Illinois Budget

Fully Funding the Evidence-Based Formula: FY 2025 Proposed General Fund Budget

Release: May 14, 2024

Volume IX of the Fully Funding the EBF series continues CTBA’s modeling of fully funding the EBF to 90% of Adequacy. Volume IX uses the proposed Fiscal Year 2025 General Fund Budget appropriations for the Evidence-Based Funding formula, but uses a projected shortfall based on the ISBE EBF calculated shortfall for FY 2024 (released in August of 2023). The new release maintains the four scenarios, including the full funding model based on an increase of $500 million annually using Scenario 2: Funding the EBF on a Fully Inflation-Adjusted Basis, By Making a Nominal Minimum Target Level Increase Annually.

Updated: Illinois Teachers’ Retirement System and Tier II Pension Law: An Overview

Release: February 7, 2024

There is a growing consensus that the design of Tier II, which charges its members the same contribution rate as Tier I members, but pays a much lower retirement benefit, will be insufficient under the aforesaid federal Safe Harbor standards. This report has been updated to include small efforts that have been made to modify Tier II benefits and allow for Safe Harbor compliance within some pensions systems, though progress thus far has been insufficient.

 

Illinois Teachers’ Retirement System and Tier II Pension Law: An Overview

Release: October 30, 2023

Illinois state government has the responsibility to fund five public pension systems: the Teachers’ Retirement System (“TRS”); the State Employees’ Retirement System (“SERS”); the Judges’ Retirement System (“JRS”); the State Universities Retirement System (“SURS”); and the General Assembly Retirement System (“GARS”). The state’s pension systems are not in a good place fiscally. As of November 2022, which is the most recent data available, the state’s five pension systems collectively had $248 billion in liabilities, but only $109 billion in assets to cover those liabilities. This results in a funded ratio across all five state systems of just 44 percent.

In a poorly conceived attempt to reduce overall costs for the pension systems, legislators passed Public Act 96–0889 in 2010, which modified the Pension Code by creating a new tier of retirement benefits that were significantly less than the benefits payable under the state’s prior plan. Known as “Tier II,” these lesser benefits were applicable to all workers eligible to participate in any of the state’s five public pension plans that were hired on or after January 1, 2011. The concept of using a lesser benefit level to reduce overall costs in the state’s five pension systems was poorly conceived, because all the data show that plan benefits were not the driver of either the creation of the unfunded liability the state owes to its pensions systems, or the growing financial pressure that the pension systems are putting on the state’s General Fund.

Those lesser Tier II benefits created problems. For instance, it clearly is not equitable for the state to charge public workers the same contribution rate for lesser benefits than their peers receive. Of course, because their benefits are less than provided under Tier I, members of the Tier II system have less retirement security than their Tier I peers have, despite providing the same public services. On top of that, from a purely fiscal perspective, the design of the Tier II system will ultimately put Illinois in violation of the Federal Insurance Contributions Act (“FICA”) exemption. This exemption creates a “Safe Harbor” which allows state governments to be exempt from enrolling public sector employees in Social Security coverage—and hence paying into the Social Security system—but only if those employees are provided a “sufficient” pension package from the state claiming the exemption. There is a growing consensus that the design of Tier II, which charges its members the same contribution rate as Tier I members, but pays a much lower retirement benefit, will be insufficient under the aforesaid federal Safe Harbor standards.

The policy questions this raises for decision makers are varied, and include, at a minimum: how can Tier II be modified to provide a level of benefits that would satisfy federal Safe Harbor requisites, create retirement security for Tier II members, and help recruit high quality workers to the public sector generally and teaching specifically?

This report analyzes those questions using data from TRS, which is Illinois’ largest pension system by number of enrollees, liabilities, and asset holdings, and will provide:

  1. A breakdown of Federal Safe Harbor and Social Security Equivalence standards;
  2. An overview of TRS;
  3. An explanation of why Tier II benefits exist in Illinois; and
  4. A demonstration of how Tier II benefits are in violation of federal standards.

Fully Funding the Evidence-Based Formula: Volume VIII

Release: October 9, 2023

Volume VIII of the Fully Funding the EBF series continues CTBA’s modeling of fully funding the EBF to 90% of Adequacy, which aligns with the Illinois State Board of Education’s methodology. Volume VIII uses the new tier funding and the calculated shortfall based on the ISBE EBF calculated shortfall for FY 2024 (released in August 2023) as well as references Illinois Department of Revenue Corporate Personal Property Replacement Tax from FY 2019-FY2023.

Analysis of Illinois’ FY 2024 Enacted General Fund Budget

Release: August 31, 2023

On June 7, 2023, Governor Pritzker signed the General Fund Budget for FY 2024 into law (the “FY 2024 Enacted GF Budget”). This budget was markedly different than any previous one proposed by Pritzker and passed by the General Assembly—or any other Illinois governor and General Assembly dating back to Jim Edgar in the mid-1990s, for one, simple reason: Illinois’ General Fund is in the healthiest fiscal condition it has been for decades.

In fact, when it comes to the health of the state’s General Fund, things have changed dramatically since Governor Pritzker was first sworn into office. Back then in 2019, Governor Pritzker inherited an $8 billion backlog of unpaid bills from Governor Rauner’s Administration. That was significant, as it meant roughly 30 percent of all General Fund expenditures during Rauner’s final year as governor constituted deficit spending. Unfortunately, that was also nothing new, as Illinois had failed to produce anything close to a balanced budget in its General Fund at any time over the prior two decades plus.

Many of the structural fiscal flaws that created years of deficits remain in place. Which means Illinois decision-makers have the rare opportunity to consider reforming the state’s fiscal system not during a crisis—but while the General Fund is on an upward trajectory, with an eye toward building the capacity needed to sustain investments in core services over the long haul. The FY 2024 Enacted GF Budget analysis takes an in depth look at Illinois’ revenue and spending in the General Fund for the current fiscal year.

Pages