Remember two years ago when politicians from both parties bragged about the new pension buyout plan? It would save over $445 million per year, they said, and they booked the savings into the 2019 budget.
We’ve told you repeatedly not to believe it, and now the evidence is coming in. The Civic Federation has now published an analysis. Actual results show savings to the state pensions of just $13 million for the fiscal year that just ended. For a little perspective, that’s less than two-tenths of one percent of what taxpayers contribute to pensions each year. And the buyout scheme “does not appear likely to meet the annual cost-reduction target over the next few years,” the Civic Federation says.
That’s only half of the bad news. Aside from the failed savings, you have to look at how the buyouts are paid for. The Civic Federation started to tackle that, too. To pay for the buyouts, taxpayers are on the hook for $300 million of bonds issued by the state at an interest cost of 5.74%. Of the $298.5 million in net proceeds, according to the Civic Federation, only about $50 million has gone towards buyouts. The remaining bond proceeds continue to cost the State interest, but have not yet resulted in any pension savings.
The fact is that the state never provided any honest analysis of true costs and benefits. There were no public hearings or evaluations by pension actuaries. That’s because the savings were fake. The fake savings were stuck into the 2019 budget in May 2018.
We weren’t the only ones to question the scheme. Reuters, The Bond Buyer and The Associated Press had skeptical stories, as did the Illinois Policy Institute, all of which we published here. Two of our favorite, honest actuaries – Mary Pat Campbell and Elizabeth Bauer, also saw through it. The “shammiest of shamtaculars,” Mary Pat called it.
Three lessons here:
First, don’t expect much from the buyout program going forward. The Civic Federation said that, and pension officials have told us the same off the record.
Second, believe nothing Illinois politicians tell you about pensions. Nothing.
Third, pension debts aren’t going away without real reforms, and that starts with a constitutional amendment that’s needed to permit real reforms.
–Mark Glennon, founder, Wirepoints.