Gov. J.B. Pritzker’s bluster on the state’s pension problem is dangerous.
On Tuesday, Pritzker made it clear that he wasn’t interested in any solution to the state’s pension crisis that would involve cuts to promised benefits.
Economic Club of Chicago Chairwoman Debra Cafaro asked Pritzker why lawmakers shouldn’t let voters change the state’s pension protection clause to control the growing cost of public sector pensions.
“To even working-class me, that seems like a fair way to address the shared sacrifice that we all have to make to get Illinois on the right track,” Cafaro said.
Pritzker wouldn’t have it. He said it wasn’t feasible to get such an amendment through the legislature and if it was passed, it would face legal challenges.
“There are a lot of things we can do, but anyone that thinks there’s a silver bullet in one constitutional amendment, that is not something that you should focus on,” Pritzker said. “You should focus on the entire group of things that we need to do to reduce our pension liability.”
That’s rich considering that Pritzker’s plan for straightening out the state’s finances is exactly a single constitutional amendment to allow for a progressive income tax.
From the beginning, Pritzker has insisted that the state make good on its past pension promises. That’s a sunny sentiment, but the math tells a different story. About a quarter of the state’s general fund revenue already goes to pay for pensions, which state lawmakers have underfunded for decades. That figure is expected to grow.
Pritzker can’t tax his way out of this problem. Raising taxes to the level needed to pay off the state’s estimated $135 billion in unfunded pension liabilities would simply put the state at risk of significantly speeding up the pace of outmigration or cutting services to a level that not even former Gov. Bruce Rauner could support. Of course, the other option would be to hike employee contributions, which is probably as politically unpalatable as reducing benefits.
Pritzker’s approach to pensions would make more sense if Illinois wasn’t so far in the hole. The Netherlands, which has what is widely viewed as the most secure pensions in the world, is preparing for the possibility of cutting payments to millions of retirees because some funds have slipped below the 104.2 percent statutory minimum funding ratio. Yes, for every dollar the Dutch pension funds have promised to pay, they are required to hold $1.04 in assets.
Compare that to the Teachers’ Retirement System of the state of Illinois, the state’s largest pension fund. The funded ratio of the Teachers’ Retirement System was 40.6 percent as of June 30, according to the most recent report.
The hole is simply too deep. That depth makes it easy for politicians to bury their heads, but we’ve seen where that will lead us. Pritzker needs to open his eyes, buck his own party and force real change if he wants to actually put Illinois on a path to financial stability.