Public Pensions – How Did Illinois Get Here?

Lawmakers head back to Springfield in a couple weeks to try and tackle the state’s massive pension crisis.
Illinois’ retirement systems have unfunded liabilities of at least 95-billion dollars – and counting.
This week, we’ll be exploring the history – and the future – of the pension problem.
Alex Keefe tries to figure out how things got so bad in the first place.

Last Thursday night, 57-year-old Dick Ingram – a bald guy in a dark suit – stepped onto the stage in a cramped, muggy auditorium at a south suburban high school.

INGRAM: Uh, thank you all for being here tonight. I really appreciate it.(fade under)

Ingram is in charge of Illinois’ biggest pension fund, called the Teachers Retirement System.

It’s arguably worse off than any state pension fund in Illinois – which is saying something, considering Illinois which has the worst-funded pensions the the country.

So as he talks to a few hundred working and retired teachers tonight – people who are counting on a state pension – Ingram says some things that seem to really freak them out.

INGRAM: I don’t think it’s any secret that finances in the state of Illinois are a train wreck. … We face the possibility, and the real likelihood, of insolvency.

Not everybody appreciates his candor.

TEACHER: Mr. Ingram, you have shaken the confidence of thousands – many thousands – of retirees (fade under).

Now, if you stop and think about what’s going on here, it’s pretty crazy.

The Teachers Retirement System alone has 52-billion dollars’ worth of obligations it can’t afford right now – that’s Billion with a “B.”

And if you count the pension funds for all state workers, that number nearly doubles.

So how did Illinois get here?

When you ask pension experts, watchdog groups, even politicians – they all agree the story is not primarily about gold-plated benefits for state workers, or people gaming the system.

It’s because, basically, Illinois wanted a pension system, but didn’t want to pay for it.

To explain how this went down – for decades – I’m gonna need a piggybank.

JINGLE

Now, our Illinois pension piggybank gets its money from three sources.

State workers – like teachers and prison guards – they contribute right out of their paychecks.

JINGLE

Then the people in charge of the pension funds – guys like Dick Ingram – they invest the money, and put the earnings back into the piggybank.

JINGLE

And finally the employer – in this case, state government – throws in its share.

JINGLE

Except – that last part? Not so much.

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GOLDSTEIN: Well, in terms of a piggybank, it’s a matter of never quite putting enough money into the piggy bank.

Sandor Goldstein is a public pension actuary – arguably, THE public pension actuary when it comes to Illinois’ retirement systems.

Now, you can think of an actuary as an accountant with a crystal ball.

They use statistics to try and project how much stuff is gonna cost ten, twenty, thirty years down the road – stuff like retirement benefits.

But in Illinois, the governors and state lawmakers who decide how much money to put into the pension piggybank have been ignoring guys like Goldstein for a long, long time.

GOLDSTEIN: I have some reports from these pension commissions that complain about the underfunding back as early as 1945.
KEEFE: Wait, you have some of those reports?
GOLDSTEIN: Uh, yes I do.
KEEFE: Can we see one?

Goldstein heads over to the bookshelf in his office, plucks out a faded paperback report, and opens it up.

(PAGE TURNING FX)

GOLDSTEIN: I think I found something right here. … And just looking at the context, I see something called, uh, insufficiency of revenues. (fade under talking w/numbers)

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There’s actually whole stack of these reports from the something called the state Pension Laws Commission.

And if you can stomach the wonky language, you’ll find that the commission didn’t just sound the alarm about pensions in 1945.

They did it again and again – all through the fifties.

READER: …the tremendous, ever-increasing and disproportionate liabilities being imposed upon present and future generations of taxpayers…

And then again through the sixties…

READER: …large unfunded accrued liabilities resulting for the most part from the inadequacy of government contributions…

And they were still sounding the alarm in the seventies.

READER: The pension obligation still remains almost wholly obscured or ignored by some public officials.

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KEEFE: Have you just been, like, screaming yourself horse at governors for three decades, saying ”Hello!?!?!”
GOLDSTEIN: uh, no I haven’t been doing that because our job is more of a technical one…. Uh, it becomes a political issue after a while, and there’s little we can do about that.

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The politics of shorting the pension piggybank are pretty easy to figure out.

EDGAR: Part of the reason was … people in the state didn’t want to pay more taxes.

Former Republican Governor Jim Edgar argues the state has never taken in enough revenue to cover its costs.

But he admits – when he came into office in 1990, with a big budget shortfall, he was more concerned about things like education than, say, things like pensions.

A few years later, with the economy looking up, he finally turned his attention toward the piggybank.

And – oh yeah – it happened to be an election year.

TV SOUND: Good evening, and welcome to this year’s first and only televised debate for the candidates for governor of Illinois…

The 1994 gubernatorial race pitted Edgar against Democratic state comptroller Dawn Clark Netsch.

And back when she was a State Senator, a few years earlier, Netch had been one of the few Illinois politicians who actually tried to do something about the pension problem.

NETSCH: I swear I remember the number of the bill. Senate Bill 22.

Netch says her bill would have given Illinois the very thing all those actuaries had been clamoring about since 1945 – an honest-to-goodness payment plan to get the pension piggybank back on track.

NETSCH: I always thought it was one of the less sexy, but most important things, I did at that time.

Now, Netch’s law was pretty much ignored.

But Edgar says he still didn’t want her to bring up the issue during the ’94 campaign.

So just a few months before the election, he pushed through a funding plan of his own – the funding plan Illinois still uses today.

It’s sometimes called the “Pension Ramp” – and put it in a graph, it does kinda look like a skateboard ramp.

On the left side, the state’s payments start to climb gradually – over fifteen years.

That’s the easy part.

But as you move to the right, it starts to get really steep – with payments growing more every year – which is where we are right now.

Today, critics accuse Edgar of kicking the can down the road.

That’s not how he remembers it.

EDGAR: I don’t think we kicked the can down – I disagree with that we did more than what had been done in the last 30, 40 years.
NETSCH: He did not live up to what I think was a golden opportunity.

Dawn Clark Netsch is still a critic.

But you can’t blame Illinois’ pension nightmare on Jim Edgar alone.

Through the two-thousands, there were recessions, budget shenanigans and skimpy contributions from the state.

Still, actuaries – like the guy we heard from earlier – say Edgar’s plan was flawed from the get-go.

They say it sets payments artificially low, and the plan only hits a 90-percent funding level, so it would never even fill the whole piggybank.

PIGGYBANK

All this means the unfunded liability is six times what it was in 1999 – and it’s only growing.

So now, politicians and labor unions are talking about possible fixes.

(fade up townhall sound)

And that brings us back to where we started – with those teachers at the town hall meeting – who are wondering: What’s taking so long?

TEACHER: There was some talk about it, but at the time I’m looking around – why isn’t everybody mad about it? It was in the 90s!

And despite all the facts and figures, this is the one question Dick Ingram – the head of that teachers’ pension fund – doesn’t really have an answer for.

INGRAM: I really wish that that had been so, because you’d be less ticked off at me today.

But Ingram seems to take this all in stride.

He says he’s use to being the messenger who gets shot.

INGRAM: All you can do is tell the truth as you see it, and that’ll sort itself out over time.

Exactly how Illinois’ pension mess might get sorted out – and how much time that will take?

We’ll hear more about that tomorrow.