Republicans should lead on solving state pension crisis

Few better examples exist of needed reform — and of government’s incompetence — than what has been wrought by our state and local elected officials regarding the taxpayer funded state pension system.

We know what’s wrong — the government’s own number crunchers, the think tanks, and some very good journalists have outlined in detail the unfunded liability mess that’s been made. We even know what to do about it — when a system is unsustainable and taxpayers are already tapped out, the solution is to change the system.

As with all policy reforms, the buck stops with the governor and every member of the General Assembly. And since we don’t expect real reforms to come from Democrats, that leaves it to members of the other party.

Illinois Republican leaders have one of the best opportunities ever presented to any group of individuals in the history of Prairie State politics. The need for a fiscal house cleaning has been obvious to anyone paying attention for several years now — yet we hear nothing from Republicans.

What we should be hearing from them on the state pension crisis can be found in a policy summary from the Reason Foundation titled, “The Gathering Pension Storm: How Government Pension Plans are Breaking the Bank and Strategies for Reform” by George Passantino and Adam Summers.

Illinoisans can be proud as the second paragraph includes this:

In Illinois, taxpayers face a $35 billion pension deficit — the worst in the nation.

(Note: The Chicago Sun-Times updated this number in June, 2008, to $44 billion.”)

In the fourth paragraph we’re told that nationally the unfunded liability of government pensions is $350 billion — so we’re responsible for a tenth of the total right here in the grand old land of Lincoln.

The authors of the study, Passantino and Summers, put it in plain terms: “policy decisions” have “created the crisis,” so there’s no use in wasting time blaming the markets or searching for any other rationalization.

At the heart of the pension crisis is a set of incentives that encourages policymakers to make decisions for which they do not have to bear the consequences. Since…lawmakers, and union officials will not bear the costs of the benefit increases they preside over, there is no incentive for them to show fiscal restraint.

Passantino and Summers call it a “reality” that —

…taxpayers have been abused to promote political agendas that promise extravagant retirement benefits to government workers—even as the taxpayers themselves work longer to prepare for their own retirement.

The problems won’t show up until future years. In the meantime the generous pension plans continue on. “Extremely liberal policies” such as unused sick days and vacation time that can be “sold back” thus spiking final compensation figures that increase pension benefits.

In Illinois, the now infamous tactic of irresponsible school boards and administrators to boost pay 20 percent for the last few years before retirement was reduced to the still ridiculous number of six percent. Still the selfish adults within the school system work hard to find ways around any such limitation.

Passantino and Summers outline recommendations for reform that involve “three separate tracks of action:”

  1. Reforms must fundamentally change the system to prevent things from getting worse.
  2. Reforms must tackle existing liabilities.
  3. Reforms must ensure that pension obligations do not threaten other areas of the budget or create pressure for tax increases.

One of the rumors floating around Illinois is that much of the effort to get the so-called “tax swap” bill passed is motivated by an effort to find a new, healthy revenue stream to catch up with the current unfunded pension liability in the teachers retirement system.

It’s all about the kids, right?

Passantino and Summers provide details even within the pages of the summary of their study. These kinds of solutions need to start making their way into the public conversation here in Illinois — especially the need to move from defined benefit plans to 401(k) type defined contribution plans.

The 1970 Illinois Constitutional guarantee applies only to a fully funded pension system. Just as one General Assembly cannot obligate a future General Assembly, future taxpayers are not obligated to make up the deficit of a pension fund created through the political failures of today.