For the last month, Gov. J.B. Pritzker has been busy signing a number of high profile bills that came out of an unusually productive session of the Illinois General Assembly.
But as he was traveling the state earlier this week he was reminded that one of the state’s most intractable problems — public employee pensions — is still unresolved and actually getting worse.
At an appearance in Chicago, Pritzker was asked about a story in Crain’s Chicago Business that Chicago Mayor Lori Lightfoot thought the state should assume Chicago’s pension liabilities which, like many public pension systems, are woefully short of the money needed to meet all of their obligations. The city’s pension systems are short $28 billion they’ll need to cover their obligations for Chicago teachers, police officers, firefighters and city employees.
Of course, the state has its well-documented shortfall for the five state-funded systems covering state workers, university employees, lawmakers, judges and downstate teachers. The latest deficit for those funds stands at about $134 billion.
And all of that doesn’t include the shortfalls in hundreds of systems covering pension benefits for downstate police and firefighters. Although some of those systems are in much better shape than others, the combined debt of all of those systems was $10 billion in a report issued by the Commission on Government Forecasting and Accountability in 2017.
Pritzker quickly shot down the idea of the state assuming Chicago’s pension obligations.
“To be clear, the state is at just above junk status in its credit rating,” Pritzker said. “So there are not liabilities that can be adopted by the state that would not drive us into junk status. So that is not something that we can do.”
Pritzker cited two task forces he formed earlier this year to look at ways of improving the situation with public employee pensions, not just at the state level, but the local level, too. One task force is supposed to examine ways of consolidating the hundreds of downstate funds to save administrative costs and improve investment returns. The other is looking into the possibility of transferring state assets to pension systems to improve their bottom lines.
The reports are supposed to be delivered to Deputy Gov. Dan Hynes, the former state comptroller.
“Our goal is to have the work of the task force, at least the initial work with an initial recommendation sometime this summer so that in the event there is action needed in the veto session we’re ready to do that,” Hynes said.
Hynes said that May was so busy dealing with legislative issues — many of them major initiatives — that the pension issue took a back seat.
Hynes said the major players in the debate over pension fund consolidation all have representatives on the task force. He said that “up to this point the administration has been just a facilitator of the dialogue.”
The idea of consolidating downstate police officer and firefighter pension plans has been around for a while but has never been approved by the legislature. Opponents have raised the specter that locals will lose control of their money if all of the funds are consolidated. However, employees of downstate local governments who aren’t police officers or firefighters all belong to the Illinois Municipal Retirement Fund regardless of who employs them.
Pritzker said last week that some of those downstate funds are so small they lose out on better investment returns. By combining the systems, they could leverage better investment returns which helps their funding ratios.
Hynes said finding some common ground among interest groups would help.
“If we can move everybody in the same direction, Municipal League, police and fire and try to find some common ground and express why there is some value to consolidation, I think that will convince the legislature it’s worth taking up,” Hynes said.
A principal proponent of the pension consolidation idea is the Illinois Municipal League. It tried again this year, but IML Executive Director Brad Cole said the organization didn’t push for a vote out of deference to the governor’s pension task forces.
At the same time, Cole said Lightfoot’s pitch to Pritzker helped underscore the ongoing problem with pension funding.
“The more people that are bringing this up the better,” Cole said. “The fact that Mayor Lightfoot wants to draw attention to the issue the city of Chicago has — it’s a perfect dovetail into what all the other municipalities are dealing with.”
Cole said the league is not proposing any benefit reductions or any new revenue sources to prop up pensions. The organization believes consolidation to produce lower administrative costs and higher investment returns is the solution.
“It will not resolve the problem, but it will definitely relax the burden,” he said. “We just need some breathing room.”
Cole also said the league would consider changing the payment schedule to extend the 2040 deadline to have downstate police and fire pension systems 90 percent funded.
Changing the amortization schedule for the state systems was an idea floated by Pritzker during his budget proposal last spring. He wanted to extend the payment schedule by seven years to get the five state systems up to 90 percent funding. The idea was met with considerable criticism from lawmakers who said it was the same kind of pension underfunding that got the state into its pension mess in the first place.
The idea was shelved when the state got an unexpected influx of tax collections during the spring stemming in part from the federal tax cuts. The money allowed the state to make its pension payment in the current budget without changing the payment schedule. That does not mean the idea is dead.
“Basically we’re saying that all of the components of (the governor’s) plan are still valid and in play,” Hynes said. “We are going to look at asset transfers. We’re going to look at dedicated revenues from the fair tax. We’re going to look at expanding the COLA buyout. But we’re also going to continue to scrutinize the payment schedule that was put in place in 1995 because it’s created an unsustainable financial path.”
Contact Doug Finke: email@example.com, 788-1527, twitter.com/dougfinkesjr.
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July 4, 2019 at 09:04PM