First comes the over-promising.
Then comes the euphoria generated by the over-promising.
Then comes the under-delivery that inevitably arises from the over-promising.
Illinoisans have seen that evolutionary process before. Will they see it again with Gov. J.B. Pritzker’s proposal to consolidate the roughly 650 suburban and downstate fire and police pension programs?
Last week, in revealing the consolidation measure proposed by a task force he appointed, Pritzker characterized it as a potentially “momentous achievement in state history.”
Influenced by the governor’s words, a headline in The Chicago Tribune described the measure as potentially “one step toward a full healing” of the municipal fire and police pensions’ severe financial problems.
Surveying the reaction, financial analysts at Wirepoints countered that “consolidation should have happened years ago” but warned that, even if approved by the Legislature, it still won’t come close to dramatically narrowing many of the funds’ deficits.
“The proposal doesn’t reform how Illinois hands out retirement benefits. And it doesn’t change the fact that cities are hamstrung by state control of the pension rules. So while the savings could be meaningful for the public safety funds, it won’t end Illinois’ pension crisis or its worsening trajectory,” Wirepoints analysts Ted Drabowski and John Klingner wrote.
At the top of the Legislature’s to-do list when it returns to Springfield on Oct. 28 for its fall veto session, the plan would consolidate the hundreds of local pension funds into two investment pools — one for police and the other for firefighters.
While local pension boards would continue to exist to determine benefits, the two funds would oversee investments, the promised benefit being a reduction in administrative costs and increased investment gains generated by the greater flexibility enjoyed by larger investment pools.
The task force contends that “because many (local police and fire pension plans) are so small, they are unable to gain access to investment opportunities” that go to larger plans. It estimates that two new investment funds could gain an additional 2 percent return per year at a lower cost.
It projects that the two funds, which would control roughly $15 billion, could generate an additional “$820 million to $2.5 billion” over a five-year period, or between $164 million and $500 million a year.
That’s a lot of money. But how realistic are the governor’s projections?
Wirepoints insists the “investment estimates are overly optimistic.”
“A look at the 10-year returns of various Illinois funds in the report show the gains might be $160 million to $300 million a year. That’s still very significant — 15 to 30 percent of what taxpayers put in today — but not nearly as high,” Dabrowski and Klingner assert.
Whatever the specific numbers, it’s foolish not to take steps that would generate greater income at lesser costs. Still, as big as they are, the additional funds represent a drop in the bucket compared to municipal pensions’ collective underfunding woes.
The Illinois Policy Institute reports that the collective funding ratio for downstate police and fire pensions is just 55 percent. Some municipal pensions — Champaign and Urbana — are relatively well-funded, while others — Springfield, Peoria and Danville — are not.
Dollarwise, the police and fire pensions are underfunded by $12.4 billion.
According to the Illinois Municipal League, suburban and downstate firefighter pensions have $6.3 billion in funding but are short $5.3 billion. Police pensions have $8.7 billion in funding but are short $7.1 billion.
Even those numbers pale in comparison to the collective underfunding of the state’s five pension plans — teachers, university employees, judges, legislators and state employees.
Depending on the calculation used, they are underfunded in a range from $136 billion to $250 billion.
Municipal pension costs are taking larger and larger bites of local property-tax revenues while at the same time, appropriations for state pensions are crowding out funding for core programs like education. Nibbling around the edges, while helpful, won’t get at the real issues driving Illinois’ calamitous financial woes.
Jim Dey is a staff writer for The News-Gazette. His email is firstname.lastname@example.org.