State should exit its bumpy ‘pension ramp’
Edgar OK’d it in 1990s; time for new route
SPRINGFIELD – Illinoisans look on Jim Edgar with fondness – probably because he is part of that minority of living Illinois governors who didn’t end up in prison.
Sandwiched between the free-spending Thompson and Ryan administrations, many have taken to thinking of Edgar as a fiscal conservative.
In some ways, he was fiscally prudent.
But in other ways, he practiced the same old budget shenanigans that have left the Land of Lincoln mired in debt.
We are still paying the price for a faulty pension policy implemented during his time in office.
It’s called the “Edgar pension ramp.”
Like today, back in the early 1990s, the pension system was in crisis, and legislators and the governor searched for a fix. Their solution wasn’t particularly innovative or brave.
The secret to the Edgar ramp is pretty simple: it pushes pension debt off on to future generations. For example, in 1996, when the state made its first payment on the ramp, it contributed $607 million. In 2045, the final year of the ramp, the state is slated to pay $16.8 billion.
“It was backloaded. We all knew that. But I don’t think any of us thought we would be in this kind of shape,” former state Rep. Bill Black, R-Danville, told me recently.
Year after year, the Edgar plan has taxpayers paying more and more.
The escalating funding demands have left the state cutting into core government programs such as classroom education and prison safety.
On Monday, the U.S. Securities and Exchange Commission, or SEC, investigation charged the state of Illinois with fraud.
Here is what it had to say:
“… that Illinois failed to inform investors about the impact of problems with its pension funding schedule as the state offered and sold more than $2.2 billion worth of municipal bonds from 2005 to early 2009. Illinois failed to disclose that its statutory plan significantly underfunded the state’s pension obligations and increased the risk to its overall financial condition. The state also misled investors about the effect of changes to its statutory plan.”
That’s lawyer-speak for “the Edgar ramp fell well short of the mark.”
It’s not that lawmakers back in 1994 weren’t well intentioned.
They wanted to solve a problem they faced right then – a $20 billion pension shortfall. But instead of reforming the system, they ended up pushing the problem farther down the road.
The state is now $96.7 billion short of what’s needed to cover promised retirement benefits.
Now, a variety of legislators are talking about solving the current pension mess by creating – you guessed it – another pension ramp.
No matter how many adjustments our politicians try to make to this immense pension machine, they will always fail because they can’t predict the future. No one knows how the stock and bond markets will perform in coming decades, how long future retirees will live, or even what future lawmakers will promise.
Because we don’t know what the future portends, a promise of a future benefit can’t be guaranteed, as Cross-Nekritz would mandate.
Instead of looking for ramps, we need to look for solutions – like having government workers take ownership of their own retirements with a 401(k)-type retirement plan.
Note to readers – Scott Reeder’s column is underwritten by the Illinois Policy Institute.