November 20, 2013 By: Mark Glennon
A major figure in the Illinois legislature told me today to expect the “guaranty” provision in coming pension reform legislation to be much more limited than was earlier proposed, leaving it clear to all that further reforms still will be needed. That’s important because, if true, it means the legislation that’s probably coming in early December might not backfire against reformers by eliminating any incentive for reform opponents to agree to further changes later — and many further changes will still be needed.
Some background: A “guaranty” provision would force automatic seizure of state cash and deposit the cash into state pensions, prioritizing pensions over all other state obligations except bonds. As we wrote here a couple weeks ago, including a broad guaranty in legislation that doesn’t fix the pension problem would be foolhardy because it would all but eliminate prospects for further reforms later, which will be essential. Remember that the reform proposal under discussion would cut the unfunded pension liability by only about 20% – even less if you use better numbers than the state uses. That’s the estimate we gave you earlier and that number was confirmed by the legislator I spoke to today.
But if the guaranty is indeed very limited so that all sides are forced to continue work on further reforms, then a better argument can be made that an inadequate bill is better than nothing. In other words, an “incremental” approach would seem more defensible.
Today, I made the same case to the legislator that I made in that article a couple weeks ago, which is that the bill nearing agreement is inadequate — mostly just a back-loaded promise to cut 20% off the problem starting 25 years from now, and that a guaranty now would give the game away to reform opponents. That’s when the legislator acknowledged the 20% number but spoke confidently about the cut back in the guaranty. While I think that lawmaker was entirely sincere and fully understood the issue, we’ll need to see the language in the final bill.
Far better than an incremental approach would be a “big bang” that solves the whole issue now. That’s because time is vicious on pension issues. The longer unfunded liabilities are deferred, whether large or small, the more pain all sides will eventually suffer. But nobody in leadership in Springfield will talk about that.
Still, it was gratifying to hear a major figure in the pension reform debate aware of what’s at stake in the guaranty. To brag a little, we were the first to flag the issue almost a year ago when the first “reform” proposals started appearing, probably because we were among the few to read the damn bills. We called it “chopping up the state’s body parts” for division among the pensions, which is exactly what will happen if the guaranty isn’t either eliminated or drastically changed from earlier proposals. I hope we helped put the issue on the screens that count and I hope it stays there.