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Eye On Illinois: State slowly chipping away at pension problem

Pension reform is a topic that may never go away.

While writing about a recent McHenry County Republican campaign event, I praised gubernatorial candidates who smartly framed the issue of high property taxes as a reason to tackle the unfunded pension problem.

The adjective was appropriate, I reasoned, because too many candidates pledge to freeze property taxes, which really hurts the local governments already committing unsustainable portions of their overall budgets to pension obligations largely because for decades the state hasn’t kept up with its share.

David Hedin of DeKalb wrote to remind there have at least been attempts at reform, such as creating a new tier for state employees who made their first pension contribution in 2011. Tier II employees must work later into life to qualify for full benefits and there are changes to the formulas for benefits, cost-of-living adjustments and survivor benefits along with new rules on post-retirement employment.

Lawmakers have approved some tweaks since then, typically as a means of addressing labor shortages in certain fields, but as time rolls on this adjustment should lower the overall cost of paying retirees.

“When [Gov.] Pat Quinn tried to reduce the COLA for current retirees, I supported that even though it would have slightly reduced my own pension,” Hedin wrote. “I was disappointed when the state Supreme Court ruled it unconstitutional.”

Lawmakers and governors also have pursued other strategies, such as a pension buyout program from late in the last decade. While that attempt cut $1.4 billion from the unfunded liability, according to the Commission on Government Forecasting and Accountability, it still left the total obligation around $130 billion.

Bloomberg Financial’s analysis, like mine and most everyone else, posits the unfunded liability “ballooned for years largely due to insufficient state contributions.” In a February article about lawmakers considering a plan to sell $1 billion of debt to pay for additional buyouts, Bloomberg added Illinois’ “finances are benefiting from an improving economy that’s boosting revenue and billions in federal aid, but the state still has to solve its pension conundrum.”

Unfunded liability calculations rely on actuarial formulas to determine how much should be needed to fund agreed-upon (and constitutionally protected) benefits. Pouring extra capital into retirement funds is one strategy, another is to accelerate payments up front to retirees who agree to waive certain benefits or accept lower annual increases.

Ultimately the General Assembly can make far more significant progress on this front than any smaller governmental unit, and any candidate serious about improving the property tax climate will acknowledge pension reform is the most meaningful way to deliver.

Voters should look for candidates who not only have a pension plan, but those whose ideas engender sufficient legislative support.

Scott T. Holland writes about state government issues for Shaw Media. Follow him on Twitter @sth749. He can be reached at sholland@shawmedia.com.

Scott Holland

Scott T. Holland

Scott T. Holland writes about state government issues for Shaw Media Illinois. Follow him on Twitter at @sth749. He can be reached at sholland@shawmedia.com.