Deputy Gov. Hynes proposes pension solutions
‘Fair tax’ first step, followed by $2B pension bond and selling assets like Thompson Center
By Ted Cox
Deputy Gov. Dan Hynes laid out a five-step plan to address the state’s $134 billion unfunded pension liabilities Thursday in a speech at the City Club of Chicago.
The former three-term comptroller was given a financial portfolio in the Pritzker administration, and has already delivered a report on “Digging Out” from what he termed the “Rauner wreckage” in state finances.
On Thursday, he readily acknowledged the state’s dire financial straits. Pointing out that the state had adopted a 50-year pension plan in 1994 that saw its percentage of pension funding rise to 70 percent in 1997, Hynes added that since then it has been a case of “for every two steps we go forward, we take three steps back,” and compared it to the Greek myth of Sisyphus — endlessly rolling a bolder up a hill only to find it roll back down.
According to Hynes, the original plan called for the state to make a $4.9 billion pension payment in 2020, but now that figure is almost doubled to $9.1 billion. In 1996, pension payments amounted to 3 percent of general funds, but in 2020 they’re projected at 21 percent.
“It’s unsustainable,” Hynes added, “and frankly it is not fair. It is not fair to parents — today — who need child care and students who deserve a good education. It is not fair to those who rely on social services — or to providers who wait months to get paid for delivering them.”
Blaming “politically motivated poor judgments that led to pension holidays, early retirement initiatives, and skimming off the top of pension bonds,” as well as the stock crashes in the 2000s stemming from the technology bubble and the Great Recession, Hynes said it was only made worse during the two-year budget impasse between former Gov. Rauner and the General Assembly.
“Even by Illinois standards,” he said, “the past four years have taken an extraordinary toll. I will be the first to say that we had problems before Gov. Rauner’s impasse began — and there was plenty of blame to go around. But the situation that we find ourselves in today is an entirely different beast. It will take years to dig out of the self-inflicted financial hole made worse by an unnecessary two year ideological war.”
Even so, he laid out a five-step plan to address the pension crisis, sure to be included in Gov. Pritzker’s budget address scheduled for Tuesday.
The steps are:
Adopt what the administration has come to call a “fair tax,” or in other words a progressive or graduated income tax. That will allow the state to commit to making $200 million annual payments to pensions on top of the set payments.
“Infuse cash and assets into the system now to improve the health of the funds,” in other words sell off assets like the long-proposed sale of the Thompson Center and devote the windfalls to pension funds.
Float what Hynes labeled “a small-scale pension bond of about $2 billion” to make up part of the shortfall and give the state time to get the pension system back on its feet — much like the $10 billion pension bond Mayor Emanuel has proposed for Chicago.
Extend so-called pension buyout programs “to provide certainty to retiring employees who may choose the option to receive more retirement income upfront.”
Extend the original 50-year plan by seven years for what Gov. Pritzker has called the “smoothing and flattening (of) payments into the pension system.”
“We’re proposing a way forward that acknowledges reality,” Hynes said. “The reality is that we must and will pay the pensions that are owed. The reality is that a fair income tax can be enacted in less than two years. The reality is that no state can thrive when one out of every five dollars goes to pensions. The reality is that we cannot crowd out all the investments we need to grow our economy and enhance our children’s future.”
Looking statewide, Hynes also said there are 671 separate pension funds, with many local governments struggling to keep up with those required payments. He recommended consolidating them as much as possible to cut bureaucracy and achieve other sorts of efficiency.
Hynes warned, “We can’t be the state we want to become if we vacuum up more and more of every tax dollar into pensions. We have to be able to invest in the things that will feed growth — strong schools, reliable infrastructure, a robust network of human services, effective public safety.”
The speech lays the foundation for Pritzker’s first budget address set for Tuesday in Springfield.