spending.
