How unsustainable is our state’s toxic brew of unfunded pensions, deficit spending and government handouts?
In its “States in Fiscal Peril” report, the Pew Center on the States describes Illinois’ devastating financial condition as among the worst in the country.
“Illinois entered the nation’s fiscal crisis in a precarious position. Since the last recession earlier this decade, the state piled up huge backlogs of Medicaid bills and borrowed money to pay its pension obligations. Its problems grew worse once the Great Recession hit. The state’s current budget still relies heavily on borrowing and paying bills late. The budget shortfall lawmakers confronted for fiscal year 2010 topped $13.2 billion, among the worst budget gaps in the country.”
The state’s 2010 budget gap is one of the three biggest in the nation at $13.2 billion, according to the report, which points the finger at the “significant and continuing problem” of unfunded pension liabilities going back to 1995 and lawmakers’ inability or unwillingness to balance the state budget.
The report concludes that it will require political will to solve the spiraling problem. As a long-time resident of Illinois, I’m willing to bet that muscle will have to come from the people, not politicians who are more concerned with maintaining the support of special interests than in doing what is necessary to keep this state afloat.
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duh…you can’t spend money you don’t have. When will politicians listen?
* The State Employee Retirement System (SERS) is currently 46.1% funded
* The Teachers’ Retirement Systems (TRS) is currently 56% funded
* The State Universities Retirement System (SURS) is currently 58.5%
* The Judges Retirement System (JRS) is currently 42%
* The General Assembly Retirement System (GARS) is currently 32%
* The Illinois Municipal Retirement Find (IMRF) is currently 96.4% funded.(1)
These total an unfunded liability that exceeds $54.4 billion, the worst of any state in the nation.
When faced with not enough money to provide services and fund pensions, the state cheaped out on pensions, and kept expanding way past the core services required of a state government. Politicians get ahead in their world by solving problems, and in their world solving problems requires spending money.
According to the Investment Management Institute, the operating expense ratio for defined benefit plans averages 31 basis points (31 cents per $100 of assets); the average for defined contribution plans is three to six times higher, at 96 to 175 basis points. To put that in context of the Illinois pension systems, the administrative costs of a defined contribution system would in all likelihood cost taxpayers anywhere from $275 to $610 million more annually than the state’s current defined benefit systems. the National Conference on Public Employee Retirement Systems 2007 report summarizes the advantages and disadvantages fairly well. Grain of salt, NCPERS may be biased to the existing defined benefit pension plans.
(1) The IMRF is funded and administered separately, and has remained separate from the fiscal raiding that characterizes the other funds. For an overview of their management and investment policies, look here.
It’s a mountain of ugly. The numbers are beyond belief. It won’t be solved by any career politician whose own pension depends on making the hard decision.
The solutions?
1. Everyone pays more taxes in a tough economy.
2. Benefits get gutted, phased-out, and individuals assume responsibility for their personal retirement.
3. The sheer size of the bankrupt elephant-in-the-room becomes so unavoidable that it all comes crashing down. Default.
I’m betting on 3. Rats.
So all you union workers out there, how well is that union really working for YOU? Are they guaranteeing your retirement? Just look at the funding for your pensions. I wonder where the unfunded portion is going to come from? Taxes anyone? Otherwise it wont get funded and some of you wont get paid!
The report actually quotes someone as saying the deficit is so large it can’t be solved by a tax increase alone. Although I have no doubt they’ll try…
All the economists I trust tell us that there is a point of diminishing returns on tax increases. You can only raise taxes to a point. At that point the general population stops spending money and business start to close. At that point the government is the only employer and the country essentially fails. I realize this is a worst case scenario but where do people think this is all heading to? The worst case is here!
interesting post Chad. The majority of the pensioners and employees still in the funds are non-union. They are politicians, Judges, etc. It seems to me that everyone in the system may lose some of their benefits. The problem comes from years of collecting pension contributions and using that money in the budget and not to fund the pensions. There is also a lot of double dipping by non-union politicians that occurs. I believe that ALL state workers are in trouble here, not just the Unions. What irks me is that this State Government has created this mess by not using workers contributions the correct way. They need to go to a new 401k type system for all new workers now. They won’t, welcome to Illinois. All workers have paid into the system pursuant ot the rules set by the State, the State has screwed this up.
Under Illinois law, pensions are constitutionally guaranteed. Any attempt to reduce existing payouts will result in a tsunami of lawsuits. What can be trimmed to reduce the impact is associated benefits, in particular health and insurance benefits, which may not be constitutionally guaranteed.
I am confused, you all want government services: good schools, good universities, good roads, good state workers and good judges. But don’t want to pay for it through a modest tax increase. Want Illinois government workers to work with no benefits. Sounds like you want “something for nothing” is not realistic.
Respectfully Earl, politicians have sold us all that bill of goods repeatedly in the past, and have never followed through; that’s the problem. Remember the sales job on the first lottery? The riverboats? The tollway? How about the income tax when it was introduced back in the 60’s? The promise that all of these would pay for all of those has never been true, never been kept. We have a balanced budget requirement and specific reporting steps in Illinois. Our government has ignored that for over 10 years. History has been rewritten so well it’s almost totally forgotten. At this point, even what started clearly as pork have become entitlement programs that are considered indispensable.
Before an addict can come to grips with their addiction, they have to recognize one exists. Neither party in Illinois will step up to take that first step. They never have, they never willingly will. It’s easier to just spend more every year and kick the problem downstream onto the taxpayers. One dollar for me to spend today; a buck forty or more for you to repay tomorrow.
http://bit.ly/3l0R3P
Database with all IL state jobs listed with salaries. Just FYI and these people all get large pensions and retirement bene’s too.
Either way Dan, union or not there are way too many people using the state and its tax payers like a union does. If you look at the salaries in my previous post there is no reason any of these people need a pension. They make enough to fund a personal 401k.
Not no benefits, no gold-plated pensions that are unsustainable in even the near-term.
Some pensioners are pulling in 75% of their highest salary. If they retire after 30 years on the job, they can potentially reap another 30 years (or more) of pension checks for doing nothing of service to the taxpayers who are paying those pensions.
Benefits include sick pay, vacation, sick days, etc, and public employees do pretty well in that department, from what I’ve been able to learn. In contrast, very few in the private sector can bank sick days or vacation days, and most employers have gone to an approach where you get a certain number of days to use as you see necessary or fit.
Our schools, roads, universities and workers are not good because they are run by the government. I would say they would be better run by the private sector. I attended UIC for 2 years, not a well run state school at all.(long story) Our roads are in perpetual flux with never ending construction. Where is the good in that? NCLB standards based teaching? Where is the good in that? Come on Earl just admit that the government is not and have never gotten it right when it comes to anything. The only thing they have down very well is fighting wars and spending tax dollars!!
you misunderstood my post. I think we are saying the same thing. All governments, including State, County, Township, Towns and the Federal Government need to adjust their retirement systems. They are way behind the privat sector, as usual. I just thought you were blaming it all on the Unions. It seems to be another of example of government inability to control itself. Thats all I’m saying.
Dan,
I was actually responding to Mr. McGuire’s post. Sorry. I understand your point completely and you are correct we do agree.
So is privatization the answer to all state and local government’s needs? Let’s see if these private firms over in Iraq can provide services at state and local levels.
In my opinion, both Mr. Thoman and Mr. McGuire point out the same thing: anything can sound good in theory, but when it’s put into practice, greedy people start gaming the system.
I’m not saying I have an answer (I wish I did.) I’m saying that neither the left’s nor the right’s go-to answers to running things have worked, because jerks ruin everything. What we need is a good jerk-detector so we can stop them before they start.
There is a large chasm developing between public and private sector pay when you include the value of pensions and benefits. But multi-billion $ fund deficits are hard for the average person to relate to the cause.
When there is a greater awareness of pay disparities, only then will there be a seed planted to change the system. As I related in one of my earlier posts, quoting another source, power is not granted; it must be taken. So far power is firmly in the hands of the benefactors of the current system. The recent reform proposals for the state pension systems were gutted by union representatives in the reform committee.
I disagree 100%. Bush was not the “right”, he was a middle of the road progressive. The right is the answer. Like Reagan. Our country has NEVER had such prosperity or relevance in the world. Real conservative principals is what our country was founded on. If you don’t like it move to Canada or France. They have all the socialism you could need or want! Remember conservatism was here first, you are either for it or you should leave!
There’s plenty of blame for both political parties, so don’t even try to pin this tail on just a donkey. “Big Jim” Thompson got the whole ball rolling with his idea of using next year’s revenue receipts to pay for this years spending deficits. It worked great; an untapped, seemingly endless supply of “future” money that could be refilled later so there wouldn’t be any problems.
Except one; once the General Assembly got a taste of endless money, they could not stop spending, and the funds never really got refilled, and it spilled into not just promised revenues, but the deep pool of pension funds. Something for this, something for that; money for this voting group, money for that constituency; entitlements here, there, and everywhere. Edgar slowed the spending frenzy, Ryan kicked it back into gear, Blagojavich put entitlement spending onto a crack-addled overdrive, and wham! The state actually borrowed $10 billion a couple years ago to put $7 billion into the pension funds, making taxpayers pay $1.40 for each $1 dollar borrowed, and almost two dollars for every one dollar put back into the pension fund. And state crack-head politicians are asking taxpayers for even more money than that.
For 30 years Illinois has ignored its’ fiscal obligations. While municipalities have been required to make the pension contributions, state politicians have frittered it away.
Ugh. Kids, please. Turn off Fox News, turn off NPR, and look at every issue for what it is, not what the talking heads are telling you.
Clowns to the left, jokers to the right and I hate the Steve Miller Band…
The right is the only way Meat. Its obvious. Obummer is wreckin the country. Bush was bad but Obama is the WOrst ever!!
EJ or/and Mark have provided this very thoughtful article and dialogue about Illinois’s fiscal problems. I hate to say this but looks like good old fashion Chicago connection politics will take care of a white elephant for Illinois; with the feds purchasing that partially empty state facility in Northwestern Illinois.
All the wingy FAUX news comments are another reason to avoid spending in DuPAY county, land of the huge property tax bills and bloated payrolls.
So stay in cook county then Ed. Please we would like it that way.
More financial stress on the public employee pension front. This link is to a letter in the Tribune yesterday from the mayor of Lincolnwood, IL representing a conference of NW suburban mayors.
http://www.chicagotribune.com/news/opinion/chi-1117vplettersbriefs0nov17,0,581026.story
Good link DG_DA. Pensions are going to have to be reformed or jobs will be lost. There is not sustainable way to keep this raising cost from spiraling out of control. It used to be that these fine public servants would earn a meager salary therefore we needed to take care of them in retirement. That is what the system was designed to do. Now these same public servants are very well compensated as compared to the private sector and retirees are living longer. This is a huge problem. I think the pensions should be part 401k based and part pension based. I think they do deserve some sort of pension but at the current level and government mandate to fund them the country will go broke.
I am glad to see some serious dialogue about the present and future state’s fiscal problems. I feel that my views on the Illinois pension problems are not fairly portray by this thread or the local Illinois media. To use the old metaphor “a mind is like a parachute, it only works when it is open.” For those with open minds should go to the Governor Quinn’s Illinois government web site and see the union proposals on the Illinois Pension Modernization Task Force. The news sources that name in this thread are bias towards Unions and have a history of it.
“No gold-plated pensions” is missed portrayed by media just showing the big earners at the top and not the everyday common state worker. In my line of work I will be lucky if I earn more than five years of retirement checks, if I live that long which I highly doubt. Now to be fair my brother-in-law points out to me he does not have a pension and either does 81% of today’s current work force.
Earl,
Can you produce the link please? I would love to read it. See I am being open minded…about reading the article!
Thanks.
If EJ or Mark will allow me to violate the comment policy: no blind link? http://www.illinois.gov/gov/
Governor Pat Quinn’s page Lower left middle of page entiled Illinois Pension Modernization Task Force, hit Click Here for more information on the Task Force. Under Public Meetings then please Hit Labor Coalition Proposals (PDF), plus there are other items on this very topic. Thanks to EJ’s web site and State Senator Dan Rutherford I am getting a better handle on this “Internet thing.” With the open information age in full speed, it would be nice to solve problems rather than keep the debate fueling arguments back to one side and the other. As voters, taxpayers and elected officials let us work on solutions rather than passing the buck on to our grandkids. Typing and talking are cheap, let’s do something productive and positive other than buying time until the next election or state budget needs passed.
I will read it, thanks Earl!