Tuesday, February 07, 2006

The Debt's Come Due

Reminding elected officials and the public alike that this is an issue that is not going to go away, today's Chicago Tribune editorial torches the state of our pension obligations.

The main aim of the Trib editorial seems to be to undo the Governor's proposed, and as of yet unfunded, capital plan. But they also take a pretty solid shot at great-sounding, but unfunded, new programs. And they do it pretty bluntly and effectively, namely by setting out hard numbers that say that, well, we're broke. Here is the thrust of the editorial:
Last June, the state's five pension systems had $58 billion in assets but $97 billion in accrued liabilities. That 60 percent funding ratio is one of the worst in the nation for state systems.

The liabilities will keep growing quickly. Even after all the borrowing and raiding, the state has to come up with $1.37 billion for pension funds in the next year, according to a bipartisan legislative panel that monitors state finances. That's $437 million more than this year. And that difference is about half of all the new revenue the state expects to rake in next year.

That doesn't leave a lot for new spending on schools, universities, health care, child welfare, law enforcement, prisons and everything else.

It gets much worse. In 2008, the state has to put $1.98 billion into the pensions. In 2010 that soars to $3.4 billion. And it keeps going up from there.

So no one--not the governor, not his opponents, not the 177 members of the House and Senate--should be allowed to talk about flashy new ideas that cost money. They don't have the money. It's going to be soaked up by the pensions.

It's not much fun for politicians to talk about all the money that has to go to promises already made. They'd much rather talk about new promises. But they can't talk about new promises--like a $3.2 billion deal for roads and bridges and schools--until they have a real way to pay for the old promises. And right now they do not.

The governor has skated on the fiscal edge, avoiding calamity by payroll-slashing ... and a lot of borrowing. Since he took office in 2003, the state's general obligation debt has jumped from $7.6 billion to $20.3 billion. Debt service now costs taxpayers $1.6 billion annually, double the pre-Blagojevich tab.

So lawmakers need to be honest as they debate Blagojevich's new building plan in coming weeks. With the pension noose tightening, the state can't afford to take on more debt, even for worthy goals. Borrowing costs money, and the state is going to need every penny it can squeeze--and then some--to keep its pension-fund-payment schedule.

The problem will not go away. This is serious.
What should also be considered serious for myself and other legislators is that the public is pretty tuned into this issue. For a number of reasons, there is a previously unseen awareness of our pension problems by the voters. In fact, other than property tax and education funding issues (which are actually related to the pension problem as well), I have more constituents talk to me about the pension issue than anything else.

When programs that people around the state care about can't be funded because of exponentially growing pension obligations, the awareness level will be further heightened.

Before the partisan attacks start, we should all admit that this problem is a long-term creation of Republicans and Democrats alike, so there are no real clean hands here.

We are presently leaving it to our kids and grandkids to pay our piper, and that's not right. Something real needs to be done to address this problem. And whoever takes the lead in getting it done will be seen as a hero. And rightfully so. Ideas anyone?

(Note- yes, I voted for the pension bill, yes I think that it was a bad vote, yes I apologized for it, yes I recognize that the apology doesn't change the bad vote that I cast - so let's talk about the bigger issue here).

3 Comments:

At February 7, 2006 at 10:43 AM, Blogger Bill Baar said...

Problem is to grow the economy out of this it's going to take wise capital investment.

We're not good at that in Illinois I think.

First step is to tell employees we can't pay what's promised and convert the system similar to the way the feds conversted the old civil service system to a combination of 401k like plans, social security, and a pension.

 
At February 7, 2006 at 1:02 PM, Anonymous Anonymous said...

Bill-

State employees under the exec branch already have a combination of 401K like plans, social security and a pension so what would be different.

To receive 50% of salary an employee must work 30 years. That is pretty much one's entire career and that gives you half. (Different, of course, if you are law enforcement or high risk)

Deferred Comp (the 401k) is not required but then it is also not matched like the majority of private industry is.

Social Security is received by most employees and probably resulted in lower per year rates.

Everybody wants to run state employees like they worked in private industry. Then you are going to have to start paying them more. Many of the technical and professional grade employees are undercompensated when compared to their private industry counterparts. Of course nobody likes to mention that.

 
At February 7, 2006 at 8:47 PM, Anonymous Anonymous said...

Rep.

I think it was a terrible vote! My rep, John Bradley also voted for it despite being told in advance that people here did not agree with him on it. My question, did the pension holiday apply to the GA pension plan too and how is the GA pension plan stand in comparison to my state employee pension? Is the GA plan as underfunded as the rest of us? I've heard it both ways but seem to have trouble getting a straight answer. At least you are big enough to admit the mistake and issue an apology. Enjoy your blog!

 

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