Pension payments pile up
Gov. J.B. Pritzker’s administration has confirmed that its new public pension plan will slash $800 million from the state’s scheduled pension payment next fiscal year, which begins July 1.
That reduction is a direct result of Pritzker’s proposal unveiled last week by Deputy Gov. Dan Hynes, which would extend the state’s pension payment “ramp” by seven years, from 2045 to 2052.
But the administration won’t yet say how much more money will be “saved” during the coming fiscal years by extending the payment ramp, except to suggest that the near-term cost reductions might be somewhere around $800 million a year. More importantly, the administration also will not say how many more billions this scheme will wind up costing taxpayers in the long term.
Hynes recently complained that the people who devised the original pension payment ramp never dreamed that annual state pension payments would eventually be consuming 20 percent of state revenues.
And, indeed, way back in 1994 the state projected the pension payments this fiscal year would be $4.66 billion. Instead, the governor’s budget office puts that figure at $7.1 billion, rising to almost $8.2 billion next fiscal year and then to $9 billion by Fiscal Year 2022.
Stretching out the payment funding schedule would reduce short-term costs. But remember, a dollar saved today by not putting it into the pension fund results in multiple investment dollars lost that will have to be put in by taxpayers years down the road. This is the biggest reason why the state’s pension payments are so high right now. Payments were deferred and, therefore, investments were not made and then debt piled up to mountainous levels.
Almost all the revenue from the 2011 income tax hike had to go to the pension funds because the state couldn’t make the full annual payment. When the tax hike was allowed to partially roll back in 2015, the state kept making pension payments, but that exploded its unpaid bill backlog and forced cuts to the rest of government.
Pritzker has said over and over again that he opposes any sort of constitutional change to allow for reduced pension benefits going forward. The only remaining option is to pay the piper. The temptation appears intense right now to once again try to shift those payments into the future.
The Pritzker folks say transferring state assets into the pension funds could negate the long-term negative fiscal impact of extending the payment ramp. That would be true if those assets are significant and if the General Assembly agrees to do it.
Pritzker recently announced a task force designed to look into the use of state assets to prop up the pension funds. It will look into selling off state-owned real estate, including the Thompson Center in Chicago. The most discussed state asset sale is the Tollway.
A Tollway sale could generate tens of billions of dollars, but Pritzker will likely have to use every bit of leverage he has to convince legislators to pass it. Former Chicago Mayor Richard M. Daley’s parking meter privatization scheme has been so universally derided that all government asset sales, even logical ones, are now automatically viewed with the deepest of suspicions. Any sale or lease would likely have to come with far more restrictions than Daley’s parking meter deal, which has sprouted meters all over the city while forcing prices ever higher.
I am now covering my seventh governor. And what I’ve discovered about the future over all those years is that it always arrives. Freeing up a little budgetary breathing room today can have severe consequences down the road.
The best, most responsible solution is to match reliable state revenues with realistic projected expenditures. It’s never easy to do that, but it’s how other states avoid the fiscal trouble Illinois is constantly faced with.