The best and worst examples of public pension oversight

As of fiscal year 2017 the state of Illinois had $134.3 billion in unfunded pension benefits, up from $62.4 billion in 2009. The 2017 Illinois figure is higher than all five of its neighboring states and the 50 state average. In fact, Illinois' promised benefits are more than double the combined unfunded pension liabilities of those five states. These staggering figures make it all the more curious that the Illinois state legislature and Governor Pritzker recently reversed the decision of the previous legislature and Governor Rauner to cap final year pay raises for teachers prior to retirement at 3 percent, reducing the cap from 6 percent. Teacher pensions in Illinois are determined by final year salary, so reverting to the 6 percent cap boosts unfunded pension liabilities by billions of dollars annually.

Kentucky's level of unfunded pension benefits is also alarmingly high. Matt Bevin has spent most of his tenure as governor focused on pension reform. Yet, the AP reported in February that Kentucky is $54 billion in debt, with 80 percent of that ($43.3 billion) attributable to unfunded pensions. All of this may sound like boring policy talk, but it will determine whether or not the states our children and grandchildren live in will be fiscally stable enough to patrol highways, staff elementary schools, and cleanup after natural disasters. These are the most basic functions of government.

Wisconsin was not included in the chart above because its level of unfunded pension liabilities is only $260 million, a figure too small to visibly appear on the bar graph. When Governor Scott Walker took office the Badger State was facing a $3 billion budget deficit. Then Walker signed the fiercely controversial Act 10, which significantly reformed the state's pension structure and restricted collective bargaining rights. Five years later, the MacIver Institute reported that Act 10 saved taxpayers over $5 billion. In fairness, Wisconsin's unfunded pension benefits were only $20 million in 2009 before he took office, but Walker's reform still closed a massive hole in the budget that enabled him to allocate over $2 billion in direct tax relief. Contrary to the shoddy math of Illinois lawmakers, the supposedly balanced budget they just passed has a real deficit of at least $4.9 billion. I'm sure Scott Walker would be happy to offer some friendly advice.

Michigan, Alaska and Oklahoma were also financially strained by pension obligations, so they took a different approach and transitioned to 401k style retirement programs for their state employees. When Oklahoma Governor Mary Fallin signed her state's pension reform bill in 2014, she argued that it provides career flexibility to state workers and mitigates the problem of unfunded pension liabilities. The system, which became effective in 2015, requires all new state employees to contribute a minimum 3 percent of earnings and matches their contributions up to 7 percent. When these workers find new jobs, they can take their 401k money with them which allows them more mobility.

Jason O'Day is an online marketing and social media intern at Truth in Accounting, a nonprofit organization based in Chicago that researches government financial data