Using pensions to balance Illinois' budget

By Aaron Chambers

Illinois taxpayers can expect a bill of nearly $7 billion for the Democrats' decision to balance the state budget by diverting cash from public pension systems, a Rockford Register Star analysis shows.

For each of the 12.7 million residents in Illinois, that would amount to $539.58, which would be spread over 40 years as the state works to pay down its pension debt…

At the end of May, Gov. Rod Blagojevich and his fellow Democrats in the Legislature cut the state's pension payment by $2.3 billion over two years to balance the state budget and free up cash to hike state spending.

In a scenario akin to paying just half the principal portion of mortgage payments for two years and building that principal into the back end of the loan, the move dramatically expanded the state's pension debt.

As with a mortgage, taxpayers must pay interest on the debt.

The Democrats also cut retirement benefits for future state employees, university employees and public school employees. But while these restrictions will cut the state's pension liability and mitigate the impact of the payment diversion, the cost of reducing the payments is expected to overcome any benefit-related savings.

The cumulative effect is a projected cost of $6.86 billion through 2045, according to data provided by the directors of the state's pension systems. This accounts for both the cost of the payment diversion and savings associated with benefit reductions. The figure also counts funds diverted in the short term as savings…

In 1995, after years of neglecting the state's pension debt, policymakers established a 50-year schedule for paying it down. By 2045, the pension systems would have on hand enough cash to cover 90 percent of their liabilities.

But adhering to the formula requires the state to step up payments each year. In the next fiscal year alone, the state was supposed to pay more than $2.1 billion. The Democrats cut that payment roughly in half….

Another relatively small bill is associated with the State Universities Retirement System, where system director James Hacking said the pension maneuver will cost taxpayers $225.6 million over the next 40 years.

See also the next item and Illinois' Pension System: Woefully Underfunded, Scandal-Plagued.