Let me offer some ideas and solutions to dig out of our mess.
First, when the fair tax becomes law, we will create a new revenue source dedicated specifically to pensions. The state will commit to using $200 million a year directly to pensions, over and above our legally required payments. This will not only help pay down the unfunded liability but will likely also lower the cost of our debt.
Second, we must infuse cash and assets into the system now to improve the health of the funds. We will be evaluating some of the assets that are owned by the State – they could be worth tens of billions of dollars – for potential transfer into the pension funds. I am pleased that experts like Jackie Avitia-Guzman and Jamie Star have signed on to help with these evaluations. These assets could be used in a way that is far more financially responsible for the state, to increase assets in the pension systems to offset liabilities and reduce the unfunded liability overall.
Third, let’s listen to experts and exercise good financial management. We can lower the cost of our pension debt and inject cash immediately into the system by issuing a small-scale pension bond of about $2 billion. The bond proceeds would be used for no purpose other than to be deposited directly into the funds — and would be used only for paying down our more expensive pension liabilities. No skimming off the top to pay this year’s pension payment. No using bond proceeds to pay for operating costs.
This protects taxpayers from the way these bonds were misused in the past, and it brings our pension funds closer to a healthy level. We would look to move forward with this bond only if the calculation makes sense for taxpayers — and if the interest rates are lower for the bond than what we are currently paying for the pension debt. It’s simply good financial management.
Fourth, the optional pension buyout programs passed in last year’s budget were short term in nature — which limits their effectiveness at reducing our future pension liabilities. We intend to extend these programs to provide certainty to retiring employees who may choose the option to receive more retirement income upfront. By doing so, we can expand the savings to the state overall. This is a responsible way to reduce liabilities without going back on the state’s promised retirement benefits.
Finally, during last year’s campaign Governor Pritzker proposed smoothing and flattening payments into the pension system in the context of contributing more cash and assets to the system. We propose a modest extension of our pension amortization schedule by seven years. We will still reach the target goal of 90% funding, but we will do so without massively crowding out investments our state needs to grow its economy. After almost a quarter century of losing ground, a seven-year extension is reasonable in the context of currently contributing billions more to our pensions systems.
Collectively, these five actions will expand our tax revenue base, invest in priorities that will grow our economy, and we’ll be able to put our pensions on a sustainable path that keeps our promises to retirees.
Now, no discussion of pensions would be complete without recognition that we have a pension crisis brewing among our local and county governments. We must explore smart ways to consolidate those pension funds. The state is home to 671 separate public pension funds. This results in a fractured system that often duplicates functions across funds, limits the smaller funds to a narrow range of lower return investments, and impedes their ability to negotiate lower fees.
Deputy Gov. Dan Hynes suggested the key to the plan is to extend the period of time the state has to reach full funding of its pension plays by seven years, to 2052. “Full funding” currently is defined has having 90 percent of the assets needed to pay promised benefits. […]
Hynes told me the deferral will buy the state time to examine asset sales and other matters—and give Pritzker some a bit of leeway in dealing with a projected deficit of $3.2 billion in the new fiscal 2020 budget he’s set to unveil next week, on Feb. 20. Specifically, extending the full-payment ramp to 2020 will reduce the amount the state has to contribute next year by about $800 million. The state “still will have to contribute $8 billion,” Hynes noted. But by deferring the payment owed, the state will run up increased interest costs on debt it legally will have to pay, Hynes conceded, declining to give a cost figure. […]
Hynes specifically refused to take a possible sale of the Illinois Tollway off the table. “That’s the kind of issue” that a new commission Pritzker appointed last week is considering, and “I don’t want to prejudge anything,” Hynes said.
….Adding… Senate President Cullerton’s spokesperson on the pension bond…
It’s an interesting concept. The Senate President looks forward to learning more about the idea and its specific safeguards.
