October 11, 2013
Pension reform in Illinois, as those who follow it know, is in the hands of a special committee of ten Illinois lawmakers. Direct from a committee member yesterday, here is the latest on the proposal they will likely end making to the Legislature:
– $138 billion reduction on pension outlays over thirty years (presumably, mostly through COLA changes), though members are still $12 billion away from full agreement on that number.
-Those reductions are heavily back loaded.
-Senate President John Cullerton finally will agree to some benefit reductions to achieve that number.
-Required annual pension contributions by the state would drop by a little over $1 billion.
-“100% certain” that the proposal will contain tough “guaranty” provisions.
-An optional 401k plan will be included “to satisfy the right wingers.”
-Getting the proposal through the legislature in the upcoming veto session is possible but doubtful.
These terms are roughly the same as earlier reported, which is to say there is little real reform at all and the can will be kicked. $138 billion sounds like a lot, but remember that total pension obligations over 30 years exceed $600 billion, and by back loading the savings the state would really just be promising to start making real cuts in about 25 years, a promise they could rescind at any time. They focus on that 30 year outlay reduction because that number sounds so huge, but the important number is the unfunded pension liability. No word on an exact estimate for that but, based on past analyses, these changes would likely reduce the true unfunded liability by less than one-fifth. Worse, those “guaranty” provisions effectively put a priority lien on state cash to make sure it goes into pensions ahead of other services. The value of those guaranties to the union pensioners far exceeds the minor benefit reductions.
In short, there will be no pension reform coming out of this committee. Whatever is passed will be widely celebrated. “Problem solved,” you will hear. And within another year it will be clear that little was accomplished, and the problem will have been made more intractable by the guaranties. Of course, this is just for the five state funds and not Chicago’s, Cook County’s or the other 650-plus other municipal pensions in Illinois, which have their own massive problems going unaddressed.