ST. LOUIS POST-DISPATCH
Piling
up credit card debt while making minimal payments has landed
plenty of people in Bankruptcy Court. But Illinois has gotten
away with essentially the same thing for decades in its
pension funds.
A recent set of reports from Auditor
General William G. Holland shows just how serious the problem
is. In the fiscal year that ended June 30 — a time when the
state's money managers earned solid returns — the unfunded
pension liability grew by $2.1 billion, or nearly 5
percent.
At $40.7 billion, the state has dug itself a
fiscal hole that is the deepest in the nation. On a percentage
basis, Illinois' 60.5 percent funding ratio surpasses only a
handful of smaller states. (Missouri is at an above-average
83.2 percent, according to a Standard & Poor's comparison
that uses figures from 2005.)
While many private-sector
workers may be jealous of public servants for getting any kind
of guaranteed pension, gold-plating of benefits doesn't seem
to be the problem. The Center for Tax and Budget
Accountability, a think tank in Chicago, calculates that a
typical Illinois pensioner gets $1,426 a month, slightly above
the national average for state-government retirees.
"It's not like we have too-generous benefits or too
many workers," said Chrissy Mancini, the center's director of
budget and policy analysis. "We just have a state that hasn't
paid its bills."
In fact, Illinois has skimped on
pension funding for at least 30 years. The Legislature
established a 50-year catch-up plan in the mid-1990s, but in
2005 it again slashed funding in a two-year "pension holiday."
That "holiday" cut appropriations to the largest fund,
the Illinois Teachers Retirement System, by $2.3 billion, said
fund spokeswoman Eva Goltermann. Its unfunded liability grew
by $422 million last year even as fund managers achieved a
market-beating investment return of 11.8 percent. (The
Standard & Poor's 500, a stock-market benchmark, returned
8.6 percent during the state's fiscal year.)
Goltermann
said workers and retirees need not worry, because the state
constitution guarantees their benefits. But taxpayers should
be concerned, she said. "If something isn't done to address
the pension debt, that will be something our children and
grandchildren will have to cover."
John Kenward, a
senior credit analyst at Standard & Poor's, is optimistic
that the shortfall will be addressed. "It is on the state's
front burner," Kenward said.
Gov. Rod Blagojevich has
proposed a series of dramatic fiscal moves, including a sale
of the state lottery and a new gross-receipts tax on
businesses, to help fund pensions and increase spending on
education and health care.
Mancini doesn't like the
gross receipts tax — it's burdensome to business and probably
will hit poor consumers hard — but she's hopeful that other
parts of the governor's package will be enough to make the
pension situation better.
In particular, she said, it's
probably a good idea to issue another round of pension bonds,
like the $10 billion of borrowed money Illinois plowed into
its pension funds in 2003. It's basically an arbitrage play:
The state assumes that its long-term investment returns will
be higher than the rate at which it borrows.
Like
taking out a mortgage to pay off your credit card, a bond
issue won't really solve the problem. But, Mancini said, "At
least that turns it into hard debt that the state has to
pay."
The danger is that once the funds look healthier,
some politician will call for another pension holiday.
Illinois definitely can't afford any more of those.
