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* My weekly syndicated newspaper column…
Gov. J.B. Pritzker’s administration has confirmed that its new public pension plan will slash $800 million from the state’s scheduled pension payment next fiscal year, which begins July 1.
That reduction is a direct result of Pritzker’s proposal unveiled last week by Deputy Gov. Dan Hynes, which would extend the state’s pension payment “ramp” by seven years, from 2045 to 2052.
But the administration won’t yet say how much more money will be “saved” during the coming fiscal years by extending the payment ramp, except to suggest that the near-term cost reductions might be somewhere around $800 million a year.
More importantly, the administration also will not say how many more billions this scheme will wind up costing taxpayers in the long-term.
Hynes recently complained on WTTW’s “Chicago Tonight” program that the people who devised the original pension payment ramp never dreamed that annual state pension payments would eventually consume 20 percent of state revenues.
And, indeed, way back in 1994 the state projected the pension payments this fiscal year would be $4.66 billion. Instead, the governor’s budget office puts that figure at $7.1 billion, rising to almost $8.2 billion next fiscal year and then to $9 billion by Fiscal Year 2022.
Stretching out the payment funding schedule would reduce short-term costs. But one person’s pension funding schedule restructuring is another person’s pension “holiday,” as skimping and skipping the payments were called back in the days before all heck broke loose.
Remember, a dollar saved today by not putting it into the pension fund results in multiple investment dollars lost that will have to be put in by taxpayers years down the road. This is the biggest reason why the state’s pension payments are so high right now. Payments were deferred and, therefore, investments were not made and then debt piled up to mountainous levels and taxpayers are currently being forced to make up the difference.
Almost all the revenue from the 2011 income tax hike had to go to the pension funds because the state had gotten itself so far in over its collective head that it couldn’t make the full annual payment. When the tax hike was allowed to partially roll back in 2015, the state kept making pension payments, but that exploded its unpaid bill backlog and forced cuts to the rest of government.
Pritzker has said over and over again that he opposes any sort of constitutional change to allow for reduced pension benefits going forward. The only remaining option is to pay the piper. The temptation appears intense right now to once again try to shift those payments into the future.
The Pritzker folks say transferring state assets into the pension funds could negate the long-term negative fiscal impact of extending the payment ramp. That could be true if those assets are significant and if the General Assembly agrees to do it.
Pritzker recently announced a task force designed to look into the use of state assets to prop up the pension funds. It will look into selling off state-owned real estate, including the Thompson Center in Chicago.
The most discussed state asset sale is the Tollway. Neither Hynes nor the administration would confirm the widespread speculation that the Tollway will be put on the auction block.
A Tollway sale could generate tens of billions of dollars, but Pritzker likely will have to use every bit of leverage he has to convince legislators to pass it. Former Chicago Mayor Richard M. Daley’s parking meter privatization scheme has been so universally derided that all government asset sales, even logical ones, are now automatically viewed with the deepest of suspicions. Any sale or lease would likely have to come with far more restrictions than Daley’s parking meter deal, which has sprouted meters all over the city while forcing prices ever higher.
And a 2016 transportation revenue “lockbox” amendment to the Illinois Constitution may make the sale impossible anyway.
I am now covering my seventh governor. And what I’ve discovered about the “future” over all those years is that it always arrives. Freeing up a little budgetary breathing room today can have severe consequences down the road. I’ve seen it happen time and time again.
The best, most responsible solution is to match reliable state revenues with realistic projected expenditures. It’s never easy to do that, but it’s how other states avoid the fiscal trouble Illinois is constantly faced with.
posted by Rich Miller
Tuesday, Feb 19, 19 @ 9:17 am
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Comment by OneMan Tuesday, Feb 19, 19 @ 9:21 am
“The definition of insanity is doing the same thing over and over again, but expecting different results.”
Comment by Donnie Elgin Tuesday, Feb 19, 19 @ 9:22 am
The one thing for everyone to keep in mind is that the real numbers are actually much worse, as the contributions discussed above are based on the “statutory contributions”, which are just the numbers that were made up by legislators. These amounts are far short of the actuarially calculated numbers. For example, for TRS the 2020 statutory contribution is $4.81 billion, but the real actuarial contribution should be $7.88 billion. So the state deficit numbers really are much worse than they make it appear with their fake “statutory Contribution” amounts.
Comment by Smalls Tuesday, Feb 19, 19 @ 9:43 am
I wonder if the payment would’ve been close to the 4.66 billion projected if not for Rod and his pension holidays ? ==definition of insanity== I think if I have to read the definition of insanity one more time I’ll go insane.
Comment by Anotheretiree Tuesday, Feb 19, 19 @ 9:47 am
As I said last week, this part of the prndion plan is just kick the can down the road. And 7 years is about as far as the math allows you to extend the ramp.
If you combine it with a big enough pension bond at favorable rates, it MIGHT NOT have any negative impact … but we probably missed the most opportune time that happened during the Rauner administration.
As Rich noted, what really needs to be done is no new spending. Realistically, that is impossible. Just getting the agencies back up to adequate staffing levels will be expensive.
We have to staff up; the agencies are clearly not doing their jobs. To pick on ISP as an example, they failed on vetting the Aurora workplace shooter. Plus the Legislature just added to the ISP workload with the gun shop regulation bill. Staffing up is not an option; one of the State’s primary jobs is public safety.
Then there is the whole social welfare safety net. You can pick your issue there: mental health, public health, housing, food security, veteran support, etc. It will all cost money. But even with these issues we have been playing kick the can. Failure to provide small assistance on the front end costs more on the back end.
So we’re going to be spending a lot more money than during the Rauner years. But, and this is where I think Rich is trying to go, we don’t need any fancy NEW programs. What we need right now is professional planners and competent administrators to maximize the impact of every dollar the State does spend.
I’m hoping that will happen but I don’t think it will. I’m afraid the political lure of new programs with new costs will overrule common sense and fiscal restraint.
Comment by RNUG Tuesday, Feb 19, 19 @ 9:49 am
I do not think extending the payment schedule is super troubling as long as Gov. Pritzker makes the payments. Many stable pension funds are not 100% or even 90% funded. The investment return has been higher than the projections over the long term. If there is a way to shift around the state’s assets to put more cash in the pension fund, then that sounds good as well. The biggest issue is that the state needs to put the actual cash into the funds, and not skip payments or issues bonds like in the Blagojevich years. I agree about the Tollway sales though. I don’t think that is going to happen.
Comment by Three Dimensional Checkers Tuesday, Feb 19, 19 @ 9:54 am
And the tollway revenue is dedicated to paying off bonds far into the future.
Comment by NoGifts Tuesday, Feb 19, 19 @ 9:55 am
The Ratings agencies are the only thing at this point that can save this state.
If they publicly make clear to JB that anymore kicking the can or fussing with the ramp will lead to a junk credit rating it will stop these schemes dead in their tracks.
Any move to kick the can has to be soundly rejected by the investment community, no matter what fancy presentation is made to try and tell us that kicking the can isn’t really kicking the can.
The money owed for the pensions is not going away, and every dollar that isn’t paid now as it is scheduled will crimp the budget that much more in the future.
I am terrified that if we have even the slightest downturn economically that the state will become borderline ungovernable given our current trajectory.
We have had the largest expansion in history and yet we find ourselves in a more dire situation than when it started.
If we couldn’t get a handle on things in good times, how on earth are we going to cope if there is any kind of market downturn (as historically is coming)?
The pent up demand for new spending is a runaway freight train right now and there are no brakes in sight.
Comment by Anon Tuesday, Feb 19, 19 @ 10:01 am
=I think if I have to read the definition of insanity one more time I’ll go insane.=
Ditto. Thank you.
And attribution unknown….so, please stop aggrandizing/legitimizing this quote by attributing it to Einstein.
Comment by TinyDancer(FKASue) Tuesday, Feb 19, 19 @ 10:07 am
== If there is a way to shift around the state’s assets to put more cash in the pension fund, then that sounds good as well. The biggest issue is that the state needs to put the actual cash into the funds, ==
Yes. Cash into the funds will be invested to earn more cash, helping to make the funds solvent.
Just transferring non-earning assets into the funds will be some short term fix. It will, on paper, make the funds look more solvent. But non-earning (and not marketable) assets will have a zero to negative effective on the funds long term. The only way you help the funds with real estate is if the real estate generates a positive cash flow that can go to the pension funds or if you can sell the real estate.
Comment by RNUG Tuesday, Feb 19, 19 @ 10:07 am
How many times will JB remind us we jumped off the Ramp and skipped payments under a democrat governor with democrats controlling both houses.
Rauner redefined incompetence, but this problem is a democrat problem.
Comment by the Patriot Tuesday, Feb 19, 19 @ 10:11 am
== but this problem is a democrat problem. ==
It is a bipartisan problem. Yes, Dan Walker-D started us down this path of making less than the full actuarial payments. But Jim Edgar-R set up the original ramp that codified both kicking the can and leaving ballooning payments fir his successors.
Comment by RNUG Tuesday, Feb 19, 19 @ 10:24 am
We may be through with the past, but the past is not through with us.
Comment by City Zen Tuesday, Feb 19, 19 @ 10:25 am
RNUG-
I don’t think that transferring state assets to pension funds will impress the rating agencies a bit if it is just a smoke and mirror game that doesn’t materially change the solvency of the funds.
Without autonomy to turn them into true revenue producers transferring state assets to pension funds to make the balance sheet “look” better is a gimmick that won’t achieve the desired results by those that rate the state’s credit.
We aren’t going to fool anyone just sticking illiquid or non-revenue producing assets into the pension fund accounts.
The ability to convert them into cash is the only thing that will materially improve the situation, and if they were a desirable, revenue producing asset already taking them out of the state budget would just transfer one hole that needs to be plugged for another.
The whole scheme screams of something that sounds good on paper but will not deliver the results those proposing them hope for.
Comment by Anon Tuesday, Feb 19, 19 @ 10:28 am
-Anon@10:38-
I think we are pretty much on the same page.
Comment by RNUG Tuesday, Feb 19, 19 @ 10:34 am
== Just transferring non-earning assets into the funds will be some short term fix. It will, on paper, make the funds look more solvent. But non-earning (and not marketable) assets will have a zero to negative effective on the funds long term. The only way you help the funds with real estate is if the real estate generates a positive cash flow that can go to the pension funds or if you can sell the real estate. ==
So, it sounds more like window dressing than a solution. I suppose every little bit helps though.
Ugh, didn’t we just have four years of hoping the rating agencies downgrade the state? The negative Nellys lost. We need people who actually want to solve the state’s problems instead of cheerleading for its failure.
Comment by Three Dimensional Checkers Tuesday, Feb 19, 19 @ 10:37 am
–The Ratings agencies are the only thing at this point that can save this state.–
How? Have pension funds invest in AAA subprime MBS?
Comment by wordslinger Tuesday, Feb 19, 19 @ 10:42 am
No one is hoping the ratings agencies downgrade our credit.
They can however be the ones that finally impose some fiscal discipline on the state from the outside if we try more can kicking instead of coming up with viable solutions.
I think many of us who have lived through decades of can kicking to see the cost metastasize realize we just can’t afford it anymore, and frankly the ratings agencies have the power to instill some fiscal discipline if our leaders won’t.
All they have to do is make clear we will be looking at junk status if even one less dollar goes into those pension funds than is currently scheduled and it will stop all of this scheming and window dressing dead in its tracks.
We need that right now. The pension bills are going away, and can kicking only makes a bad future that much worse.
Comment by Anon Tuesday, Feb 19, 19 @ 10:47 am
At least JB didn’t campaign on being a fiscal conservative who was going to balance the budget by eliminating waste,fraud and abuse.
Comment by Blue Dog Dem Tuesday, Feb 19, 19 @ 10:47 am
=The Ratings agencies are the only thing at this point that can save this state.=
Anon is too young to remember how they “saved” Enron.
Comment by Deadbeat Conservative Tuesday, Feb 19, 19 @ 10:49 am
“We need people who actually want to solve the state’s problems instead of cheerleading for its failure“
I thought paying taxes and voting for responsible elected officials was a way of solving these problems.
Comment by Anonymous Tuesday, Feb 19, 19 @ 10:50 am
If only can kicking were an Olympic sport. Illinois could field the entire US team.
Comment by SSL Tuesday, Feb 19, 19 @ 10:56 am
More ramp games. Meet the new boss–same as the old boss(es). This is disheartening but unfortunately not surprising.
Comment by Responsa Tuesday, Feb 19, 19 @ 10:58 am
It’s business as usual in Illinois, but did anyone honestly expect anything different?
Comment by Anonymous Tuesday, Feb 19, 19 @ 11:08 am
A Dickensian truism:
Income 20/20/0,
Expenses: 19/19/6: Result - Prosperity and Contentment
Expenses: 20/20/6: Result - Abject Misery
IMO Reworking/extending the ramp is the only tolerable if coupled with severe restraint on “new” spending, bonding out the overdue bill backlog over the next few years, then once those bonds are retired, committing the freed-up revenues exclusively toward the pension debt, over and above the ramp payments to help get to level payments schedule.
Sadly, enough new revenue will also be required to eliminate what deficit remains. Give that sort of plan a few years to work and we can start to get ahead of this eightball.
Also, IMO, as others have said, transferring state assets into the funds is just a shell game. State-run operations should generally be revenue neutral for the served user base, with the user fees covering the just the amortized capital/interest and ongoing maintenance costs. Any fees above those costs amount to an extra tax on those users being spent for other purposes.
Comment by Hieronymus Tuesday, Feb 19, 19 @ 11:27 am
Does anyone know what the state income tax percentage needs to be raised to to balance FY 2019 and FY 2020?
I’m referring to both income and corporate.
Why is this off the table?
Comment by BCOSEC Tuesday, Feb 19, 19 @ 12:54 pm
I was really hoping for better out of Gov. Pritzker. I hoped he might seize the chance to pivot, tell the truth, and face the facts.
I hope this is just a lame trial balloon, but . . . .
Comment by Keyrock Tuesday, Feb 19, 19 @ 12:55 pm
Putting the actual cash into the actual funds is asking alot. Maybe too much. After all, this has been the historic problem which created the results we have today. Extra money available? Anywhere BUT those pension funds!
Comment by AnonymousOne Tuesday, Feb 19, 19 @ 12:58 pm
Maybe JB will surprise us and offer extremely painful but actual solutions to our problems.
Maybe JB will tell us the truth and tell us reelection means nothing to him.
Maybe JB will treat us like intelligent responsible citizens and show us why we need to make the tough choices today so those coming after us can have a stronger Illinois for their families.
Then again, maybe not.
Comment by don the legend Tuesday, Feb 19, 19 @ 2:48 pm
Hieronymus- I love David Copperfield
Mr. McCorba, “In short”
Thanks for making the reference
Comment by Honeybear Tuesday, Feb 19, 19 @ 2:53 pm
@Honeybear - thanks for the acknowledgement.
I got the figures a bit wrong. Should be:
Income: 20/0/0
Expenses leading to …
Happiness: 19/19/6
Misery: 20/0/6
Comment by Hieronymus Tuesday, Feb 19, 19 @ 7:20 pm
I have a question to ask. Who, legally, determines the value of an asset like an office building transferred to one of the state pension funds? If it is the fund’s actuaries and - ultimately - the fund’s board, then transferring assets at arbitrary and inflated valuations, in order to reduce certified state cash contributions going forward, may be less of a concern. For example, if the state transfers an office building directly to SURS that it claims to be worth $10 million, but based on discounted cash flow valuation actuaries determine it is worth only $1 million, which of these figures would be used in certifying SURS’ assets, unfunded liability and required state contribution in the following year?
Comment by Anonymous Tuesday, Feb 19, 19 @ 7:39 pm
No reduction in state payment. No 800 million “savings”. Follow the ctba plan. Period.
Comment by PublicServant Tuesday, Feb 19, 19 @ 7:57 pm
Sorry, anonymous at 7:39 pm was me, and if my next observation sounds pedantic for those who are not Finance professors I apologize. Suppose either through existing authority or new legislation the State gets to determine the value of assets it directly transfers to a pension fund. One thing that I do know for sure under current law is that the fund’s board is solely responsible for determining the expected rate of return on its invested assets. So if assets are transferred at unrealistic, inflated values the board can credibly claim that this act reduces the weighted average expected rate of return on its assets going forward, reduce the return expectation accordingly, and force the state to increase its contributions in order to still get to 90% funding by 2045, 2052 or whatever the new terminal date will be. One way or another, I do not think Pritzker will get away with his scheme to use asset transfers as a means to reduce cash contributions to the funds.
Comment by Andy S. Tuesday, Feb 19, 19 @ 8:06 pm