Governor candidates address pension issue

By Sarah Severson

Governor Rod Blagojevich has been criticized by his opponents and by contributors to State of Illinois pension systems who said he took a “pension holiday” when Public Act 94-4 was passed in June 2005. That action reduced State contributions to each of the five State pension funds, including the State Universities Retirement System (a system in which many local University of Illinois at Chicago employees are enrolled) in fiscal years 2006 and 2007.

Blagojevich administration spokespersons, however, counter that the Governor has made changes enabling the State to lessen contributions to the funds and significantly reduce long-term pension obligations while keeping the funds solvent, an approach he will continue if elected for a second term.

John Filan, director of the State of Illinois Governor’s Office of Management and Budget, spoke on the history of the State’s pension funds at a recent hearing. He outlined Blagojevich’s actions since taking office in 2003 when, Filan said, Blagojevich inherited $43 billion in pension debt, accrued over the last 30 years from decisions made by previous administrations that consistently underfunded the pensions while providing more benefits without a way to pay for them.

Filan said the Governor has reduced the pension debt to $38 billion. Also, when he first took office, the pension was 48% funded; now, Filan said, it is up to 60% funded.

“Recent statements have referred to "raiding" Illinois state pension funds,” Filan said. “Those statements are nothing more than political rhetoric from elected officials who, for years, voted for budgets and benefits that drove the unfunded liability to $43 billion. If there’s something the Blagojevich administration has been deficient on when it comes to pension funding, it’s failing to aggressively halt the attempts of those who created the problem to then re-write history and try to pass the blame onto others.”           

Pensions underfunded

Because previous administrations did not make planned contributions for the pensions, Filan said, pensions were underfunded in many years. Blagojevich was able to reduce the amount going into the pension funds yet still bring the pension debt down by making structural reforms to the funds. According to Filan, those reforms saved $6 billion, and by eliminating 13,000 non-essential positions on the State payroll, saved $5 billion in State contribution requirements to the pensions over the next 40 years.

When Blagojevich took office, the State’s five retirement funds’ combined assets were $40.7 billion. As of June 30, cash and investments totaled $61.9 billion, an increase of slightly more than $21 billion that came from $12.2 billion of deposits by the administration up to that date, along with investment earnings.

“Governor Blagojevich’s administration has contributed the most funds to the State pension system of the last four administrations,” Filan said. “I believe that we have taken the first steps towards the pension reform necessary to strengthen the retirement system’s balance sheet, protect taxpayers, and preserve retirement security for our employees. We still have a long way to go and are committed to continue down that path.”

Filan said the Governor’s opponents neglect to give him credit for reducing the debt and shoring up State pensions.

“By any measure Illinois state pension systems for retirees and current employees are better funded and more secure that they were when Governor Blagojevich came into office,” Filan asserted. “Any statement to the contrary—particularly statements or inferences about ‘raiding’ or ‘stealing’—is not only patently false but screams for the records of those making those statements to be examined and the truth revealed.”

Casino money

If she wins the November election, Republican candidate Judy Baar Topinka plans to make State funds solvent using a combination of fiscal restraint and increased revenue. She plans to cut $3 billion from the budget and increase gambling income by putting a riverboat casino in Chicago and allowing the nine other State-licensed gambling boats to expand.

“She pledges to stop the raids and will pay back what’s been taken out,” said John McGovern, spokesperson for Topinka.

Topinka’s proposed budget plan states the most challenging spending issue over the next four years will be finding the resources and discipline to meet the State’s scheduled contributions to the pension systems. It does acknowledge the pension problem was created by several Gubernatorial administrations and resulted from insufficient contributions.

 

Rich Whitney, Gubernatorial candidate from the Green party, said if elected he will adopt a fiscally responsible plan for eliminating the structural deficit in the general budget by raising taxes from 3% to 5% for individuals and from 4% to 8% for corporations. He also would broaden State taxes on common services to raise $9 billion in new revenue.

Whitney would use that money to give some back to the bottom 60% of wage earners with an expanded earned income credit and would distribute billions to education and property tax abatements. He believes that combination would help alleviate the deficit, with some funding going back into the pension system.

'Like Mt. Everest'

“We’re behind schedule [with the pension fund payments], and right now it’s like climbing Mt. Everest with the way the schedule is going,” Whitney said. “We want to even it out a little. By stepping up payments over the next four years, it would be easier for future taxpayers. It takes a bigger bite out of the budget, but I have a plan to do that.”

J. Fred Giertz, professor of economics at the University of Illinois at Urbana-Champaign and the Institute of Government and Public Affairs, recently finished serving ten years on the State Universities Retirement System Board. He said Illinois’s retirement program is one of the most underfunded pension systems in the country.

Giertz said the economist’s answer to the problem is easy—raise taxes or take money from other State programs¾but the administration has chosen neither. He said the State and its citizens have a constitutional obligation to pay employees their promised pension benefits.

“There are still billions of dollars” owed to the State pension funds, “so this can go on for some time,” Giertz said. “The problem isn’t the employees getting paid, but that the money will come out of the hide of taxpayers in the future. The State is buying into an unfunded obligation.”

Giertz said people need to be more informed, to know that what they are saving now will be more costly in the future.

“They should bite the bullet now, or in a few years the problem will be greater,” he concluded.