State Capitol: Each year the cost of funding the state’s pension systems, continues to rise. And with each increase, the billions paid into Illinois pensions, is billions that are unavailable to fund the government services taxpayers expect to be provided; state police, K-12 education, funds for higher education.
In 2003, the state’s pension contributions were about 5-percent of the state’s operationg budget. In 2018, the state’s pension payments consume approximately 25-percent of the state’s operating budget.
Now a professor at the University of Illinois-Urbana, says he has a plan that could make a massive improvement in the state’s woefully underfunded pension systems.
And according to his projections — it won’t cost the state or taxpayers anything. In fact, he says — when one compares his plan, to what the state is currently on schedule to pay, which is a decades-long annual increase in higher pension payments — the state will save over $100 million in interest payments, between now and 2045.
The idea is to borrow $107 Billion and pay down a huge portion of the unfunded portion of the state’s five pension systems. Fang argues that because interest rates are now historically low, it’s an opportunity for Illinois to refinance the debt that’s built into the system, and do so at an interest rate that is lower than what it will face if it does nothing.
The real number of under-funding of those pensions isn’t really known, as various factors can impact the number as we move into the future. But it’s often estimated, the state’s pensions are underfunded by over $200 Billion.
According to the man that ran the numbers, Professor Runhuan Fang, a PhD in Acuarial Science, says the saving grace for Illinois’ budget and taxpayes is the near record low interest levels that are currently available. The state recently borrowed about $6 Billion to pay down the backlog of unpaid bills, and will pay around 4% on those bonds.
The idea to take a look at this proposal, is supported by SUAA, the State Univeristy and Annuitants Association, whose members are retired, or current members of Illinois universities.
His idea is also getting the backing of at least one lawmaker, Rep Bob Martwick (D), who says he wants the state to take a serious look at the idea, and whether it in fact would work. It it did go according to the projections made by Professor Fang, the state of Illinos would then have the same annual payments into the pension system each year between now and 2045, when ACCORDING TO CURRENT LAW, the state’s pensions are supposed to reach a funding level of 90-percent by 2045.
To understand how borrowing $107 Billion could help the state financially, consider the massive problem the state is currently facing.
In 2018, the State of Illinois will have to pay about $8.5 Billion into the five pension systems funded by state taxpayers. Yet EVEN WITH THE MASSIVE INCREASE in pension payments over the past 15 years, none of the 5 pension systems are even close to being adequatey funded. In fact, the pension system that’s the least funded, is the one that pays former legislators their pension. It’s funding level is only around 15% of what it should be.
The largest of the five pension systems, is the one that pays retired teachers — TRS — the Teachers Retirement System. It’s funding level is now around 42% of what it should be.
While the stock market has run up considerably to near record highs over the last 15 months, the size of the pension debt in Illinois is so severe, that even a record runup in the stock market, is barely enough to make a dent in the level of under-funding of the pension systems.
The state tried to fix the pension shortfall back in 1995, when Gov Edgar backed a plan that committed the state to making annual payments that would ramp up over time. Many are critical of that plan, that started the payments off low, but now are rising so high, that the payments are draining the state budgets of the very funds needed to provide quality eduation, good roads, and police protections.
In a past interview, Gov Edgar told the Illinois Channel, that the plan WOULD have worked as intended, but the state didn’t follow the plan. Instead, it provided for the early retirement of state workers, which saved the state about $60 million in one year, under Gov George Ryan, but caused the state to then have to pay far more into its pension systems — years before it otherwise would have, had the state not offered early retirerment around the year 2000.
What also drove the state’s pensions into an explosion of underfunding, was the state skipped making its payments in some years, which then made the systems underfunding increase by billions of dollars.
Professor Fang is now trying to reverse those sins, by having the state do a massive bond issue — the largest in the history of the state — to put $107 Billion back into the pension systems, which he says would mean the state’s annual payments would then remain constant over the next 28 years, AND reach the target of 90-percent funding levels.
But what is unknown, is whether the bond markets would be willing to absorb so much debt, from Illinois, which has one of the worst credit ratings in the nation. The budget that was passed last summer, over the veto of Gov Rauner, saved the state from going into junk bond status. But as it is, Illinois’ credit worthiness remains just above “junk”