Who To Call
Board and Committees
vs FUNDING REFORM
|Proposed Pension Reform
Although there are proposals that can reduce the state’s unfunded
pension liability in a manageable way without diminishing the
retirement benefits of state retirees, leaders in the General
Assembly as well as the Governor have not supported them. It appears
the political solution requires that the state take additional money
from those who the state “borrowed” from (misappropriated) and have
not repaid. It’s like telling the vendors and companies who are
currently owed money by the state to forfeit some of their overdue
bills because the state doesn’t have the funds to pay the full
Much of the “crisis” about the unfunded pension liability is related
to the formulated method for looking at the state’s books and with
the credit ratings given the state by various credit rating firms.
The concern of many elected officials seems to be to get a better
credit rating so that they can borrow money at lower cost and then
spend more money without addressing the funding structure needed.
Although the ratings firms don’t like the state’s financial status,
I don’t believe any of them have said that the problem must be
solved by diminishing the retirement benefits of existing retirees.
There clearly is a need to fix the finances of
the State of Illinois. This has been, over a long period of
time, and continues to be, a problem of the state spending without
adequately funding the programs and projects through taxes and fees.
These programs and projects have been for the benefit of the
citizens (taxpayers) of Illinois and for projects of interest to the
Legislators and their constituents.
Research by the Center for Tax and Budget Accountability (CTBA)
shows that the five state pension systems would
be nearly 80% funded today if the only problems were inherent to the
pension systems themselves. For example, the normal cost of
providing the annuity payments in fiscal years 2012-2014 is about
$1.6B (billion) dollars per year and trending lower over the next 20
years. Because of the elected officials’ decisions to borrow from
the retirement funds, the debt service payments required to pay off
the debt are rising significantly each year: 2012-$3.2B; 2013-$4.1B;
2014-$5.1B(est) and trending higher over the next 20 years.
The state’s financial problem is not the result of public pensions.
Rather, the unfunded pension liability is a
symptom of the real problem. That is, over a long period of
time, the state’s elected officials have been providing services,
most of them needed services, to its citizens and businesses without
providing the appropriate funding structure (taxes and fees) to pay
According to the CTBA, about 90% of the state’s general revenue
funds are spent on education, healthcare, human services, and public
safety. However, the state’s revenue structure (taxes and fees) does
not adequately fund the costs of these services.
The pension changes actively being proposed by the Legislative
leadership and the Governor will not resolve the state’s financial
problem. But it will hurt state retirees and the state’s overall
economy by removing spendable income from the retirees.
Over time, the Legislative leaders and the
Governors have chosen not to deal with the real problem – the
funding structure required to pay for the services that are needed.
So, they have been taking the money from the public retirement
systems funds to pay for these services.
Illinois has the economy to support a
restructured tax system. According to the Bureau of Economic
Analysis (U.S. Department of Commerce),in 2011, the Illinois economy
ranked 5th highest in the nation with a gross state product in
excess of $671B. However, in terms of the state and local taxes as a
percent of income, Illinois ranked 42nd lowest in 2010 according to
the Federation of Tax Administrators; that is well below Iowa,
Michigan, Wisconsin, Indiana, and Ohio.
Retirees did not cause the “unfunded pension
liability” budget problem. They provided the service they
were asked to provide in return for salaries and retirement benefits
they were told they would receive. They contributed financially and
timely to their respective retirement systems as required by the
laws passed by the Legislators and Governors of the state.
What has been characterized and labeled as a
need for “pension reform” would more accurately be described as a
need for “funding reform”.