Are you following Illinois’s pensions, and watching to see how that state will handle its pension underfunding, and the annual contributions which absorb a quarter of the state budget, maybe with even a bit of schadenfreude if you’re from elsewhere?
Here’s an update.
In the news on Monday:
Gov. J.B. Pritzker is creating two new taskforces to look at consolidating the state’s public pension funds and transferring state real estate assets into pension funds. . . .
The first of these taskforces is unremarkable:
The Pension Consolidation Feasibility Taskforce will look at consolidating Illinois’ 671 public pensions in an effort to reduce administrative costs and increase returns on investment.
The second, not so much:
The Pension Asset Value and Transfer Taskforce will look at moving some of the state’s billions of dollars of real estate and infrastructure assets into pension funds to undercut the current $134 billion in unfunded liabilities.
What’s this mean?
It’s a bit of a mystery, but Illinois News Network reports:
“Recommendations could include, but are not limited to, the repurposing or sale of these assets or transfer to state pension systems to improve their levels of funding,” according to a news release from the governor’s office.
It would seem that this is taking Chicago Mayor Daley’s 99-year lease of the Skyway and 75-year parking meter lease deal to plug budget holes, and kicking it up a notch. The Illinois Tollway system? The Illinois state capitol building or other public buildings? Illinois’s state parks?
None of this makes any sense. Consider the tollway system: the tolls set, we Illinoisians are repeatedly told, are simply what’s needed to maintain the system over time. But what private entity is going to be interested in operating a tollway system at cost? Is the state admitting that its mismanagement means that there’s value in the system because a private sector business could turn a profit at the same level of toll fees as at present? Is the state grasping at straws, and willing to come up with any source of funds possible, without any greater regard for the next generation than Daley showed in selling off the parking meters?
Or, worse yet, is Pritzker and his administration simply appallingly indifferent to what it means to fund a pension plan? Do they intend to “transfer ownership” of the tollway to, say, the Teachers’ Retirement System, and imagine the status quo will remain in all other respects?
I’m not saying that a pension fund cannot own real estate, or an infrastructure-management company. But it has to have an identified market value, and it has to have a return on assets – or, rather, strictly speaking, a plan could hold assets which are expected to have no investment return, but then it must account for that expectation in the expected investment return rate it uses as the valuation interest rate. What’s more, if the state intends to transfer any such asset but still maintains control over the asset and prevents the fund from doing with it as it wishes, then to try to claim this as a true pension fund asset is a violation of any meaningful accounting norm.
And that’s not the end of it: in a Chicago Tonight appearance last night by Deputy Gov. Dan Hynes, he had this to say:
We need to look at the funding schedule that was put in place 25 years ago, that at the time thought we would be spending about $4 billion on pensions and now it’s asking us to put $9 billion in. That is 20 percent of our revenues. And I don’t think the designers of that plan ever envisioned the state of Illinois putting 20 percent of its revenues into the pension systems. So we need to take a hard look at that. (Transcription at capitolfax.com)
When pressed by the interviewer, Hynes would not make a commitment to funding the required $9 billion. (Incidentally, the contributions to pension funds sucks up 20% of revenue; on top of that, the state is paying back Pension Obligation Bonds and paying retiree medical benefits.)
And yet, what’s still not on the table, among the options Gov. Pritzker has said he’s willing to consider, is any sort of pension reform to address the benefits promised and being paid which are so much larger than those which private sector employers paid even when Defined Benefits were the norm for those companies.
Does Illinois have a hope of fixing its pensions? Share your thoughts at JaneTheActuary.com!