Pension Problem Likely on Hold Until After Elections

Fallout from the recession continues to hobble state finances, particularly in states crippled by pensions they can’t afford to pay.

Chief among them is Illinois, which has racked up the largest unfunded liability in the nation.

Politicians there say they’re going to fix it, but it increasingly looks like that won’t happen until after the November election.

Amanda Vinicky reports.

The recession brought some harsh lessons for Americans.

Lessons like ‘spend less than you earn’  and ‘put aside money for retirement’.

Lessons states would be well-served to learn as well.

In 2010, Wisconsin had enough money in the bank to fund all of the retirement benefits it had promised its employees.

The rest had collectively racked up $1.38 trillion of pension debt.

That’s according to a study out last month by the Pew Center on the States.

DRAINE:  “What we’re seeing is not the result of one bad year or two bad years, it’s the result of a decade of bad choices in states like Illinois where policy makers have consistently fallen short of what they should have been doing.”

That’s David Draine, a senior researcher with Pew. He says that in doing so, politicians are letting down not only the workers counting on those benefits, but also taxpayers at large.

Illinois is not alone.

The study also places Connecticut, Kentucky and Rhode Island in the bottom tier.

Illinois is the worst.

The gap between what Illinois promised employees they’ll get when they retire and what it’s set aside is to pay those pensions is $83 billion.

To pay that off, Illinois’ government would have to completely shut down for two and a half years,  and send all of the tax money it collects.

Once new federal Governmental Accounting Standards Board approved last week are put in place, that figure is expected to grow higher.  Under the new requirements, Illinois’ pension funds will no longer be allowed to use rosey projections, like guaranteed 8.5% investment returns.

That was the case even before the recession hit, when Illinois politicians got into the habit of spending money on more immediate needs, instead of paying pension bills.   But investment losses during the downturn have made the situation worse.

Draine says it leaves states with few options.

DRAINE:  “It’s going to find itself either having to make very tough tax increases, Draconian cuts in services, or its going to have to find money by cutting the benefits its offering to current employees and retirees in painful and unpleasant ways.”

The threat that Illinois could cut benefits has led to an exodus of state and public university employees, like Barbara Allen.

After more than 23 years as a secretary at the University of Illinois Springfield, Allen is calling it quits.

She says she’d been thinking about it for a couple of years, and with her mortgage paid off, the timing was right.  She’s ready to spend her mornings knitting on the patio.

But as she steps away from the retirement party being held in her honor, she acknowleges there’s more to it.

ALLEN: “But also there is the concern of you know what the General Assembly is doing and what impact that is going to have on both current and future retirees.  What goes on down at the statehouse certainly has been a concern.”

That’s especially the case for public university workers and teachers, who have only their pensions to rely on.

They won’t get social security.

Allen’s not alone. In May,  legislators appeared poised to cut pension benefits. Lines formed outside the State Employees Retirement System offices in Springfield, the capital city, as government workers put in their notices.

Despite people’s fears, Illinois hasn’t taken the big step.

It’s among the 43 states that, according to Pew, took some action between 2009 and 2011 to reduce pension costs.

In Illinois, that action was aimed at new teachers and state workers, who’ll take home a smaller check upon retirement.

As a result, Current employees’ and retirees’ pensions remain intact, and the unfunded liability continues to grow.

Democratic Governor Pat Quinn says every day the state does nothing to address its pension crisis is costing Illinois $12.6 million.

At that price, Illinois could buy the Malibu mansion recently sold by Brad Pitt and Angelina Jolie.  Every day.

Governor Pat Quinn says it’s crowding out other spending priorities.

QUINN: “We just simply cannot afford this.  The squeeze is on.”

Illinois’ prisons are overcrowded, but the budget Quinn just signed into law closes two correctional facilities.

Schools are also getting less money.

But in the past five years, Illinois has tripled its pension payment.   This year, 15 percent of the budget’s goes toward pensions.

QUINN: “Our money, our allocations for education, for human services, for health care, for public safety.  Less and less of the percentage of our budget will go to those important causes if we don’t reform our pension system.  And we will do that.”

Quinn’s adamant that Illinois needs a fix this summer.

But he said the same thing this spring, and it didn’t happen then.

Talks between Quinn and top legislators are at a standstill because of a dispute over whether the state should continue to pay most public school teachers’ pensions, or whether those costs should be shifted to local school districts.

Republicans accuse Democrats, who control the Illinois legislature, of stalling.

Public employee and teachers’ unions have both the manpower, and the cash, to influence campaigns.

Legislators who want their support aren’t going to want to face their wrath.

At least until November, after those union dollars helped them win the election.

—Amanda Vinicky

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