Gov. J.B. Pritzker’s administration issued a plan Thursday to deal with Illinois’ chronically underfunded public pensions that called for injecting more cash from a proposed graduated income tax, spreading payments out over a longer period, adding $2 billion in debt and selling state assets that could include the Illinois Tollway.
But the plan, which Deputy Gov. Dan Hynes unveiled at a meeting of the City Club of Chicago, also raised many questions.
With the new governor set to deliver his first budget proposal to lawmakers on Wednesday, Hynes sought to portray an administration working to deal with Illinois’ most vexing fiscal problem. Pritzker has promised that he won’t cut state worker and teacher retirement benefits to tackle the state’s nearly $134 billion in unfunded pension liabilities, leaving his administration to look for more money to fill the hole.
As has been the case for all of Pritzker’s plans to spend more money on social services and education, the cornerstone of his pension proposal would require the state to shift from its current flat income tax to a federal-style graduated system in which higher earners would be taxed at a higher rate. That change would require a constitutional amendment, which would take nearly two years to get on the ballot for voter approval.
If voters approve, the state would dedicate $200 million of the new revenue annually to make additional pension contributions on top of the legally required payments, Hynes said. That money is far from guaranteed.
While Hynes said Pritzker would put “the full weight of his office behind a graduated income tax,” the issue promises to be one of the most expensive ballot battles in the state during the upcoming election cycle. Political action committees — one tied to the governor and another tied to business groups — already have formed to advocate on either side.
To provide a faster cash infusion, Pritzker wants to sell state assets and deposit the proceeds into the pension funds. Hynes estimated they “could be worth tens of billions of dollars. He didn’t suggest which assets might be sold, and Pritzker has put together a task force to evaluate the options. Some of the state’s biggest holdings include the Illinois Toll Highway Authority, the Illinois Lottery and real estate such as the James R. Thompson Center in the Loop, among others.
When an audience member at Thursday’s City Club meeting asked for an example of an asset the state might sell, Hynes responded, as if talking to himself: “Don’t say, ‘tollway.’ Don’t say, ‘tollway.’ Don’t say, ‘tollway.’ ”
Afterward, Hynes said that the priority will be identifying assets, such as buildings and land, that could be sold quickly to generate money for the pension system.
“The tollway doesn’t really meet that standard, quite honestly, because that’s not something that could be done quickly,” he said. “There are bond covenants that are attached to the tollway. There’s complicated history and governance structure there. That’s really a long-term process.”
However, he didn’t take the idea off the table.
“We’re going to rely on the task force to do a full inventory,” Hynes said.
A sale or lease of the 294-mile Illinois Tollway system would be the largest privatization of a government asset in state history, and this isn’t the first time it has been discussed as part of dealing with a burgeoning public employee pension debt.
In April 2006, then-Gov. Rod Blagojevich — who’s now in federal prison — opened the door to consider such a move, fueled by then-Mayor Richard M. Daley’s $1.8 billion privatization deal of the Chicago Skyway. Revenues were envisioned to help alleviate pension debt and attract federal money for highway construction.
At the time, it was estimated privatization of the tollway could generate as much as $24 billion for the state. Such a figure, even at the 2006 estimate, represents nearly 18 percent of the state’s current unfunded pension liability of about $134 billion.
The estimate, provided by Credit Suisse, said the lease or sale value would depend on such issues as raising toll rates. The finance firm said the state could raise $23.8 billion if it leased the tollway for 75 years, increased tolls by 50 percent every 20 years, and also hiked tolls 3 percent in all other years of the lease.
Only months after broaching the idea, Blagojevich ruled it out amid the tollway’s expansion of electronic toll collection and open-road tolling. Signs bearing Blagojevich’s name on new toll plazas were removed following his impeachment and removal from office for corruption.
Launched in the 1950s to accelerate construction of segments of the federal Interstate Highway system, tolls at the time had been considered only temporary until construction bonds had been paid off. But over time, additional bonds were levied for repairs and highway expansion. Bondholders have first take on toll revenue, a potentially complicating factor in any lease or sale.
Privatization of the tollway system also could carry political ramifications. Much of the tollway is located in suburbs that have leaned Republican until recently, as well as in more rural GOP areas. When Blagojevich introduced the issue, Republican leaders warned him of the potential backlash from suburban drivers who might have little protection from seeing tolls boosted by a private operator.
Additionally, the 2008 privatization of Chicago’s parking meters by Daley for $1.15 billion, which the mayor rapidly spent down as parking rates escalated, has created negative public attitudes toward the leasing or selling of major public assets in the region.
Another pillar of Pritzker’s pension plan is extending the deadline for the retirement system to reach 90 percent funding. State law requires the funds to reach that level by 2045, but the administration wants to stretch that out another seven years.
“We will still reach the target goal of 90 percent funding, but we will do so without massively crowding out investments our state needs to grow its economy,” Hynes said at the City Club event. “After almost a quarter century of losing ground, a seven-year extension is reasonable in the context of contributing billions to our pensions systems.”
Extending the funding deadline won’t be an easy sell and could prompt criticism that the state is once again putting off legally required contributions to pensions.
On Wednesday, the nonpartisan budget watchdog Civic Federation released a report calling for the state to target 100 percent funding by 2045.
“A target of 100 percent helps to ensure the stability of a fund by protecting against market downturns,” the Civic Federation’s annual “budget roadmap” says. “No well-run pension fund has a funding target level of less than 100 percent.”
dpetrella@chicagotribune.com
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