Illinois' Dirty Little Secret

posted by Alan Greenblatt

I wrote a lovely feature in this month's Governing about how states are struggling with pension and retiree health costs. One of the states I focused on was Illinois, because it had the nation's worst public pension deficit -- $43 billion -- when Governor Rod Blagojevich took office in 2003.

Blagojevich has made a serious effort to chip away at that number, issuing $10 billion worth of pension bonds and stepping up the state's anemic payment schedule. Now the deficit is down to a mere $35 billion. The only problem is, Blagojevich and the legislature haven't had the discipline to stick with the payback program.

State policymakers stripped at least $2 billion that was supposed to be devoted to the pension fund. As John Filan, the state's budget director, explained to me, there were simply other priorities that felt more pressing at the time.

That's the usual problem with pension funding. Something else feels more urgent than the retirement plans of an employee who'll still be on the payroll for 15 more years. The only trouble is that people eventually do retire. Bills do come due.

That day is looming ever-larger for Illinois, as well as other states. Yesterday the bond rating agency Fitch issued a negative warning about Illinois. The agency pretty bluntly says it doesn't believe the state will make good its pension debt.

Becky Carroll, Filan's spokesperson, was unperturbed, telling the Chicago Sun-Times, "We outright reject the idea you have to do a massive tax increase or cut people's health care or education funding."

Okay -- but how are you going to pay down that debt?

Comments

[Cal Skinner]

Let's see. Borrowed $10 billion. Used to owe $43 billion. Now owe $35 billion.

What's wrong with this picture?

[Bettie]

What's actually "wrong" with "this picture" is that the 1995 pension funding plan deliberately underfunds the pensions every year thru 2034. That's why the pension debt will continue to go up, despite the influx of cash that Blago has put into the pensions. Of the $10 b pension bond, about $7.5 b went directly to the pensions and the rest went to pay for the annual contribution. Accuracy please. :)

[Ex-Newfie]

If this keeps up, I predict the governmental equivalent of the "blue flu" is going to strike state agencies. They have put up with a lot since this administration has taken over, being called lazy and incompetent among other things. Add being lied to and having their integrity impuned by the demand that they must take ethics training each year, when no lobbiest or campaign contributor is taking them to lunch or on vacation. There is only so much a grown adult can take and then they blow.

[GPSIBOY]

As a grad student working as an intern in an Illinois agency, I can assure you that most state employees really are lazy and incompetent. Don't fool yourselves, stateworkers, most of you were hired as young babyboomers by Governor Thompson in order to ensure a solid downstate voting block, and you've spent the last 30 years effectively on the patronage dole. Congrats -- you've bled us dry.

[C. Davis]

The only solution for this serious problem is to change the retirement benefit for public employees from a defined benefit plan to a defined contribution plan--like most private sector employees receive. This could be done over time so that older employees would not lose the benefits they were promised. Any other pension "reform" would be meaningless. The taxpayers of Illinois deserve to have the holes in this dike plugged forever!