SPRINGFIELD — A new report by the credit rating agency Moody’s says Illinois will set a new record this year when it reports a total net pension liability of more than $300 billion, the highest of any state in the nation.

As of June 30, 2020, the report stated, the total unfunded liabilities of the state’s five pension systems stood at $317 billion, a 19 percent increase from the prior year. That was largely due to historically low interest rates, which have depressed pension fund earnings throughout the country.

With the state’s gross domestic product, or GDP, estimated to have fallen 2.5 percent in calendar year 2020, that pension liability amounts to roughly 37 percent of the state’s total economic output, up from a range of 28-32 percent over the previous four years.

When combined with other long-term liabilities, including retiree health care and bonded indebtedness, Moody’s estimates the state’s total liability ratio will amount to 48 percent of GDP for the fiscal year 2021 reporting cycle.

The report says that 80 percent of the increase is attributable to falling interest rates, but weaker-than-expected investment performance also played a role. The Illinois Teachers’ Retirement System, the largest of the five pension systems, reported investment returns of just 0.52 percent during the reporting period, far below its target of 7 percent.

“Illinois is an outlier among states both for fiscal challenges from pension expenses and for its limited capacity to modify the benefit packages that drive these expenses,” the report states. “The state allocates about 30 percent of its budget to retirement benefits and debt service, a ‘fixed-cost’ ratio more than three times the median for states, and its constitution gives public workers some of the most ironclad retirement benefit protections available.”

The report goes on to say that the amount that the state contributes to its pension funds is actually far less than what is needed to prevent continuing growth in their unfunded liabilities. Under current law, the contribution amounts are set each year at a rate aimed at achieving a 90 percent funded ratio by 2045.

The report also notes that Gov. JB Pritzker’s proposed budget for the fiscal year that begins July 1 lacks any broad plan to address the state’s pension debt. But it also gave him credit for not suggesting the state scale back on pension payments over the short term to alleviate fiscal pressure brought on by the COVID-19 pandemic.

In a separate report to the state’s Commission on Government Forecasting and Accountability, or COGFA, the consulting firm Moody’s Analytics, a subsidiary of Moody’s Corp., said the state’s fiscal condition could hamper its ability to recover smoothly from the recession.

“Weak public finances mean Illinois will have to make extraordinary fiscal adjustments that leave it playing catch-up in the next business cycle,” the report stated. “Population loss and troubled state finances will limit Illinois’ long-term potential.”

The report says the state’s economy is expected to start recovering in earnest around mid-year and the unemployment rate should be under 6 percent by the end of the year, which would be in line with the national average but higher than other Midwest states.

How quickly the economy recovers will largely depend on how quickly the COVID-19 vaccines are delivered and how quickly the U.S. population as a whole achieves “herd immunity,” which is currently projected to happen by the fall.

“The economy should quickly kick into an extended period of strong growth as people shed their fear of getting sick and get back to doing what they did before the pandemic,” the report stated.