Financial problems surrounding public pensions in Illinois are a ticking time bomb that threatens to blow state government sky high.
Gov. Pat Quinn made a big deal last week about signing new legislation designed to put an end to a series of outrageous abuses of public pension plans.
In one horrific case, a politically connected Chicagoan who had earned $15,000 annually while employed by the city was allowed to base his pension on the $300,000 annual salary he received as the leader of a labor union, a private organization. Another outrage allowed two union lobbyists to be eligible for $100,000-plus public pensions from the Teachers Retirement System based on one day's work as substitute teachers.
"The pension abuses unearthed were flagrant. They needed to be stopped immediately and prevented from ever happening in the future. I'm pleased the Legislature voted overwhelmingly to address this issue. We look forward to working together in 2012 to tackle the remaining pension challenges that face Illinois," Quinn said.
But Quinn is speaking strictly for himself. He may feel the urgency to craft legislation addressing the public pension problems in Illinois. But state legislators have been studiously ignoring the problem, lest it interfere with their precious re-election plans.
In past months, there have been repeated efforts by some to draft a legislative response to the financial problems surrounding public pensions, but there has yet to be a formal vote.
Here are two basic problems facing the state's public pension systems:
— Because the state has chronically failed to meet its payment obligations over the years, public pensions are sorely underfunded and the problem is getting worse.
Unfunded obligations for state pension systems, like those for retired teachers and university employees, increased by $7 billion in 2011 — to $82.9 billion — while the funded ratio dropped from 45 percent to 43 percent. As if that is not enough, the lagging economy has undermined the ability of the pension funds to earn strong returns on their invested assets.
— Because the state is trying to get control of the underfunding problem, more money is being appropriated to reduce the pension shortfall at the expense of fundamental state obligations.
In a recent report, the Illinois Policy Institute outlined one grievous example of this reality.
"Many applaud increases to state education funding. However, over the past five years, 71 cents out of every new dollar set aside by state government for PK-12 education instead went to cover the costs of teacher retirement. The crowding out effect will only get worse as state contributions to (the Teachers Retirement System) quickly begin to ramp up," the Institute reports.
A Quinn spokeswoman recently disclosed that the governor intends to put together a group of interested parties to address the pension issue. Any effective plan will necessarily affect thousands of public employees.
Legislators already have changed the rules for state employees hired after Jan. 1, 2011. In 2010, they passed legislation raising the retirement age to 67 and limiting the maximum allowable pension new employees can earn to roughly $100,000 a year.
Officials say the changes affecting post-Jan. 1, 2011, employees reduce the actuarially accrued liability by more than $200 billion by 2045.
The policy challenge is huge for longer-term employees. But it's small change compared to the political priorities of incumbent legislators seeking re-election. Any change in the status quo will not only upset public employees but bring down the wrath of the unions who represent them. That daunting reality is all members of the House and Senate need to cling to the pension status quo.
Legislators won't say that, of course. Their preferred explanation for inactivity is that the Illinois Constitution forbids changes in an employee's pension plan once he is enrolled. But the real legal question is not whether the state can reduce the benefits an employee already has earned but whether it can change the rules regarding pension benefits yet to be earned.
That's an issue for the courts to resolve, not one for timid legislators to embrace as a shield against facing a tough issue.
Skyrocketing public pensions and Medicaid costs threaten Illinois state government because they are consuming larger and larger amounts of the tax revenue that traditionally has funded social services, education, mental health and law enforcement.
If that broad array of services is to be maintained in a credible way, the General Assembly must act. Gov. Quinn has wisely indicated he wants to lead the way to a solution, but our legislators must follow.