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A visit from the Ghost of Pensions Future

Fri, 21 Dec 2012 04:06:34 CST
By: IPR's Tony Arnold

A visit from the Ghost of Pensions Future Yesterday, we received a visit from the Ghost of Pensions Past which shed light on how Illinois came to have the worst-funded pension system in the country. Basically, for decades Springfield chronically shortchanged the pension piggybank. Now, we continue our series by looking at how we might dig ourselves out of this mess. For that it's time for a visit from the Ghost of Pensions Yet To Come. What will Illinois state employees be saying about their retirement plans 30 years from now, based on the decisions made today? IPR's Tony Arnold reports on what's ahead with the Ghost of Pensions Future.

   

Visit the Ghost of Pensions Past

If you're still not sure how bad Illinois' current pension crisis is, well, clearly you haven't been paying much attention to Gov. Pat Quinn. Quinn has compared the current pension situation to the Battle at Waterloo, the sinking of the Titanic and more recently, the fiscal cliff. He's even talked about it in somewhat cosmic terms. "We can accomplish something that will last far beyond our years here on earth," Quinn said earlier this month.

Basically what you need to know is this: Illinois is $95 billion dollars in the hole when it comes to funding its state worker's pensions systems. It took decades for the state to get in this fix. And it may take at least that long to get out of it, which is why the governor often talks in terms of legacy. Whatever is done to deal with pensions now could have an impact on the state's finances for the long haul. It's a thorny problem, one that has bedeviled Illinois politicians for years. So the question now is, who will answer the call? Well, Daniel Biss for one. Biss is fairly new to the Illinois Statehouse and represents the 17th District in the House of Representatives. When the north suburban Democrat was first elected, he actually volunteered to serve on the two pension committees. "Of course, I didn't understand that nobody wants to be on the pension committee," Biss said in an interview.

When asked if the pensions committee was anything like sitting at the lunch table with the cool kids, Biss said, "You know, I come from mathematics. So I don't even know how to find the cool kids table in the cafeteria, but I'm pretty sure this isn't it." Biss used to teach math, but not just any math. He taught algebraic topology. "So what that was, still is, without me, is using algebraic structures to study higher dimensional geometric spaces," he said. So if Biss can use algebraic structures to understand higher dimensional geometric spaces, then pensions should be a breeze, right? "Well let me begin by leveling with you," Biss said. "It has not been the case that the exact work I did as a mathematician has carried over directly into pension work."

Okay, so who else we got? How about Republican State Representative Mike Fortner? Fortner teachers physics at Northern Illinois University and is a particle physicist at Fermilab who's spent 20 years studying the nature of matter. But he also has been studying the state's pension situation. "When I started looking at the pension problem, to me, seeing something that was growing too fast for our revenue, this looks like a math problem that you oughta be able to take a spreadsheet and unroll the spreadsheet and put in numbers and say, 'What will it take to make the pension system sustainable?'" Fortner said. Fortner may be onto something here. Let's run with that math problem idea. Imagine Professor Fortner and Professor Biss are standing at a chalkboard. If funding proposal x is added to proposal y is added to proposal z, what will it take to zero out the $95 billion pension debt? There are lots of potential answers, some more divisive than others, but let's look at just four of them.

Idea #1: 401K Plan
Fortner likes the idea of giving employees a choice to enter into a plan similar to a 401K, where the employee manages their own investment strategy. He said some university employees around Illinois already have plans like this, so the state can more easily predict what it's getting into. "They have a choice as to what system they are going into," Fortner said. Fortner said he's crunched the numbers and this idea can work. Then again, many analysts say it won't save enough money.

Idea #2: Dealing with Pay Increases
Retired state employees currently get pay bumps each year to help them keep up with the increasing costs of, well, everything. Biss said those pay bumps are expensive. "I think everybody agrees you can't solve the problem without having some impact on that," he said. Biss has proposed delaying those pay increases to later in an employees' retirement. But Fortner said the state has already committed to those pay bumps and they'd be hard to change.

Idea #3: New Revenues
Arguably the most controversial idea involves straight up changing who pays for pensions for downstate and suburban teachers. Currently, the state pays which Biss says makes no sense. "If you were to blow everything up and restart, you would never come up with the current system," Biss said. "You would never say the school districts donít even have the retirement costs of their employees on their budget." This funding proposal would gradually make each school district pay. But Fortner says school districts would need more cash, which would have to come from somewhere. "In the districts I represent, most of the revenue has to come from the property taxes and property taxes are already pretty high and that's one thing that the public pretty frequently says, 'We don't want to see higher property taxes,'" Fortner said. And that brings us to the impact these will have on state employees who have been banking on these pensions. How do they feel?

"Truthfully, I don't like the sound of a whole bunch of stuff," said Patricia Ousley, who has worked for the state's unemployment office in Chicago for more than 36 years. She's also very active in the union and is the president of Local 1006. Ousley said she put in her money for retirement, but the state didn't hold up its end of the bargain. Now she worries about all these new pension formulas and how they might affect someone like her who's looking to retire soon. "I do have grandkids and I spoil them when I can just because I can, because they're grandkids," she said. "And you want to have money to do that and I think once I leave here, being on a set income, those things will be depleted somewhat. I won't be able to do what I do now." Ousley said she doesn't know what it will take to make the pensions sustainable. But she suggests raising taxes.

The problem is almost everyone agrees that raising taxes isn't going to fix the problem; that pension costs are rising too fast. So it will likely take more than one idea to get the state out of this jam, which brings up its own issues. Namely, a little thing called the Illinois Constitution. "You have to understand that we have a constitution which is very specific about how you deal with changing pensions. You cannot unilaterally pass a law to reduce someone's pension," said Illinois Senate President John Cullerton, who has his own plan.

Idea #4: Cut benefits
Cullerton wants to offer state workers like Ousley a choice: take a cut in health care or take a cut in pay bumps retirees get every year. Cullerton, who already passed the plan in the Senate, said the beauty of his formula is that employees get to choose. According to the Senate leader, that makes it the most legally sound option out there. But Biss, who would still have to vote for it in the House, is critical of the plan. "On a human level, if you're asking someone to choose between health care and their pension, it doesn't feel like a positive choice," Biss said.

So where does this leave things?

Well, unfortunately it's not just a math problem, it's also a political and legal problem. If the courts strike down whatever may be approved, some lawmakers worry they'll end up back at the chalkboard, essentially erasing all those equations for pension reform we mentioned. That means future Illinoisans could be dealing with this for years to come. If so, Daniel Biss's kid already has a head start. "My older son is four years old and the other day he was saying to my wife, 'Mommy, I just hope that I have a pension,'" Biss said. "I don't know if he knows what a pension is, but he knows two things: One, that there are things that make you nervous, and two, there are things that you hope are going to be there for you.

That's something just about everyone can agree on.

(photo illustration courtesy WBEZ-FM)
   

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