Reeder: A sorry tale of Illinois pension ramps
By Scott Reeder email@example.com March 14, 2013 6:56PM
Updated: April 16, 2013 3:51PM
Illinoisans today look on former Gov. Jim Edgar with fondness, probably because he is among that minority of living Illinois governors who didn’t end up in a prison cell.
Because his two terms as governor (1991-99) were sandwiched between the free-spending administrations of Jim Thompson and George Ryan, many have taken to thinking of Edgar as a fiscal conservative.
In some ways, he was fiscally prudent. But in other ways, he practiced the same old budget shenanigans that have left the Land of Lincoln mired deeply in debt.
We still are paying the price for a faulty pension policy that was implemented during his time as governor. It’s called the “Edgar pension ramp.”
Like today, back in the early 1990s the state pension systems were in crisis, and legislators and the governor searched for a fix. Their solution wasn’t particularly innovative or brave.
The secret to the Edgar pension ramp was pretty simple — it pushed pension debt off for years, placing the cost burden onto future generations.
For example, in 1996, when the state made its first payment on the ramp, it contributed $607 million. In 2045, the final year of the ramp, the state is slated to pay $16.8 billion. Ouch.
“It was backloaded. We all knew that. But I don’t think any of us thought we would be in this kind of shape,” former state Rep. Bill Black, a Republican from Danville, recently told me.
Year after year, the Edgar plan has taxpayers paying more and more to finance state pensions.
The escalating funding demands combined with the state reducing or skipping its required pension contributions over several years have left state government cutting into core programs such as education, social services and prison safety.
In his recent budget speech, Gov. Pat Quinn called for cutting about $400 million from local schools because of the rising portion of the budget going to cover pension costs.
On Monday, the U.S. Securities and Exchange Commission charged the state with violating federal securities laws and defrauding investors by misstating the true health of its depleted pension funds between 2005 and early 2009.
The SEC said Illinois sold more than $2.2 billion in municipal bonds during those years, but “failed to disclose that its statutory plan significantly underfunded the state’s pension obligations and increased the risk to its overall financial condition. The state also misled investors about the effect of changes to its statutory plan.”
That’s lawyer-speak for “the Edgar ramp fell well short of the mark.”
It’s not that lawmakers back in 1994 weren’t well-intentioned.
They wanted to solve a problem they faced right then — a roughly $20 billion pension shortfall. But instead of reforming the system, they ended up pushing the problem farther down the road.
The state is now $96.7 billion short of what’s needed to cover its long-term liability for benefits for members of its five pension funds.
Now a variety of legislators, including state Rep. Elaine Nekritz (D-Northbrook) and House Minority Leader Tom Cross (R-Oswego), are talking about solving the current pension mess by creating, you guessed it, another pension ramp.
No matter how many adjustments our politicians try to make to this immense pension machine, they will always fail because they can’t predict the future.
No one knows how the stock and bond markets will perform in the coming decades, how long future retirees will live on average or even what future lawmakers will promise and enact.
Because we can’t know what the future portends, a promise of a future benefit can’t be guaranteed, as the Cross-Nekritz proposal would mandate.
When will we learn there is no ramp off this road to fiscal perdition?
Instead of looking for ramps, we need to look for solutions, such as having state workers take ownership of their retirements with a 401(k)-type retirement plan.
Scott Reeder is a veteran statehouse reporter and the journalist-in-residence at the Illinois Policy Institute, a nonprofit research group that supports the free market and limited government.