By Ron Brzoska
I was going to blog about how bad a deal the Obama Administration brokered with Iran, but last night news came out of an even worse deal: the Illinois Pension Reform Deal that Illinois lawmakers are being brought back to Springfield to vote on next week.
The point of pension reform is different depending on who you ask. The public employees receiving the pensions want the current pension rules preserved. The public employee unions want that to go one step further and preserve the pension rules for future generations as well. The tax payers want lower taxes. The legislators want to make everyone happy while keeping the state solvent. As you can see, that is the General Assembly’s problem. They can’t accomplish their goal. They can’t keep everyone happy and pay all of the bills. They have to pick a side, and they are caught in a Catch-22 situation. Whatever they pick is going to upset a lot of people… enough people that they fear for their re-elections. With so many competing interests, the goal should be to satisfy only one master: math. Anyone else that is happy is a bonus. If we don’t satisfy the math, then no one is going to be happy. We will have failed everyone.
For that reason, the General Assembly should reject this latest compromise bill. The key points can be found here in this Illinois Review story. http://illinoisreview.typepad.com/illinoisreview/2013/11/pension-reform-details-released.html#more
The math just isn’t there. This reform will not do anything to keep the pension system solvent or keep Illinoisans from seeing significant tax increases. I don’t pretend to be a pension system expert, nor did I stay at a Holiday Inn Express last night, but I do know that 1 +1 = 2. Without getting tied up in the minutiae, here is why the newest plan is destined to fail and take us all down with it.
- Our pension obligations are about $100 billion currently.
- The state will add supplemental payments to the pension systems beginning in 2019 and totaling $1 billion per year starting in 2020 until 2045. For arguments sake, let us say this is $26 billion. $100-$26 billion is still a $74 billion shortfall. Will the grandfathering in of existing benefits coupled with new COLA adjustments close the gap? It’s hard to believe so. Also, where does this extra money come from? Hmmm… TAXES?
- Employees will contribute one percent less to their pensions. How does paying in less help fund a pension plan?
- Pensions are put to the front of the line and paid first before all other state bills. It is admirable that we take care of the retirees and make certain that the promise made to them is fulfilled. No one can say this is bad or irresponsible. However, if this means that more and more vendors are going to be subjected to late or non-payment, then this point only serves to rob Peter to pay Paul. If this requirement forced us to take a hard look at what really are essential state services and it forced us to make real cuts in government, then this could turn out to be an excellent point to rally around. Unfortunately, history has proven that the courage to make the tough decisions is lacking in Springfield.
We have not seen the bill yet, so maybe some of my questions are answered. Common sense however tells you that people only let you see what they want you to see. The lack of details where extra funding for the pensions is to come from, and how exactly all of the math adds up gives new credence to the expression “the devil is in the details.”