Yesterday local PBS station WTTW posted an interview with Illinois Gov. JB Pritzker timed for the first anniversary of his inauguration, an interview with comments on pensions extensive enough to merit comments but brief enough to justify transcribing the interview in full, below. Remember, as context, that he had planned to defer the 90% pension funding target from the already-distant 2045 to an even further 2052, then backtracked in part after pressure from rating agencies, back in May of 2019.
Q. You did scrap plans, as part as this current budget, to defer pension payments. That was due to sort of an influx of tax money. Is that off the table for this next fiscal year?
A. Well, let me characterize it a little bit differently. Remember we put out a number of things that we think you need to do, ways, tools, that you can use in order to help us manage our pensions in the state. One of them is to make sure that we’re lowering the cost to taxpayers by buying people out of their pensions if they want to be.
Q. And selling the Thompson Center, that we’re in right now.
A. Which is asset transfers. Yes, that’s right, exactly you were listening. Thank you. And asset transfers is another piece of it.
Q. But what about this component?
A. This component was really, has to be done in conjunction with these other items, because the whole idea is we’re not, we’re trying very hard not to crowd out the important expenditures that need to be made. Public safety – our state police haven’t added any new state police. They were losing in fact police from retirement and not adding new ones for years, and in fact I think I had the first two state police academy cadet classes in many years, and we’ve got to increase public safety, we’ve to to make sure we’re providing funding for education, for many, many school districts that have been left behind, the EBF helps but you have to add dollars.
Q. So that deferring the pension payment is still an option for this next year’s budget?
A. No, what I’m telling you is that in order for anybody to ever consider doing something like making sure, you know, that you’re evening out those payments, you’d have to do something more, like what I suggested, which is put more money into the pension system early, so that you can even out the payments going forward. That would be a critical thing for us to do and something that would happen if in fact we had a fairer tax system.
So here are my takeaways:
First, Pritzker acknowledges that the state’s pension contributions crowd out spending on all manner of other items not just on his wishlist but widely acknowledged as deficient in Illinois. In fact, pension spending (including contributions to pension funds and repayment of pension obligation bonds) consumes 25.5% of all general revenues. It is, I suppose, a plus for Pritzker to acknowledge that.
But what’s his garbled solution?
It’s hard to make sense of.
He has said in the past that if the constitutional amendment enabling a graduated income tax passes in the fall, and he is able to implement a graduated income tax, some (modest) portion of those revenues will be dedicated to pensions. And, yes, he has talked about asset transfers plenty often in the past (though with no real movement on this — and the revenue from the sale of the Thompson Center was always promised to go into the general state coffers).
But what does he mean by “evening out” the contributions?
Currently, the plans reach their target of 90% funding in 2045 (side comment: the target really ought to be 100%), by means of, after the ramp is finally at an end, setting contributions as a level percent of pensionable pay. From 2022 to 2033, the state contribution as a percent of pensionable payroll is about 47%.; then it jumps to 50% of pay. That’s a rate of increase that’s slightly higher than inflation, but not as high as true payroll costs are projected to increase, because of the bit of Tier 2 pay caps (and, yes, the projections assume those stay in place).
Ralph Martire and the CTBA (Center for Tax and Budget Accountability) have proposed issuing a combination of pension obligation bonds and a reduced, 70% target (well below an appropriate funding level) in 2045, to achieve a reduced and flattened payment schedule. (Remember, anyone who promotes pension obligation bonds as a form of “refinancing” is not to be trusted.)
Is this what Pritzker means?
But what does he mean when he says, “This component [stretching out the funding date] was really, has to be done in conjunction with these other items”? It seems to me that he has in mind making a “down payment” on pensions in order to assuage rating agencies, and be able to, in the longer term, reduce the ongoing contributions without seeing a drop in the state’s credit rating.
This is not okay.
It was not right for our metaphorical fathers and grandfathers (not me – I grew up elsewhere) to have pushed off pension funding onto the next generation. It was not right for lawmakers to come up with a fix that will require a do-over by a future generation, with Tier 2 pensions. And it will be just as unjust to push off the problem for another day, to gain more money in the here-and-now for cops and education, leaving our children (if they stay in the state) to figure out how to pay the benefits that have come due.
As always, you’re invited to comment at JaneTheActuary.com!