Illinois Public Pensions Are the Worst-Funded in the Nation Because of Governors and Legislators...

“It didn't happen by accident. Governors and legislators, Republicans and Democrats, repeatedly approved financially toxic changes that created the worst-funded pension system in the country…

“For more than a quarter-century, governors and state legislators, Republicans and Democrats alike, made a series of financially toxic moves in the pension systems for state employees and public school teachers. Proposals to fix the perennially underfunded pensions were based on botched calculations—or no calculations at all—and were driven by misguided rationales that weren't fully vetted. Everyone was to blame, yet few accepted responsibility. Even the public-sector unions that stood to lose the most sometimes embraced those choices…

“At worst, policymakers deliberately ignored the warning signs, punted the problem far into the future and habitually enjoyed the short-term gratification of funneling more money into schools and other operational needs instead of pensions…

“But perhaps the most enduring culprit is the “Edgar ramp,” conceived in 1994 by Republican Gov. Jim Edgar as a 50-year program to stabilize the retirement systems. Edgar set a goal of having the systems 90 percent funded by 2045. For the plan's first 15 years, payment levels were set artificially low—effectively shorting the pension systems each year—and then ramped up significantly in later years. This allowed politicians to comply with the required payments at the start while hoping that future leaders would find billions of dollars down the road.

“Now, with the systems still less than 43 percent funded, the state faces a crippling drain on its budget. In 1996, as the ramp required, only $614 million went to the pension systems. The amount due in the state's 2016-17 budget year: a staggering $7.6 billion. That accounts for roughly 1 out of every 4 dollars in the state's general fund, a trend that will continue for the next three decades…

“Gov. Rod Blagojevich borrowed $10 billion, which boosted the pension systems' funded ratio to nearly 61 percent in 2004 from 49 percent. But he used that showing to skimp on two years of payments. Surprisingly, the pension-holiday legislation was backed by the Service Employees International Union, the Illinois Federation of Teachers and the Illinois Education Association. The labor unions persuaded Blagojevich's administration to back off its pursuit of a two-tiered pension system and reductions in cost-of-living increases for retirees. Teachers also salvaged an early-retirement program with several end-of-career incentives intact…

“Madigan minced no words in December 2013 after pension-cutback legislation he helped craft narrowly passed the state Legislature and was signed by Quinn. ‘The bill would not have passed without me. I was convinced that standing fast for substantial savings, clear intent and an end to unaffordable annual raises would result in a sound plan that will meet all constitutional challenges,’ Madigan said. Madigan has a reputation around the Statehouse for thinking three steps ahead of everyone else. But he got this one wrong—really wrong…”

 

For the complete report, The Illinois Pension Disaster: What Went Wrong by Dave McKinney, click here.