Bill Knight - September 6
11:51 am
Wed September 5, 2012

The Roots of the Illinois Pension Crisis

Most Illinoisans seem torn between anger about state pensioners supposedly getting rich off taxpayers, and concern about state-worker neighbors caught between incompetent lawmakers and greedy credit agencies in cahoots with big banks. The real debate should be one timid types in Springfield (or Washington) avoid: What do citizens want government to do and how will it be funded?

(Full disclosure: I earned a modest pension for 22 years of service as a state university teacher, so I’m affected; that’s why I’ve been reluctant to comment. But I’ve recognized private-sector workers screwed out of pensions by firms exploiting bankruptcy laws or busting unions, and most Illinoisans are affected in some way, so… I’m weighing in.)

Legislators failed to come up with a way to “reform” state pensions this spring and summer. The state’s five pension systems are about 40 percent funded – but that’s misleading. Actually, Illinois wouldn’t have enough to pay its pensions ONLY if every state employee retired NOW – if every state cop, clerk, transportation worker, university professor, prison guard, judge, etc. retired TODAY. But pension benefits are distributed over decades. The money is not due all at once any more than a whole mortgage must be paid the day a homebuyer moves in.

Six other overlooked points:

  • It’s the responsibility of the legislature and governor to fulfill promises the state’s made, whether paying bills, funding schools, building roads or protecting communities. If that requires changes – decreases to discretionary spending or increases in taxes – do so.
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  • The situation was created by lawmakers and administrations for years. Since 1994, the state contributed its required pension share just once (in 2004). Four times (’94, ’95, ’96 and 2006), it paid less than one-third of the necessary amount. The state took money from the pension systems, and pension funds aren’t just missing state contributions; they’re missing the investment returns and interest that money would have earned.  Ralph Martire from the nonpartisan Center for Tax and Budget Accountability in Chicago recently said that all the so-called reforms proposed so far will literally do next to nothing about the situation, which he calls a "debt crisis," not a pension crisis. In other words, the state "borrowed" billions from the pension systems and should pay it back, but the legislature's self-imposed "pension ramp" to do so is literally unachievable. It's like a gigantic balloon payment on a mortgage.  Since the pension systems, as "lenders," no doubt would "renegotiate" the payment schedule over a longer and more sustainable period, lawmakers’ lack of action is suspiciously as if Springfield’s waiting until after the election to gut, if not eliminate, state pensions by "blaming the victims" -- who paid their share over the years.
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  • State pension recipients – whose median benefits are less than $24,000/year – cannot collect Social Security for years employed by government – also saving state government (and Illinois taxpayers) money since those employers don’t have to pay FICA.
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  • Whether state pensions, guaranteed by Illinois’ constitution, or private pensions, they’re part of a pay package pledged in exchange for services performed, only deferred compensation paid later. It’s an asset, sort of a promissory note. Compare your finances. If your lender on its own hiked your monthly house payment, your company unilaterally cut your pay, or your bank on its own decided your savings account was worth two-thirds of what your passbook says, would that be “reform”? Technically, yes; it’d be wrong, too.
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  • Plus, such cuts would be bad for the economy, particularly rural areas. The National Institute for Retirement Security recently reported, “Pension expenditures may be especially vital to small or rural communities, where other steady sources of income may not be readily found if the local economy lacks diversity. Additionally, reliable pension income can be especially important in stabilizing local economies during economic downturns, because retirees know they are receiving a steady check despite economic conditions.”
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  • Balancing budgets on the backs of workers (who pay taxes, too) reduces consumers’ spending and hurts morale since it pits workers against the public they’re serving.

As far as public opinion: Most robbery victims would sympathize with other people about to be held up, but right-wing media and wrong-headed legislators have created scapegoats to cover their own failures. Bill Fletcher, Jr., author of "They're Bankrupting Us!" and 20 Other Myths about Unions, explained the disconnect: “What the right wing has managed to do is get workers who have been crushed angry at somebody else. It is easier for regular working people to start blaming someone that they can physically identify – someone that cannot penalize them – rather than actually taking on the real powers, the people in Wall Street who have walked away with billions.”

Bill Knight is a freelance writer. The opinions expressed are not necessarily those of Tri States Public Radio or Western Illinois University.