By: Mark Glennon*

“The solution to Illinois pension problem may be in state’s own backyard.” That’s the headline in a Forbes article last week.

The solution offered, however is simply to fund the pensions adequately. The author doesn’t use those words but that’s precisely the implication of her article. And she doesn’t say how much that would cost or where the money would come from, which was probably wise because the futility of the solution would have been obvious.

Making this article particularly troubling is that the author, Caitlin Devitt, is a senior reporter for Debtwire Municipals, a very reputable firm. She’s among the few financial reporters specializing in Illinois pensions and public finance — somebody we should be counting on for realism and candor.

Her case is straightforward: Use IMRF, the Illinois Municipal Retirement Fund, as a model for all pensions. It’s among the healthiest pensions in the state, having a funded ratio of 93%. IMRF, she says, “offers a model for how defined benefit plans can work well.”

Hardly.

IMRF’s high funded status results from its power, unique among Illinois pensions, that works, in effect, to force tax increases. It does so whenever necessary to fund annual contributions, in whatever-it-takes amounts, to keep its funded status healthy. Other pensions get shorted almost every year because their cost is unaffordable, despite Illinois’ exceptionally high tax burden. Why are Illinois property taxes among the highest in the country and nearly twice the national average? Lots of reasons, but one is forced IMRF funding.

So, to say IMRF should be copied is simply to say tax increases should be automatically enforced each year to adequately fund all our pensions. It’s a “model” for itself only, ensuring that it is kept whole ahead of all the others. That’s no surprise because IMRF is the pension that covers mayors and other municipal leadership. Pensions for cops, firefighters, teachers and all the rest get no such funding priority.

Had Devitt told us how much that would cost and how to do it, she’d have met the same fate as three Chicago Federal Reserve Bank economists who tried to do just that last month: She’d have been ridiculed nationally.

They proposed a new, statewide property tax just to properly fund just the five state pensions (never mind Illinois’ 650 other pensions). They concluded Illinois would have to levy, for about 30 years, an additional tax of 1% of property value, which would mean an average property tax increase of about 45%. The proposal was widely mocked. Just one of our articles on it, including republications, was viewed by over a million readers.

Devitt may have something other than property taxes in mind, but the result would be the same. If Illinois ever tried to force annual tax increases to adequately fund all its pensions, as IMRF does, Illinoisans would be grabbing the pitchforks.

Looking back, it would have been nice to implement Devitt’s idea decades ago when all pensions were fairly healthy. That way, it would have become obvious long ago that they were unaffordable and that taxpayers wouldn’t put up with the true cost. The crisis would have sparked sooner when it would have been manageable.

Even then, however, IMRF wouldn’t have been a model to emulate. There’s been much to criticize at IMRF over the years. They offer to members an additional benefit in the form of a savings account, of sorts, with a guaranteed return of 7.5% per year. A guaranteed return that high obviously requires a subsidy, and the subsidy is provided by (you guessed it) taxpayers. IMRF members can also get a “13th payment,” notorious in the pension world. That’s a sort of bonus check once a year in addition to their monthly pension payments, paid entirely by taxpayers, according to IMRF’s site.  It has cost taxpayers as much as $42 million per year. See our earlier article on those matters and other IMRF issues.

Devitt is not alone. “We’ll just have to fund them” is the common refrain of public unions and many politicians, including former Governor Jim Edgar. Whenever you hear that, ask “How much will that cost and how we will pay for it?”

Just don’t expect an answer.

*Mark Glennon is founder and Executive Editor of Wirepoints.

 

 

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Steve-oh
1 year ago

“Grabbing the pitchforks” includes actions such as: Voting out Democrats, then amending state constitution to freeze all govt pensions for actives, cutting actual earned pensions, eliminating govt ee unions. But voting out Democrats probably won’t happen; the private sector ‘makers’ are outnumbered by ‘takers’.
And, reducing size and scope of government entities.
Or, voting with feet and moving out of state.

robert neville
1 year ago

Public pensions are beyond loathsome they’re criminal! 13 payments/yr, 7.5% savings accounts! Whoever heard of such legal larceny? There needs to be a tax revolt because Illinois taxes are REVOLTING!!

P M
1 year ago

If Illinois ever tried to force annual tax increases to adequately fund all its pensions, as IMRF does, Illinoisans would be grabbing the pitchforks. Not to be abrasive as I enjoy your articles, but you are living in fantasy land. When in the last 50 years have IL residents grabbed pitch forks? Notice the toll roads never became freeways, the income tax has only gone up, we have more levels of government than California, but the issues that should have mobilized the citizens are hate crime legislation, the ridiculous eavesdropping law, gay marriage, marijuana legalization, and drum roll motor voter… Read more »

P M
1 year ago
Reply to  Mark Glennon

Thank you for acknowledging the point. It is sad, but the residents of Illinois need to realize the real issue is with their complicity. I invested 10s of thousands in 3 runs for public office over the years, the last time I lost by 11 votes. What amazed me in going door to door was the complacency. It was astounding. After my third run, I decided it was time to relocate my businesses outside of Illinois, relocate my employees, push my children out of state and attempt to get out of Dodge. I only remain here because of an elderly… Read more »

nixit
1 year ago

IMRF automatic funding works only because no one else does it. But I’ll play along. Let’s implement automatic funding across the board ONLY if a corresponding rule is that taxes cannot be raised. Let’s see them manage full pension funding where only growth generates more revenue.

Tough Love
1 year ago

Mark,

Nice article. I particularly like THIS paragraph:

“Looking back, it would have been nice to implement Devitt’s idea decades ago when all pensions were fairly healthy. That way, it would have become obvious long ago that they were unaffordable and that taxpayers wouldn’t put up with the true cost. The crisis would have sparked sooner when it would have been manageable.”

And I like it because it gets to the ROOT CAUSE of the pension mess in Ill (and just about everywhere else) ………. that Public Sector pensions are simply too generous and unafforable.

mark m
1 year ago

If taxes are raised to mirror IMRF’s practices, then today’s worrisome population exodus from the state will look trifling. One could see millions of people leaving within a matter of a few years. And the ones who leave will take lots of GDP with them. There is an odd part of me that wants to see this happen, as the progressives then (and that is a stretch) might comprehend notions of fiscal responsibility (and the need for bankruptcy).