Illinois has a massive pension problem. A new report maintains that the biggest contributor to the shortage isn’t that state taxpayers have underpaid public retirements, but politicians overpromised.
In the last three decades, the five state-offered public pension systems’ benefits have increased by 1,000 percent. That’s eight times more than the income growth of the Illinoisans who are expected to pay for it. The report was released Tuesday by financial watchdog Wirepoints.
President Ted Dabrowski said politicians are wrongly placing the blame on taxpayers for not paying enough.
“Every time you hear the word ‘underfunding,’ there's always the implication that taxpayers didn’t do their part and that’s the problem,” Dabrowski said.
Taxpayers, the report said, have paid $24 billion more than was required by the “Edgar ramp” pension restructuring plan passed in 1996 by then Gov. Jim Edgar.
If pension benefits were kept to even double the rate of inflation over the past 30 years, state pensions would now be fully funded instead of at least $130 billion short, the Wirepoints report said.
“We would not have the crisis we’re in,” Dabrowski said. “Because we’ve handed out benefits at a far faster rate, like three to four times the rate of inflation, that’s why we have the problem we have today.”
The report, authored by Dabrowski along with analyst John Klingner, profiled some of the benefits received in the negotiations with lawmakers since 1987:
Added compounding to a retiree’s 3 percent cost-of-living adjustment. That doubles a retiree’s annual pension benefits after 25 years.
Significantly increased the pension benefit formulas for the Teachers’ Retirement System, or TRS, and the State Employees’ Retirement System, or SERS.
Provided lucrative early retirement options.
Allowed workers to boost their service credit by up to two years using accumulated unpaid sick leave.
Granted automatic salary bumps to workers who earn masters and other graduate degrees.
Allowed spiking of end-of-career salaries.
Some have insisted that Illinois isn’t taxing enough to generate the revenue to fully fund pensions.
“Simply put, the Illinois tax system consistently fails to generate enough revenue to maintain the same level of public services from year to year, after adjusting solely for inflation,” said Ralph Martire, Director of the union-backed Center for Tax and Budget Accountability in an op-ed about pension reform from 2013. Martire also has advocated to abolish Illinois’ flat tax and replace it with a progressive tax in which rates increase with income levels, saying it would generate the tax money needed to pay for Illinois’ pensions.
Illinois temporarily raised, dropped and then re-raised its income and corporate tax rates to 4.95 and 7 percent respectively. Yet, Gov. Bruce Rauner’s office announced this week that the state would be requesting $1.1 billion more from the General Assembly to cover a budget shortfall.
Pension payments account for a quarter of budget spending.
Ninety cents out of every additional dollar earned from the 2011 income tax hikes went to pay down pension obligations.
Illinois’ pension funds also took a hit worth billions of dollars during the Great Recession, but have since recovered much of that lost value.
The state must reach a better deal for taxpayers with public unions, Dabrowski warned. If not, bankruptcy must be considered, an option that would first have to be approved by U.S. Congress.