Tom Cross, the Republican minority leader in the Illinois state house of representatives, emailed this letter to the editor in response to Eli Lehrer's article, "Pensions Aren't the Problem," which appeared in the March 28th issue of THE WEEKLY STANDARD:
In his recent article “Pensions Aren’t the Problem”, author Eli Lehrer highlighted the State of Illinois’ pension crisis in attempting to make his case that pension reform doesn’t make much difference in a state’s fiscal health.
While I can’t speak for other states, I can tell you that his theories are not applicable to the situation facing Illinois. Our problems are truly catastrophic.
Let’s look at the facts. Lehrer claims pension spending in Illinois represents only 3.45% of overall state spending. The facts are that for this year’s budget (FY12) the Illinois House of Representatives recently appropriated $4.2 billion to pay for the cost of pensions, which as a percentage of our General Revenue Funds budget ($33.1 billion) is approximately 13% This is our third largest expenditure, only surpassed by Elementary and Secondary Education and Health Care spending. Not a small sum, and without significant reform will almost double to $8 billion in ten years.
While I would agree with Mr. Lehrer that pension reform may not yield large short-term budget savings, the long-term savings and thus the reduction in long term costs to Illinois’ state budget are very significant.
Consider the following: The most recent report on the financial condition of Illinois’ state pension systems shows $80 billion more in liabilities than assets, with an asset to liability funding ratio of 38% for the combined five systems. This asset to liability ratio is the worst, by far, in the United States. By enacting pension reform we will be able to reduce this unfunded liability by approximately $25 billion, without reform it will continue to climb making the system financially unsustainable in the near future
Without action to curb this unfunded liability the cost of pension payments in Illinois will continue to rise…and will crowd out other vital state services.
Along with the Civic Committee of the Commercial Club of Chicago I am sponsoring Illinois House Bill 149, which allows current employees to keep all benefits earned prior to the date the reforms go into effect and going forward it would offer a menu of benefit changes to our current workforce. It will also provide for level-dollar funding over the next 35 years and reduce the unfunded liability to make our system more stable and financially manageable.
Our goal is to get our pension system back on sound financial footing so that it is financially manageable for taxpayers and those who use vital state government services, while creating long-term stability for those who are in the Illinois state pension systems.<
Illinois House Republican Leader
Eli Lehrer responds:
I agree with Rep. Cross’ assessment that Illinois faces a “catastrophic” pension situation. Of course, I already conceded that in the original article where I wrote that Illinois’ pension system “will go broke before 2020.”
That said, pensions do, indeed, comprise 3.45 percent, not 15 percent, of total spending in Illinois. (You can see it the underlying data here.) Since every state walls off its “general fund” spending in a slightly different way and plenty of states split responsibilities between state and local levels differently--Hawaii pays for all primary and second schools through it’s state budget, for example, while New York administers Medicaid locally—examining overall state spending, not the portion of a state’s general fund spent on pensions, provides the best and fairest way to compare pension costs between states. If it directed cuts and costs elsewhere or even distributed them differently between levels of government, Illinois could probably figure out how to pay its pension obligations. It won’t be pretty. But it’s possible.
That said, I agree that Mr. Cross’ proposed bill, if implemented, would improve the state’s dire overall fiscal position. Were I a legislative colleague of his, indeed, I strongly would consider supporting it. But I do have one hang-up: it may violate the Illinois Constitution. Here’s Article XIII, Sec. 5: "Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired."
I haven’t studied the case law behind this provision or examined Mr. Cross’ bill in depth but it seems like there would be a very credible court challenge to Mr. Cross’ legislation. In the end, Illinois may do the best by making up for its past underfunding of the pension system by sticking with the helpful changes it has already made, paying the promised benefits and finding cuts in places where they won’t face constitutional challenges.
Read Andrew Biggs and Eileen Norcross's first response to the article here.