Greising: Pritzker Sends Troubling Signals on Pension Crisis
BGA President David Greising writes a regular column for Crain's Chicago Business.
Gov. J.B. Pritzker on Feb. 20 will lay out his budget to the Illinois Legislature. And unlike in his predecessor's first year, he's actually likely to get a budget passed.
After all, he's a Democratic governor with a Democratic Legislature—a supermajority to boot.
The trouble with the can-do scenario is that, all too often, political agreement in Springfield on budget and fiscal issues has not turned out well for Illinois taxpayers.
Gov. George Ryan’s plan, in 2002, was to reduce costs by offering early retirement to state employees. But so many people took the offer that the plan, initially estimated to cost $543 million, wound up costing the pension system $2.3 billion.
Fast-forward to now. Decades of bad decisions—spend now, pay later under both Democratic and Republican governors—have created one of the most fiscally strapped state governments in the nation.
Just how bad off is Illinois?
A Feb. 5 report by Moody's, the credit rating agency, tallied a few of the salient facts.
Just a decade ago, pension payments consumed about 8 percent of the state's revenue. By 2017, they were consuming 18 percent, according to Moody's analysis of state financial reports.
Illinois can't even keep up with what Moody's refers to as a "tread water" level of payments. "Tread water" payments cover only new obligations plus accrued interest for the pension plans. They don't begin to address Illinois' $130 billion in unfunded liabilities.
In the last fiscal year, Illinois needed to pay $11.3 billion just to tread water. But actual payments by the Rauner administration fell $3.5 billion short of that mark, Moody's said.
As a measure of just how deep the state's political morass has grown, we need look no further than a report that came out Feb. 5 from the Civic Committee of the Commercial Club of Chicago. In it, the Civic Committee calls for tax hikes and spending cuts—and expects no material action on pensions.
Add it up, and the Civic Committee is taking a sober look at the state's politics and finances. Its decision to stand down for now on a structural fix to the state's pension problems is a reflection of prior failed efforts to work around a state constitutional ban on diminishing or impairing employee pension rights.
The Civic Committee is the strongest bulwark of establishment Chicago. Its "Illinois is Broke" austerity campaign beginning in 2010 fell mostly on deaf ears.
Writing a decade ago, the committee foretold an Illinois that now exists. "The state then will be faced with two difficult choices: massive cutting of state expenditures and grants, or raising taxes to such a high level that some businesses and residents will flee Illinois. Or both," the Civic Committee warned.
Spending has not been cut. But the committee was right about the rest: Taxes are higher, and people are fleeing Illinois. Moody's notes that Illinois is the only state that has lost population five years in a row.
With that context, the Civic Committee's new formula for reform is worth noting. The group calls for a net of $6 billion in new or higher taxes this coming fiscal year, $1.5 billion in spending cuts on health care and general operations and a net increase of $1.5 billion on pension contributions. It also foresees paying $1.5 billion toward an estimated $7 billion backlog of unpaid bills. A new tax on retirement income would yield a third of the increased revenue.
The Civic Committee's heavy reliance on tax hikes is a concession to the political reality of a Democrat-dominated state government. The dim confidence in any prospect for pension reform is a concession to reality, too.
Even if a state constitutional amendment were in the works, it would take years before the impact would be felt.
As is, the Civic Committee's hope for reduced spending on health care and government operations will rely on whether Pritzker has the stomach for such cuts.
He so far has shown little tendency toward fiscal austerity, and initial moves like the catch-up on union pay hikes and a privately funded boost to his staff's salaries both seem to augur more spending ahead.
Pritzker hasn't given his budget address yet, but the signs are pointing in directions that concern the state's fiscal hawks.