Carnival Shell Game with Illinois State Pensions

From the office of State Senator Chris Lauzen (25th District)…

On November 4, 2010, all State Senators were called to Springfield ostensibly to vote on a $4B proposal to pay into state employee pension plans. The Democrat leadership had a political caucus off-site, but no vote was taken on the important fiscal matter, nor any other substantive issue.

Last year I believed Governor Quinn’s promise that he would spend approximately $3.5 Billion in borrowed funds wisely and, incredibly (for me), I voted “yes” to give him broad borrowing and spending authority. Unfortunately, that promise was broken and nearly all of that debt was used to pay for public employee pension deposits, while our schools languished and social service agencies were decimated.

Fool me once, shame on you – – fool me twice shame on me.

Two days after the election, Governor Quinn was back again to squander another $4 Billion of debt on a desperately bankrupt pension system. He still has not presented a comprehensive plan of real cuts nor even tax increases that will restore solvency to Illinois—despite the false statements he made regarding the budget during the campaign.

If you believe, as I do, that the pension promise made to public employees represents a real financial obligation, then creating new debt to pay off this existing debt is like borrowing on your Visa at a higher interest rate to pay off your Discover credit card. It’s an unfortunate carnival shell game being played with important pension obligations… shuffling deck chairs on the Titanic as it slips beneath the frigid waves.

What makes the credit card analogy even worse for Illinois is that the guy holding both credit cards is bankrupt. If you don’t believe me, look at four pieces of evidence:

  • Unfunded liabilities exceed assets by $80-100 Billion where the State’s entire annual general revenue is a bit over $25 Billion.
  • To pay that amount back over a 30-year mortgage with no interest cost, it would take more than $200 million every 30 days over the next generation of years.
  • Crain’s Chicago Business reports that the state pensions are “eating their seed corn” selling assets to pay current benefits, i.e. a forced liquidation of assets in a bankruptcy.
  • To issue the last set of state bonds, taxpayers were penalized an extra $550 Million in interest cost over the life of those bonds.

Folks, you just reelected the leaders who produced this mess over the past eight years to another four years under their direction.

At least three reasonable reforms that must be implemented to close and seal the holes in the leaky bucket before we start pouring more money into these pension funds are:

  • Ask state employees, including teachers, to please work until 62, rather than the current 55 years old, which is early retirement under Social Security that our neighbors receive.
  • Cap the maximum pension pay at a whopping $120,000 annually, or $10,000 per month for no longer coming in to work. (It takes $3 Million of assets at 4% safe return per year to produce that $120,000 for every single retiree. Staggering!)
  • Eliminate “double-dipping” multiple state pensions.

Without these commonsense reforms, I will not only vote “No”, they’ll have to add a new button to my voting console that votes “Heck No”.

Governor Quinn has not produced a comprehensive budget plan in two years including repayment of our enormous debt. It looks like voters have sided with the public employee unions and voted themselves a stiff tax increase in Illinois. My guess is that Chicago Democrat leadership will implement what they can claim is the majority will of the people by the end of January.

The really sad part of all this is that this pension borrowing won’t solve the fundamental spending binge, and it will accelerate the exodus of employers-with-jobs and seniors-with-assets from our state. Pensions seem to be a higher priority to the current and newly-elected Springfield Democrat one-party leadership than paying the bills for local schools and social service agencies.

I hope I’m wrong, but it appears that Illinois is in a comparative economic death spiral. I will continue to give the best recommendations that I can think of to the Chicago Democrats who are still in total charge of Springfield (Quinn, Cullerton and Madigan), but hope for much different results.

Copyright Publius Forum 2001