Public pensions are not an albatross
In the debate over federal bailouts — which every state is going to need — let’s not lose sight of what exactly pensions are: promised retirement income for workers who’ve earned it
Chicago teachers picket in 2018. All teachers get in retirement is their pensions, not Social Security. (Flickr/Charles Edward Miller)
By Ted Cox and Ameya Pawar
Don’t let the debate over a federal bailout for states — which every state is going to need, in the wake of the coronavirus pandemic — get hijacked by what we’re going to call the “pension pariah.”
President Trump and Republicans in Congress are resisting calls for an additional COVID-19 aid package to benefit states, cities, and other local governments. But they’ve found a new whipping boy to cast as a scapegoat in the debate: public pensions.
Blame Illinois Senate President Don Harmon if you like. Harmon made a pitch for $41 billion in federal aid to address economic shortfalls stemming from the coronavirus lockdown, including $10 billion to prop up the state’s pension system.
Rich Miller posted an item on that debate on his Capitol Fax blog Monday. One respondent called Harmon’s request a “hanging curveball,” and indeed Republicans took mighty swings at it.
Senate Majority Leader Mitch McConnell of Kentucky responded by saying states like Illinois should be allowed to declare bankruptcy instead of relying on a federal bailout. We’ll get back to why that is a terrible idea — and politically expedient for him — in a moment. But former South Carolina Gov. Nikki Haley, a former member of Trump’s cabinet, followed on over the weekend with a tweet stating: “A fifth aid package should not bail out states that have relentlessly spent and taxed their way into oblivion. Illinois lawmakers are seeking tens of billions in taxpayer funds to deal with the state’s looming pension debt — that has nothing at all to do with the COVID-19 pandemic.”
That’s a strange place to draw the line, when you consider that declining state tax revenue makes it difficult if not impossible for Illinois to maintain the schedule it’s established to make up for years of pension “holidays,” granted by both major political parties. This, at a time when falling stock prices cut existing pension funds — which of course are largely invested in the stock market — thus requiring even more to be paid back to make the funds solvent again.
So it has everything to do with the economic crisis brought on by the COVID-19 pandemic, but that didn't keep Trump from piling on Monday morning, tweeting: “Why should the people and taxpayers of America be bailing out poorly run states (like Illinois, as example) and cities, in all cases Democrat run and managed, when most of the other states are not looking for bailout help? I am open to discussing anything, but just asking?”
First of all, every state, whether it has a Republican or a Democratic governor, is going to need a federal bailout to address tax revenue lost in the economic lockdown. The losses are catastrophic. Second, Illinois’s particular pension problem is due, once again, to pension holidays granted by both Republicans and Democrats. Perhaps Harmon could have framed his request better, but Illinois has every right to ask for help in making pension payments it was on schedule to make, and would have no doubt made but for the coronavirus crisis.
But that’s all just playing into their hands in the debate. The main point we want to make at this time is that a pension is not a political pariah. It is a fund workers have paid into to provide retirement income, and for many public workers like teachers, who don’t pay into Social Security, it’s their only source of retirement income.
We’ve allowed people on both sides of the political aisle to characterize pensions as some unnecessary appendage that’s attached to our state — an albatross — as if somehow people didn’t earn those pensions and as if somehow they are bloated and outsized, when in fact they’re underfunded because the state didn’t make its obligatory payments while workers never failed to contribute.
The average retired teacher in Illinois gets a $50,000 pension annually. And that’s all they get, no Social Security. What’s more, because there’s a higher concentration of public workers like teachers, police officers, firefighters, and other public employees in less-populated areas — where kids still need to get taught, fires still need to get put out, streets still need to get plowed — and there are fewer people to do it in rural regions, those public pensions turn out to be the economic lifeblood for rural communities. They enable retirees to stay in their homes, pay local property taxes, and drive the local economy, as shown in a study published just last month by the National Institute on Retirement Security.
Pensions are tied to the stock market, because that’s where much of the fund is invested to appreciate over time. When stocks drop, investors inevitably counsel to stay the course, wait for a correction and the inevitable appreciation over time. So why is it that when pension funds drop in a crisis the chorus immediately begins to get pensions out of the market and remove them entirely?
Is it actually the potential power of these funds — if they were perhaps coordinated to, say, effect policy change such as an investment in clean energy over fossil fuels — that makes conservatives so afraid of them and so eager for their dissolution? There’s always been a suspicion of working people pooling their money to move markets or effect change, reflected in reactionary movements from the Taft-Hartley Act in the ‘40s to the Janus decision by the U.S. Supreme Court not two years ago.
At the same time, as much as pensions fuel the economy at the local level, they do the same on the larger level on Wall Street. These funds generate massive transactions and huge management fees. How is it Republicans in Congress can support $4 trillion in federal funds to backstop liquidity in banks and the markets, and then not support the pension funds that are also generating income in the same markets?
As for states, it’s somewhat ironic, as one respondent pointed out on the Capitol Fax thread on he debate, that Illinois is a donor state, having contributed $4.7 more in federal taxes than it got back in 2017, while Haley’s own South Carolina is a dependent state, getting back $25.1 billion more than it puts in. Gov. Pritzker made the same point Monday during his daily coronavirus briefing.
As for Kentucky, when McConnell raised the issue of resisting a federal bailout, suggesting states be allowed to go bankrupt, budget maven Amanda Kauss responded on Twitter: “Has anyone told him Kentucky's pension system is like 13 percent funded? (Illinois's state systems are at about 40 percent.)”
Kass also echoed Gov. Pritzker last week in pointing out that bankruptcy is no magic wand to make debt go away. Pritzker specifically cited the contract clause, as courts have repeatedly ruled that public pensions are contracts, promises that the state is obliged to keep. Meaning any bankruptcy judge would almost certainly hold the state liable to make those pension payments as a first matter of course.
David Frum, a former speechwriter for President George W. Bush who has become a fierce Trump and McConnell critic, wrote in The Atlantic last week that McConnell’s bid to allow state bankruptcy is actually about minority Republican government attempting to rein in blue states like Illinois and keep them as donor states, basically milked as cash cows.
But that’s just more fuel for the debate. What we seek to make clear is that public pensions aren’t just some ball and chain attached to the state’s ankle, but are in fact a lifeline for retired public workers, and a key source of the economic vitality of areas across the state. They’e not some albatross we should seek to shake off. They represent nothing less than the commitment to those workers that they’ll get to live out a decent life — one they’ve been promised by the state’s government and its citizens.