By: Mark Glennon*

 

How does this sound for pension reform? Pass a law forcing taxpayers to automatically fully fund them in whatever-it-takes amounts. That’s what a guest piece in Crain’s called for this week. It did that by holding up, as a model to be replicated, IMRF — the Illinois Municipal Retirement Fund.

 

IMRF, you see, is unique in Illinois because it has that forced taxation funding. Municipalities must raise property taxes in amounts required to keep the pension up. Consequently, it’s much better funded than other pensions at 87% (though it uses the same optimistic assumptions as many others, like a 7.5% rate of return and a 3.5% payroll growth rate despite — despite Illinois’ declining population).

 

IMRF also uses that forced tax to “guaranty” 7.5% annually on a savings account offered only to its members, and a special “13th payment” each year for its members. We wrote about those in an earlier article.

 

IMRF is a big part of why so many municipalities in Illinois are growing broke. By forcing up property taxes usable only for that pension, it siphons tax dollars away from public services. It also crowds out capacity to fund municipal pensions for police and firefighters. Actually, maybe we would be better off if all pensions did have IMRF’s funding scheme because we would have seen long ago how unaffordable pension promises are and they would have been reformed then.

 

And guess who would be the author who wants forced taxes for automatic funding? Why, the head of the trade association for the folks who get paid to run defined benefit public plans. Here’s a link to the list of the board of directors of the association she runs. Yes, just make taxpayers give us all the money we need, she says. That solves the pension crisis. I really don’t think there’s anybody at Crain’s with enough understanding of pensions to see the cost of what the article proposes and the bias of who wrote it.

 

*Mark Glennon is founder of WirePoints. Opinions expressed are his own.

 

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Anonymous

Go Mark!

Anonymous

Waiting for the professor to put up some numbers on Chicago raising taxes…….
Waiting…

Andrew Szakmary
I do not quite understand your argument. The Illinois Supreme Court has unanimously ruled that the pensions are contractual obligations that must be paid when due, and given that this ruling was not appealed it is the last word on the matter. So if we don’t properly fund the pensions and keep kicking the can down the road as we have been doing for many decades, we are simply increasing the burden on future generations of taxpayers. Whether we pay now or pay later, either way, the accumulated obligations must be paid, unless you are advocating complete defiance of the Courts and the Constitution. I think that… Read more »
mark glennon
Professor Szakmary- Spare me the rule of law stuff. The rule of law includes law about insolvency under which debts get reduced all the time. It also ignores the reality that rules can change, and the other options for pension reform I have written about here that are within the law. You’ve often written that Chicago can solve its pension crisis by raising taxes. I defy you to put up the numbers showing how much, in dollars, it could raise and what that would solve. As for state pensions, you are Exhibit A about who should not get paid in full — somebody who began to collect… Read more »
Andrew Szakmary
Wow, I’m beginning to see why so many post anonymously to this site…. Regarding my pension, while I am certainly not belittling it, in proper context it is not as generous or out-of-line as it appears at first glance. I was relatively well-paid and contributed 8% of my salary to SURS throughout my Illinois employment, and because the state does not participate in Social Security, my SS benefits will be significantly reduced by the WEP and the GPO. I did this calculation two years ago: what if (in addition to my own 8%) the State of Illinois had contributed the employer portion of Social Security (6.2% of… Read more »
nixit71
I think Andrew’s pension is actually one of the few examples where the state comes out ahead. Since Andrew took another job after being employed by the state, he essentially “delayed” his locked-in pension payment for a number of years while his pension contributions (both er/ee) sat and compounded interest year after year (assuming 7.5% ROR). That’s good for the state, not so much for Andrew. If all pensioners spent the 1st half of their career in the public sector, then the other half away from state employment, the taxpayers should, in theory, come out ahead in pensions. And the longer the delay between leaving state employment… Read more »
mark glennon
Professor- Let’s start with Chicago. Its total property tax collections are about $900M, so doubling it would bring in another $900M. It has been paying only about $.5 billion into the pensions. Interest alone on the $20B pension liability, using the city’s discount rate, is $1.5B per year. Add in normal costs for continuing service plus some schedule to pay off the liability and you get to well over $2B. Even using the phony accounting the city uses in its financials shows annual pension cost at $1.8B. Conclusion: The unequivocal claims you have made in comments elsewhere that doubling the property tax would solve the problem are… Read more »
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