The P Word – Pensions. In Illinois. That’s a scary word for taxpayers. For recipients, it is something to be defended at all costs.
This topic makes my head spin. Literally numerous articles and even an entire book have been written about Illinois pensions. I am not going to regurgitate other people’s work or explain every nuance to every pension plan or everything that has been said about pensions in Illinois, instead, I will provide you with some of my personal experiences involving the issue and some links from credible sources.
At some point, the pension problem will come to a head. News this week suggests that for Chicago that could happen sooner than later.
First, here’s the “alarming” report on Chicago pensions – their drowning! Even the Union-owned Sun-Times couldn’t avoid writing about it:
It’s a good thing Mayor Brandon Johnson established his own “working group” to find long-term solutions to Chicago’s pension crisis. The mountain is getting steeper to climb. Chicago’s unfunded pension liability rose by 5.4% in 2022 — from $33.6 billion to $35.4 billion — after stock market losses suffered by the four city employee pension funds. The Firefighters Pension Fund hovers closest to bankruptcy, with assets to cover just 18.8% of liabilities. That’s followed by Municipal Employees (20.7%), Police (21.5%) and Laborers (39.9%).
Let’s be clear here – there’s no recovery. I once asked the executive director of the Teachers Retirement Fund what is the point of no return and he said 30%. There should be no confusion from anyone reading this – these pensions are bankrupt. Plenty of people have tried to warn legislators and workers of the situation and all of it was ignored. One politician after the other, refused to take the situation seriously and so now they are hoping for a federal government bailout which isn’t inconceivable. Biden’s $1.9 trillion COVID relief bill includes $86 billion to bail out union pension plans.
Any private pension fund would have been taken over by the Feds, had those in charge fined, and had pensioners receiving pennies on the dollar. The way these benefits have grown and then not been funded expecting taxpayers to continue to pay more is the height of arrogance by the public sector unions and politicians they control. It is malfeasance of the highest order to have pensions funded at 18% and then expects future taxpayers to shut up and pay up.
But, you can bet that Brandon Johnson’s solution is higher taxes and not just for Chicagoans, but for all Illinoisans. Wirepoints has even more details in this report: Johnson’s next headache. Chicago’s pension funds are running out of money – Wirepoints | Wirepoints Here’s what each household is on the hook for:
Officially reported pension debts of the four city-run funds plus those of the teachers and the park district jumped $3.6 billion last year and now exceed $50 billion. That means each of the city’s one million households will, on average, have to fork over about $50,000 in future taxes to plug the hole for services that have already been rendered.
By way of background, I served on the pension committee for four years, filed reform bills related to pensions, and was asked to speak about the topic many times.
In a nutshell, since pensions were first introduced, politicians have been enhancing the benefits and kicking the payments down the road for the next generation of politicians and taxpayers to deal with. Now it’s all coming to a head. The worst pension legislation to be passed was the Edgar pension ramp.
The ramp massively increased required contributions in the out years, foolishly thinking that taxpayers in the future could afford payments many multiple times the payments in the 1990’s. So, in 2011 they began a Tier II pension system for new hires. The benefits were significantly less but the employee contribution was the same as Tier I employees so there was an inherent unfairness about the new plan. Tier II also wasn’t evaluated as to its compliance with social security, a requirement for any pension plan. Everyone has known about the potential compliance problem for years and did nothing. I personally find it infuriating when I specifically asked about the issue eight years ago and Democrats ignored the problem and now Democrats are demanding that Illinois studies it and they have legislation to adjust Tier II even ahead of any study being completed. Read this Forbes report for more details on Tier II.
Here are a few more bullet comments.
In 2013, I was a new legislator in Springfield when the legislature passed a much-vaunted pension reform bill in 2013. (I voted NO – it wasn’t constitutional and it wasn’t significant enough.) I questioned Mike Madigan, the bill sponsor, on the specifics – he didn’t have answers. I later defended my position in front of a crowd with other experienced legislators – and 18 months later, I was proven correct - the Supreme Court ruled the legislation unconstitutional.
That whole effort to pass an unconstitutional bill took up three years of hearings, special task forces, committee meetings, editorials, expensive analysis, and lots of hot air. Madigan -and others – knew all along it was unconstitutional. They were just doing the bidding for the unions while kicking the can down the road.
That year, however, I did have one big win. The Chicago Public School Board, short on cash, tried to get a three-year reprieve from paying anything into the pension fund. This is after not having paid in anything (or a very small amount) for 13 years. The pension fund had dropped from being 100% funded in 2000 to 50% funded in 2013. I knew that the sponsor of the bill knew that giving them another three-year pause on payments was wrong and when I simply read her own words back to her that it was wrong to skip pension payments the bill failed.
In this four-minute video from 2013, you can hear about the games that have been happening for YEARS! It is 6 pm at night on the last day of session and pension reform has been promised and has passed the House but not the Senate. And in fact, I am right that it isn’t going to pass the Senate. Pension reform bill that year didn’t pass until December.
In subsequent years, there have been pension enhancement bills every year all in the name of fairness with no consideration of the taxpayers.
In multiple towns, Danville, Springfield, and Peoria property taxes collected only go towards pension payments – not any part of infrastructure or operations. And in many places a pension fee is now added to utility bills.
The Illinois state budget has not paid its actuarial contribution for years. Instead, it pays a “statutory” amount that is $4 billion less than is needed to be considered enough to satisfy the funding. BUT DON’T BELIEVE the line that taxpayers haven’t paid in enough, they have paid in plenty. The problem is overly generous pensions. Average teacher total payout for those who work a full career, 33 years, will be over $2 million. This report, again from Wirepoints, goes into the details about overpromised, not underfunded. Illinois state pensions: Overpromised, not underfunded – Wirepoints Special Report | Wirepoints
Brandon Johnson has a problem. And everybody who can do something about it has known this for decades. He has set up a committee to figure out solutions, but as Mary Pat Campbell writes (and warns):
It will be interesting to see what comes out of this committee. I am not necessarily assuming they will be detached from reality until I actually see their work product. They may be very realistic as to the likelihoods. Of course, perhaps their only purpose is to try to work deals with the Illinois. state legislature. We shall see.
Taxpayers Beware. The Unions always win in this state and now they’ve enshrined their economic well-being as a constitutional right in Illinois. There’s no solving this pension situation rationally. But, there will be only irrational proposals made. Don’t forget:
Madigan suggested in 2014 to shift pension payments for teachers to the local level without shifting the ability for locals to modify the pension rules.
The Chicago Federal Reserve shamefully suggested in 2018 that homeowners pay a 1% annual pension tax on the market value of their home for 30 years to pay off pensions. For an owner of a $500,000 home that would be another $5,000 on top of what they are already paying. - FOR 30 YEARS! Pure insanity.
Pritzker proposed a progressive tax and there’s been talk of trying to do that again. The only good news is that pensions are back in the news.
Time to rip the band off – start by making all new hires subject to a 401k-style plan just like the private sector. Police and Fire can have a hybrid, part-defined benefit, part-defined contribution – just like the American military. Just Stop the Insanity.
Coming Next Week - Stupid Bills