Bond issue is part of solution, but so is some fundamental thinking
By LINDA BROOKHART
Illinois’ fiscal problems are historic, and notorious. As they continue to grow, we need creative and innovative solutions that address these massive problems. The most daunting is the pension debt that now is squeezing our budget, making up nearly 19 percent of our payments each year out of our main state bank account.
The State Universities Annuitants Association (SUAA) wants to be a part of the solution, because of what is at stake for our members and the state’s future. We know that even discussing the five state-funded pension plans is not easy. Most Illinois residents, and even some of our policymakers, do not understand the depth of our pension debt problem, and the consequences it carries. It can be tempting to consider this a public worker problem or concern, but it is much greater than that.
Without a comprehensive solution, our pension debt will grow exponentially, and put our finances and ability for the state to keep its promises in great danger. No one will win.
Towards the end of 2016, SUAA began working on a solution to ease the ever-growing pension ramp that was created to bring the five pension systems up to 90 percent funding by 2045. The 1994 plan was aimed at requiring set pension payments each year to manage the debt, but instead has helped create an unsustainable financial burden for our budget. We join others who believe we have to provide relief – more reasonable, stable payments over the long term to reach adequate funding levels in all five systems.
As we have considered options, SUAA’s focus has been to provide a permanent, reasonable fix – no more kicking the can down the road. We have been extremely fortunate to work with Professor Runhuan Feng, PhD, FSA, CERA, from the University of Illinois, and state Rep. Rob Martwick on an innovative idea.
We have presented to the House Personnel and Pensions Committee House Bill 4371, sponsored by Rep. Martwick, who chairs the pensions committee and will lead discussions around this and other reform ideas. He understands our goals and shares our vision for finding a more sustainable way for Illinois’ to protect pensioners and taxpayers for the long term.
House Bill 4371 calls for a $107.2 billion bond sale, with the proceeds immediately given to the pension systems to get them to 90 percent funding next year and the state, then making level payments of $8.5 billion between now and 2045 to cover ongoing pension costs plus paying off the new bond issue. Without any changes, the state’s annual pension payment is scheduled to grow from about $8 billion a year now to around $18 billion annually near the scheduled end of the payment period of 2045.
SUAA is hopeful that a sale of this magnitude will change how we think about managing our debt. We also believe that bonding done properly can manage the state’s unfunded pension liability. Bringing a certain security and stability to the pension systems should be extremely important to everyone with or without a state pension. SUAA’s objective is to give the taxpayers and our state budget a much-needed break from the pension crunch.
We understand this is a novel idea, with many intricate parts. This would be the largest bond sale in U.S. history. We have to think very carefully about what we gain from such an unprecedented move, whether it could work as one sale, and what we would risk in the process. SUAA is presenting this plan as an option for discussion, and Rep. Martwick is helping us sponsor it but has not committed to advancing it as a final proposal.
If nothing else, we hope this proposal forces a change in the discussion about pension funding reform. That discussion should center on this question: How do we keep the promises protected by the Constitution to fully fund our long-term pension commitments, without ruining our state’s finances to do it?
There are other creative solutions being discussed, and SUAA welcomes them as part of the discussion. We are not deterred by early criticism and skepticism from Wall Street and others to our plan. We have accomplished our initial goal of starting a better conversation on this issue.
SUAA will work with Rep. Martwick, the House Personnel and Pensions Committee, the business community, taxpayers and other stakeholders to find a comprehensive solution for our pension debt. We cannot and will not stand by while our budget crumbles under the weight of this debt. We believe the public and private sector are partners, not combatants, in the search for pension funding solutions. Please take a closer look at our plan at our website: www.suaa.org, and let’s work together to make tomorrow stronger and more stable for all Illinoisans.
Linda Brookhart is executive director, State Universities Annuitants Association, Springfield.