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Some may disagree, but I believe that this pension
“crisis” the state finds itself in right now is almost
completely bogus — and, because Gov. Rod Blagojevich has called what
looks to be a never-ending special legislative session to deal with this
problem, I figure I’ll weigh in.
The 1994 law that supposedly solved the
pension-funding issue is not some holy writ handed down from on high. It
was originally designed to make sure that the state’s various pension
systems were 90 percent funded by 2045. Both of those numbers are viewed by
editorial writers, political reporters, and many politicians as somehow
sacred. They aren’t. They’re simply figures essentially pulled
from a hat 13 years ago by a governor, Jim Edgar, who knew that he
wouldn’t have to pay the price during his tenure.
The multibillion-dollar ramp-up in pension payments
the state budget has been experiencing over the past few years (caused by
Edgar’s bill but that didn’t begin until Edgar was safely out
of office) is eating the budget alive. If nothing is done soon, all of the
state’s natural revenue growth will be diverted solely to pension
payments and Medicaid. It’s a frightening prospect, to be sure.
If Illinois were a small private corporation in danger
of going out of business, then the 90 percent funding levels would be a
good thing. The 90 percent level would ensure that no matter what happened
to the company, worker pensions would be almost perpetually self-funding.
But Illinois is neither a small corporation nor in
danger of going out of business, and the Illinois Constitution requires
that state employees receive their promised pension payouts no matter the
condition of the state’s finances. A more reasonable figure of 75 or
80 percent would likely still guarantee a reasonable level of health while
not breaking our bank accounts now.
And what’s with this 2045 number? Well, it
looked good in 1994. The bill took effect in 1995, so a 2045 goal was
exactly 50 years away. That’s a nice round number, to be sure, but as
far as I can tell it has no real actuarial validity.
What we need right now is not necessarily a lottery
lease or a new pension-bond scheme, as the governor has proposed. Instead,
that 1994 law ought to first be revisited and revised. Is a 90 percent
funding rate prudent, or is it a Cadillac dream on a Hyundai budget? Does
the 2045 payoff goal truly make sense, or could it conceivably be put off
by another 10 or 20 years or even longer?
There is also the question, of course, of employee
benefits. Politically, revising benefits downward for future employees may
be too much to ask. Employee unions for state workers and teachers are just
too heavily entrenched in both political parties.
But before we go selling valuable state assets for
pennies on the dollar, everything should be looked at. First, put that 1994
law on the operating table to see what can be done with the numbers; then,
if necessary, bring the unions in for talks. Right now all we’re
getting is overheated rhetoric from every side. We need a true compromise
that will ensure that the pension funds are relatively stable and that they
don’t continue to devour near-term state budgets.
The governor has claimed, wrongly, that if his
lottery-lease and bond-sale ideas weren’t approved then only two
other options remained — cutting pension benefits or coming up with
an alternative revenue stream. He cleverly framed the issue in a way that
kept up pressure for a solution from which his lobbyist pals would benefit
(sweet commissions on the lottery lease and bond sale).
If the governor were truly interested in a pension
deal, he would have already pushed his plan through the Senate, which is
controlled by his ally, Senate President Emil Jones.
Instead, he let everything go until July before taking
real notice.
Color me skeptical.
Rich Miller publishes
Capitol Fax, a daily political newsletter, and thecapitolfaxblog.com.
Manufactured crisis
Was Blagojevich trying to panic lawmakers into rewarding his friends?
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