Guest Editorial: ‘We’re Number One’: Illinois pension crisis, part 1

By on June 30, 2011

by Chris Lauzen
State Senator (R-25)

I begin every conversation with a public employee or teacher who calls to advise “no changes” to their pension plans “Teachers g – o – o- o -d, majority of politicians b – a – a – a – d!”

In Shakespeare’s Henry VI, there is a scene where saboteurs are plotting to overthrow the king and one says, “The first thing we do, let’s kill all the lawyers … ” When I read that sentiment as a schoolboy, I felt sorry for my friends who hoped to practice law. Now, as an adult, the current sentiment is to substitute “politicians” for lawyers.

Nineteen years ago, when you first sent me to Springfield, it was a big surprise to learn that a state government did not have to follow the same rules that every small business must follow regarding the proper funding of its pension obligations. If a small business owner did not deposit the correct amount, the first penalty was to lose the tax deductibility of those payments. If it happened a second time, the owner could be prosecuted and sent to jail.

Why don’t these serious rules apply to government?

It took three years for me, Steve Rauschenberger, Peter Fitzgerald, Pat O’Malley and Dave Syverson, the “Fab Five”, to gather support in the Illinois Senate and House to pass a fifty-year “mortgage” to pay back the unfunded liability that had accumulated before we got there.

We thought that we were clever boys by writing into the law that these annual payments for 50 years would have “continuing appropriations” status, i.e. the highest payment priority next to state bond payments before even payroll and other operating expenses. And, we fashioned an eight-year “ramp-up” of gradually higher payments each year, so that future General Assemblies had plenty of time to plan and gather fiscal momentum.

In 2004, Rod Blagojevich, his ruling majorities of downtown Chicago politicians, and their local enablers tore through that continuing appropriations mortgage like it was tissue paper and raided the pensions for the first time in a dozen years. Now in 2011, we face an unfunded liability for pensions and retiree healthcare that is many times more than all of the outstanding state bond debt that has been borrowed since Illinois became a state.

When friends who are teachers or rank-and-file government workers call to ask me, “Chris, you have always worked to protect taxpayers and fulfill commitments made under the pension plan, how can you be in favor of reform?”

The simple but painful answer is “The state pensions are bankrupt under at least two classic definitions of bankruptcy.” First, the pension and retiree healthcare liabilities exceed the assets put aside to pay them by more than $100 billion using very optimistic actuarial assumptions. Second, even if this governor and the majorities that have ruled Illinois for more than nine years wanted to pay back what has been shortchanged, they couldn’t. Without charging interest on the “mortgage” to repay these unfunded liabilities, it would take more than $350 million each month times 12 months each year for 30 years.

To put the amount of $350,000,000 into perspective, it is my impression that this is how much we all pay in taxes to fund community social service grants across the entire state for the whole year. To pay pensions is where your 67 percent income tax increase this year and forever is going to go.

Complaining and doing nothing about it will not solve the state pension insolvency. My suggestions were put into legislation and submitted for debate in January 2010.

First, we should eliminate future pension benefits for members of the General Assembly. It is a privilege to go to Springfield and represent our neighbors’ views on legislation … then we’re supposed to come home. We should not be compensated as if this were a “career.” When people say “That will never pass,” I point out that I successfully gathered support for a 5 percent cut in pay for state politicians two years ago and we over-rode Pat Quinn’s veto to make it stick.

Second, we need “Cap and Age” reforms for current state employees and teachers. Cap the runaway pension benefit amounts at $106,000 per year. These excessive benefits earn rank-and-file workers and teachers the wrath of their neighbors because people assume that “everyone gets those exorbitant amounts.” And, state workers and teachers must be asked to work until at least the early retirement age under Social Security of 62, rather than the current 55 years old. Seven more years paying in and seven fewer years taking out has an enormous impact on the actuarial projections.

Without these reforms, taxpayers will be milked and pensioners will face default on payments 10 to 15 years from now, when they are older and more vulnerable.

Next: The wider perspective on what’s happening in the state budget.