We finally have some concrete indication of what Governor-elect Pritzker may do in office.
In an interview given to Crain’s reported Friday, Pritzker said he is “seriously considering” the “reamortization” approach to pensions. That’s the term that bedazzles most reporters into thinking there’s an easy solution to the pension crisis. You’ve probably seen it advocated on television by Ralph Martire of the public union backed Center for Tax and Budget Accountability, a longtime supporter.
In fact, it means little more than taxpayers contributing more to pensions sooner, which would allow pensions to earn more on their investments sooner. Read the critique in Forbes this week by a pension actuary. It tracks the same criticisms we’ve long made. The CTBA plan leaves the state pension systems just 70 percent funded by 2045, instead of 90 percent funded under current law. That means instead of a $32 billion unfunded liability in 2045, CTBA’s plan leaves Illinoisans with a $98 billion shortfall then. Triple the shortfall.
Reamortization is no solution. The actuary says this is the only question that remains: Do Pritzker and the rest of the lot not understand, or are they simply hoping Illinoisans won’t question their explanations?
And there’s a pesky little issue of where the state would get the money to contribute more to pensions sooner. Well, we can just borrow it, say reamortization supporters!
Yes, that’s the second thing Pritzker is seriously considering — a big pension obligation bond. Just like Blago did while governor. Borrow our way out of our debt problem.
Chicago, too, recently floated the idea of its own pension obligation bond. The proposal is on hold after hitting considerable opposition, including ours. Our objections apply at the state level as well. Links to those articles are below.
Pritzker also indicated his first efforts to raise revenue will come from marijuana legalization and gaming. No surprise there.
We want to be fair to Pritzker. We really want to endorse something he’s doing. Honest.
But come on, J.B., give us something to work with. Is there nothing you can propose that would help keep people and businesses from fleeing?
Can you at least throw us a bone?
–Mark Glennon is founder and Executive Editor of Wirepoints.
- Aug. 5 – Rahm Emanuel’s latest can kick: Borrow $10 billion for Chicago pensions
- Aug. 15 – $125,000: The pension debt each Chicago household is really on the hook for
- Aug. 19 – How Emanuel is misleading you on the city’s debt – Crain’s
- Aug. 24 – Pension Obligation Bonds Are Like Big, Fat, Dangerous Margin Loans For Stock
- Aug. 26 – Chicago CFO’s Stupendously Bad Timing On Her Last Pension Obligation Bond
- Aug. 28 – Emanuel’s real motivations for Chicago’s $10 billion pension bond plan
- Aug. 29 – A plan to make “bad pension borrowing” good? Greg Hinz is mighty confused
- Aug. 30 – Liquidation Sale. That’s How To Think About Chicago’s Proposed Pension Bond
- Aug. 31 – Emanuel’s misleading pension bond presentation to Chicago aldermen
- Sep. 6 – Chicago’s Bond As Proposed Would Blow A Golden Opportunity For Reform
- Sep. 10 – A more likely reason Rahm Emanuel dropped out: the Chicago time bomb
- Sep. 14 – Chicago’s pension bond : What an honest press conference with Emanuel might look like
- Oct. 17 –If Emanuel won’t kill his $10 billion pension bond proposal, the markets might
Expect no retraction or apology. This what they do.
The state’s existing buyout program for its own pensions is the precedent for Chicago, which should be a warning: Look out for similar exaggerated claims and shoddy analysis.
Only two bad ideas? How did we get so lucky?
Pritzker isn’t smart enough to understand this.
The only solution to pension funding remains an amendment to the Illinois Constitution. Increased benefits due to inflation are permitted but reductions or other modification due to changed economic conditions, like insolvency due to inflexible pension obligations, are summarily struck down by the Supreme Court (whose members happen also to receive those pensions). The state is presently handcuffed into an inflexible system that only serves the interests of government employees, while taxpayers have the obligation and burden of continually paying for government pensions that continue to rise. The inflexible locked in pension system is politically biased, fiscally unsound, budgetary unwise,… Read more »
How sure are you that an amendment to the state Constitution would work, other than prospectively? I think it would be challenged under the U.S. Constitution as state action to impair “contract rights.” Even if the challenge were unsuccessful, several years would be spent in litigation and appeals. I think a better solution would be bankruptcy which is, in effect, impairment that the U.S. Constitution permits. To permit a state to file, the federal bankruptcy law would need to be amended. A challenge in amending the bankruptcy law would be to define the circumstances when a state could file. If… Read more »
Joseph- We will be writing more firmly in favor of a constitutional amendment shortly and I will be very interested in further discussion of your first point — the federal Contracts Clause claim that would arise. I certainly agree that claim would be plausible, but I increasingly think the claim would likely fail. In any event, I think it’s worth a try and, during the long pendency of the litigation, it would add bargaining power to other reform efforts. Our upcoming articles will lay out the legal issues more precisely and I look forward to hearing full discussion from you… Read more »
With apologies to other readers for the length of this response: A little Westlaw research turned up the following in 13 Cal. Jur. 3d Constitutional Law § 409. Quite a few footnoted citations follow the summary, primarily California appellate cases. “All laws of whatever nature to any substantial degree impair the obligation of contracts are included in the constitutional prohibition against impairment.1 Those laws include statutes passed by the legislature,2 municipal ordinances,3 AND CONSTITUTIONAL PROVISIONS.4 The Contract Clause of the Federal Constitution5 applies to any enactment to which the state gives the force of law, including its constitution.6 Thus, even… Read more »
Thanks. Keep in mind that I assume an amendment would be written broadly enough to clearly override state contract clause and other all other state issues. The sole hurdle then is federal interpretation of the US contract clause, which I think would go to SCOTUS irrespective of where the case originates. Under federal law, unquestionably, there comes a point where contracts can be impaired — the police power — Blaisdell case, etc. Where that line is may be unclear, but we will get there at some point. See Jim Spiotto’s most recent presentation on this subject linked here, which I… Read more »
and Mr. Caplan were put in by the very people who say it cannot be changed. Yes it can, and all they have to do is put in a constitutional change like the one they put in that has already bankrupted the state. PLUUZEE, thanks pritz, you will bring the collapse faster than rauner. The only reason I stroke my teddy for solace, that you won. Go go pritz, kill us-ehd our suffering. I detest this life support I have been on.
What if Illinois Elected Elite started selling, door to door, Jelly Belly Chocolates? Now THAT may raise a lot of money. Who doesn’t love chocolate?
Public union backed is all I needed to know.
The CTBA logic is predicated on the notion that the Congressional Budget Office states that 80% pension funding is adequate. That number has no professionally documented foundation. Indeed, the American Academy of Actuaries has publicly stated that 100% funding is the goal, not 90% (current Illinois law), not 80% (bogus CBO statement) and certainly not 70% (CTBA proposal).
They want a fully-funded pension without the financial pain of fully funding the pension. Up front, at least. They’re more than happy to spread the full pension cost across generations. It’s as if they’re resigned to the notion that it takes your parents, you, and your children to fully fund the 30-year career of one public servant.
Their plan is to fund over 15 years, which is the recommended funding time-frame of the Society of Actuaries to avoid inter-generational inequity. However, the way municipal plans work (and that is a topic that is in desperate need of discussion), unborn Illinoisians will be paying widow benefits for currently deceased firefighters. Note also that the $133 billion underfunded liability is also suspect–the market value of the liability is well over $200B.
Mitch- That’s a notable fact — that unborn Illinoisans will be paying widow benefits for currently deceased firefighters.
The only solution is a Constitutional change to the pension clause. Until the Feds allow a state to go bankrupt, it seems the current political thinking is to bankrupt the taxpayer. Then what?????
I doubt if a Fed bailout is coming, at least specifically for Illinois. CA is much more in debt and they are getting push back from Trump for Federal funds now. Don’t see Springfield or Chicago sucking up to Trump.
DC can’t do that.
My favorite fantasy is Pritzker’s mileage tax scheme. Now that is a whopper idea that he will end up wearing on or in some part of his anatomy.
Pension reamortization is inter-generational theft, plain and simple. Just because we’ve done it in the past doesn’t mean we should do it again.
I’m curious as to what made Martire think 70% funding was adequate now and not 1/5/10 years ago. Why the sudden shift? He must’ve seen the payment schedule with 80% of 90% and knew it wouldn’t work, so he changed his story. Unethical, if you ask me.
I’m curious what makes Martire think that anything less than 100% is enough. I can just see him paying his taxes and telling the city “I’ll pay you 70% of what my property tax bill is.”
They are making progress. They used to think that “pay-as-you-go” was adequate funding. To the extent a corporate plan is underfunded (on a market value basis, not a wishful 7% basis), the PBGC would be taxing the underfunding at 4.0% per annum.