WBEZ | Illinois pension crisis http://www.wbez.org/tags/illinois-pension-crisis Latest from WBEZ Chicago Public Radio en Mayors blast pension fix for cops, firefighters http://www.wbez.org/news/mayors-blast-pension-fix-cops-firefighters-110227 <img typeof="foaf:Image" src="http://llnw.wbez.org/main-images/flickr_matt Turner_springfield_0.jpg" alt="" /><p><p>A group of mayors and municipal groups from across Illinois is deriding an influential lawmakers&rsquo; blueprint for stabilizing their police and fire pension funds, some of which are teetering on the brink of insolvency.</p><p>The Pension Fairness for Illinois Communities Coalition, which comprises nearly 100 mayors and municipal groups, released a statement Thursday night claiming the package from State Sen. Terry Link risks leaving their pension funds in even worse financial shape.</p><p>&ldquo;This proposal is not an &lsquo;agreement&rsquo; that brings comprehensive and long-term solutions, but merely window dressing that covers up the real impact on taxpayers and allows the unsustainable public safety pension crisis to continue to spiral out of control,&rdquo; the statement reads.</p><p>Link, a Waukegan Democrat, outlined several proposals to municipal leaders and police and fire lobbyists this week that he said would provide stability to more than 600 public safety pension funds outside of Chicago. Altogether, those funds are projected to be underfunded by at least $8.4 billion.</p><p>Link has not yet introduced his proposals in bill form, and it&rsquo;s unclear whether he will before lawmakers head home for the summer at the end of next week. But the blueprint he outlined during a closed-door meeting, <a href="http://www.wbez.org/news/springfield-nears-pension-deal-downstate-cops-firefighters-110219" target="_blank">first reported by WBEZ</a>, would ease restrictions on how and where pension funds can invest their money, with the goal of allowing them to earn more in the stock market.</p><p>Link also wants to rejigger the makeup of the hundreds of five-member boards that govern public safety pension funds, and he aims to give smaller funds more investment power by allowing them to pool their money.</p><p>But it&rsquo;s Link&rsquo;s call for a five-year moratorium on further pension changes that would spell doom for the grander hopes of suburban and downstate mayors.&nbsp; They&rsquo;ve been calling for a cut to the three percent compounding annual pension benefit increases given to cops and firefighters, higher retirement ages, more contributions from workers and scaled back &ldquo;pension sweeteners&rdquo; - their term for benefit enhancements that state lawmakers have approved over the years.</p><p>To that end, Link&rsquo;s blueprint merely &ldquo;nibbles around the edges,&rdquo; said Mark Fowler, executive director of the Northwest Municipal Conference, which lobbies for dozens of northwest suburbs.</p><p>&ldquo;If you put a moratorium in on addressing any pension sweeteners or pension changes, you&rsquo;re five years down the road...[and] the problem continues to spiral out of control and you&rsquo;ve got pensions in Illinois that will not be able to pay out benefits,&rdquo; Fowler said.</p><p>Mayors around Illinois have been lobbying for years to have police and fire pension benefits reduced, but their efforts seemed to be gaining some traction this year, after state lawmakers <a href="http://www.wbez.org/news/legislature-passes-historic-pension-vote-109287" target="_blank">overhauled pensions</a> for state workers and for <a href="http://www.wbez.org/news/mayor-emanuel%E2%80%99s-pension-plan-headed-governor-109989" target="_blank">some in Chicago</a>. Towns across Illinois complain that ever-rising state-mandated pension contributions are <a href="http://www.wbez.org/news/chicago-suburbs-grapple-their-own-pension-crisis-110166" target="_blank">crowding core services out of their budgets</a>, while they watch the health of many pension funds continue to decline.</p><p>While the coalition blames benefit enhancements for their skyrocketing pension costs, unions and some actuaries claim the spike comes courtesy of a decades-old funding mechanism that backloads pension contributions.</p><p>Link has suggested he won&rsquo;t go for the type of benefit cuts included in other recent pension laws because he believes they violate a clause in the state&rsquo;s constitution that says pension benefits &ldquo;shall not be diminished.&rdquo; The controversial new state pension law is now on hold, pending the outcome of several court challenges.</p><p>But Fowler said that shouldn&rsquo;t stop pension reform for downstate police and fire funds.</p><p>&ldquo;I don&rsquo;t quite understand why those were constitutional decisions or those were proposals that passed the muster of the General Assembly, yet we&rsquo;re not allowed to even present those proposals,&rdquo; Fowler said.</p><p>Representatives for downstate police and fire pension funds did not immediately respond to requests for comment. Senator Link has not returned several phone calls from WBEZ.</p><p>But earlier this week, Link said he may officially introduce his pension changes &ldquo;fairly soon.&rdquo;</p><p>&ldquo;And I think that this is something that everybody agrees on,&rdquo; he said.</p><p dir="ltr" id="docs-internal-guid-ece037e0-2a71-69d8-b578-db2facad95ff"><em><a href="http://www.wbez.org/users/akeefe">Alex Keefe</a> is political reporter at WBEZ. You can follow him on <a href="https://twitter.com/WBEZpolitics">Twitter</a> and <a href="https://plus.google.com/102759794640397640028">Google+</a>.</em></p></p> Fri, 23 May 2014 13:54:00 -0500 http://www.wbez.org/news/mayors-blast-pension-fix-cops-firefighters-110227 Springfield nears pension deal for downstate cops, firefighters http://www.wbez.org/news/springfield-nears-pension-deal-downstate-cops-firefighters-110219 <img typeof="foaf:Image" src="http://llnw.wbez.org/main-images/Screen Shot 2014-05-21 at 9.55.45 PM.png" alt="" /><p><p>A key state lawmaker is verging on a deal aimed at stabilizing hundreds of troubled pension funds for police and firefighters across Illinois, though the plan would avoid the sort of money-saving retirement benefit cuts that many mayors have been clamoring for, WBEZ has learned.</p><p>After weeks of talks with police and fire pension fund representatives and municipal officials, State Sen. Terry Link, D-Waukegan, zeroed in this week on several key changes to the more than 600 police and firefighter pension funds in the suburbs and downstate, according to sources with direct knowledge of his proposals.</p><p>The changes would ease restrictions on how pension funds invest their money, and even out the makeup of their governing boards, but would not slash benefits, increase retirement ages or require cops and firefighters to contribute more toward their retirement, the sources say.</p><p>&ldquo;Those have always been topics that have been there for a long time,&rdquo; Link told WBEZ on Wednesday afternoon. &ldquo;I think that we&rsquo;re coming closer to resolving the little bit of differences that people have on it. So that&rsquo;s probably what you&rsquo;ll be seeing fairly soon.&rdquo;</p><p>Link also wants a five-year moratorium on changes to the pension law without both parties&rsquo; consent, according to the sources. That could anger mayors and municipal groups, who for years have been asking for more sweeping reforms to reduce their state-mandated pension contributions for cops and firefighters outside of Chicago.</p><p>Link said suggested his proposals were not final, but he did not say whether he&rsquo;d introduce a bill before the General Assembly adjourns its spring session at the end of next week.</p><p>Altogether, the pension funds for cops and firefighters outside of Chicago are projected to have just about half the money they&rsquo;ll need to pay out to retirees, and some are already teetering on insolvency. As of 2012, they had an aggregate of about $8.4 billion in unfunded liabilities.</p><p>One proposal Link outlined during a closed-door meeting earlier this week would grant pension funds wider latitude in how they can invest their money. Illinois pension law currently restricts how much money pension funds can pour into certain types of investments - such as stocks - with smaller pension funds facing tighter restrictions, while larger ones are free to take more risks. Critics say this has hamstrung police and fire funds that might otherwise have seen bigger investment returns.</p><p>Another proposal would change the makeup of the hundreds of five-member boards that govern police and fire pension funds outside of Chicago. Right now, two members are appointed by each municipality, with two elected from the ranks of working cops and firefighters and one retiree. Municipal groups argue that leaves them in the minority during key pension fund votes. According to sources, Link wants to increase the boards to six members - three appointed by the municipality and three chosen by public safety workers - possibly with a seventh member chosen by the whole group.</p><p>A third idea would allow smaller pension funds to pool their assets and invest them together. This falls far short of the mayors&rsquo; call to consolidate Illinois&rsquo; hundreds of discrete pension fund into a single entity, similar to the fund for municipal workers around the state. But backers say it would provide more stability for funds with less money to invest.</p><p>Link&rsquo;s proposed moratorium on further pension changes could be a tough sell. It would mean cops and firefighters wouldn&rsquo;t be able to win the sort of benefit enhancements that mayors have blamed for their public safety pension woes. But it also means mayors and municipal groups wouldn&rsquo;t be able to fight for more sweeping reforms - with bigger savings - in the near future.</p><p>A coalition of nearly 100 mayors and municipal interest groups is calling for a reduction in the annual retirement benefit increases downstate cops and firefighters currently receive. They also want to raise the retirement age, force workers to contribute more money and consolidate Illinois&rsquo; more than 600 funds to save on administration costs.</p><p>Mayors around Illinois have seen their pension costs steadily rise, while in many cases, the health of the funds has continued to decline. They blame what they call &ldquo;pension sweeteners&rdquo; - that is, benefit increases approved by state lawmakers - for rising costs that are squeezing municipal budgets around the state.</p><p>Police and fire unions, meanwhile, argue towns could have budgeted for the ballooning pension costs, thanks to a funding scheme approved by state lawmakers decades ago. And they only have to wait out the clock: Starting in 2015, the state can begin intercepting grant money from towns that don&rsquo;t properly fund their pensions.</p><p>For his part, Link has suggested he will not impose the sort of scaled-back retirement benefits that lawmakers approved for employees of the state of Illinois and the city of Chicago. Unions argue those cuts violate a part of the state constitution that says benefits &ldquo;shall not be diminished or impaired,&rdquo; and the state pension bill has prompted several legal challenges.</p><p>&ldquo;I think it will do the purpose that we&rsquo;re all looking for, and that&rsquo;s to give the stability in the system, plus to give [an] opportunity [for pension funds] to make a better investment and make more money on their return,&rdquo; Link said Wednesday. &ldquo;And I think that this is something that everybody agrees on.&rdquo;</p><p><em>Tony Arnold contributed reporting from Springfield. <a href="http://www.wbez.org/users/akeefe">Alex Keefe</a> is political reporter at WBEZ. You can follow him on <a href="https://twitter.com/WBEZpolitics">Twitter</a> and <a href="https://plus.google.com/102759794640397640028">Google+</a>.</em></p></p> Wed, 21 May 2014 21:47:00 -0500 http://www.wbez.org/news/springfield-nears-pension-deal-downstate-cops-firefighters-110219 Chicago suburbs grapple with their own pension crisis http://www.wbez.org/news/chicago-suburbs-grapple-their-own-pension-crisis-110166 <img typeof="foaf:Image" src="http://llnw.wbez.org/main-images/pothole - AP Charles Rex Arbogast.jpg" alt="" /><p><p>On a recent drizzly weekday afternoon, Mt. Prospect Mayor Arlene Juracek climbs into the back seat of an official white village SUV.</p><p>She&rsquo;s guiding a tour of her local pension crisis.</p><p>Behind the wheel, Assistant Village Manager Dave Strahl hangs a right down Forest Avenue, on the northern end of this upper middle-class northwest suburb. In a few seconds, he&rsquo;s slaloming around potholes on a road that&rsquo;s crumbling, awash in gravel.</p><p>&ldquo;We fell behind in our street maintenance,&rdquo; Juracek explains, leaning forward from the backseat. &ldquo;So as your revenue sources are limited and your costs are escalating, you start to make the tradeoffs. ... One of the most escalating costs is the pension costs.&rdquo;</p><p>Even Juracek admits there is not a direct correlation between potholes and pensions.</p><p>But mayors around Illinois are complaining of a similar trend: State-mandated local pension contributions for police and firefighters are straining local budgets, threatening to squeeze out money for basic government services. Yet according to a <a href="http://cgfa.ilga.gov/Upload/2013FinancialConditionofDownstatePoliceFirePA96-1495.pdf" target="_blank">state study from last year</a>, the total projected future debt for suburban and downstate public safety pensions has ballooned at least eight-fold since the early 1990s.</p><p>That has mayors warning of deeper service cuts, higher taxes and compromised retirement security for cops and firefighters.</p><p>Experts and municipal groups say mayors are even more anxious because, starting next year, a new Illinois law takes effect that will enable the state to intercept tax dollars from towns that don&rsquo;t pay enough into their police and fire pension funds.</p><p>A <a href="http://pensionfairness.org/" target="_blank">coalition</a> of nearly 100 towns and municipal groups is finally sitting down with state lawmakers and labor leaders to try to stabilize those pensions. But the group fiercely disagrees with police and fire unions over what caused the underfunding - and how to fix it.</p><p><strong>Budget pressures</strong></p><p>Illinois has more than 600 individual, locally-controlled pension funds for cops and firefighters outside the city of Chicago. And the trend in Mt. Prospect is similar to that seen in towns and cities across the state, regardless of their size or economy.</p><p>The village has seen the health of its local police and fire pension funds steadily decline over the last several years. It&rsquo;s projected that each will have just more than half of the money it needs to pay out in future retirement benefits, a ratio known as the &ldquo;unfunded liability.&rdquo; But all the while, the village&rsquo;s required police and fire pension payments have nearly quintupled since 1997.</p><p>Mayors like Juracek say this puts pressure on local budgets in ways that are beginning to hit residents.</p><p>In the suburbs, Elk Grove <a href="http://www.elkgrove.org/Modules/ShowDocument.aspx?documentid=2041" target="_blank">recently passed</a> a utility tax just to pay for pensions. Downstate Bloomington approved a <a href="http://www.cityblm.org/index.aspx?page=575" target="_blank">similar measure</a> late last month.</p><p>Officials in Niles say rising pension costs contributed to a recent sales tax hike. And in Fox River Grove, northwest of Chicago, the mayor says he may have to choose between borrowing money to build a new train station, and borrowing money to bolster his police pension fund, which is projected to have just about a quarter of the money it will need to pay retiree benefits in the future.</p><p>Mayors around Illinois say the economic recession dealt a large blow to their local pension funds. But they also blame what they call &ldquo;<a href="http://pension.iml.org/page.cfm?key=3536" target="_blank">pension sweeteners</a>&rdquo; - that is, benefit enhancements passed by state lawmakers, who must approve all changes to pension law.</p><p>Many mayors claim the increases are an unfunded mandate, pushed by powerful police and firefighter unions and okayed by Springfield lawmakers.</p><p>Longtime suburban Roselle Mayor Gayle Smolinski says state accused lawmakers are often &ldquo;happy to be the purveyors of largesse at our backs.&rdquo;</p><p>&ldquo;I don&rsquo;t have a money tree in the back that I&rsquo;m saying I just don&rsquo;t wanna give to you guys,&rdquo; said Mayor Gayle Smolinski, of suburban Roselle. &ldquo;I&rsquo;m talking about real money that&rsquo;s coming in from my taxpayers, many of them who don&rsquo;t have pensions anymore.&rdquo;</p><p>The coalition is <a href="http://pensionfairness.org/page.cfm?key=11348" target="_blank">asking</a> the General Assembly to scale back the three percent compounding annual benefit increases given to downstate cops and firefighters. Lawmakers <a href="http://www.wbez.org/news/legislature-passes-historic-pension-vote-109287" target="_blank">recently approved</a> similar cutbacks for the state of Illinois&rsquo; pension funds, and for <a href="http://www.wbez.org/news/mayor-emanuel%E2%80%99s-pension-plan-headed-governor-109989" target="_blank">Chicago laborers and municipal workers</a>. Unions are <a href="http://www.wbez.org/news/politics/unions-file-lawsuit-over-pension-changes-109588" target="_blank">suing</a> over the state-level benefit changes, claiming they violate the Illinois constitution.</p><p>The coalition also wants to raise the retirement age for downstate and suburban police and firefighters, and make them contribute more toward their pensions out of each paycheck. They would also consolidate the hundreds of local pension funds across Illinois to save money on administrative costs, similar to the way <a href="http://www.imrf.org/info/about.htm" target="_blank">municipal workers&rsquo; retirements</a> are structured.</p><p>Illinois State Sen. Terry Link, D-Waukegan, has been spearheading talks between municipal groups and police and fire lobbyists.</p><p>&ldquo;Then we&rsquo;re putting it off a year or better before we can, uh, try to help the problem,&rdquo; Link said. &ldquo;So that&rsquo;s what I&rsquo;m trying to do right now, is work on some things that can be done without causing, uh, a court case. And then the taxpayers could see some relief immediately.&rdquo;</p><p><strong>&lsquo;Not about potholes&rsquo;</strong></p><p>But lobbyists for police and fire pensions in Springfield say mayors have been misleading the public about the nature and cause of the pension problems.</p><p>&ldquo;It&rsquo;s definitely not about potholes,&rdquo; said Sean Smoot, a lobbyist with the Police Benevolent and Protective Association of Illinois, which represents downstate police pension funds.</p><p>Smoot said the choice these mayors are presenting - cutting basic services or paying public safety pensions - is a false one.</p><p>And Smoot rejects the claim that mayors and municipal interest groups had no hand in increasing public safety pension benefits over the years.</p><p>&ldquo;These pensions sweeteners that they like to point to, those didn&rsquo;t happen without their agreement,&rdquo; Smoot said. &ldquo;So, for them to turn around and say...&rsquo;General Assembly, you put these unfunded mandates on us,&rsquo; it&rsquo;s just simply not true.&rdquo;</p><p>Pat Devaney, with the Associated Fire Fighters of Illinois, maintains retirement benefits didn&rsquo;t cause this crisis.</p><p>&ldquo;But it&rsquo;s a great talking point for them to stand up at a press conference, deliver, and not accept any responsibility for what&rsquo;s gone on in their community,&rdquo; Devaney said.</p><p>In fact, Illinois pension benefits for cops and firefighters outside of Chicago are actually less generous than similar plans across the country, according to an analysis for WBEZ by the non-profit Urban Institute, and Washington, D.C. think tank.</p><p>That&rsquo;s largely because cops and firefighters here do not get Social Security, said Richard W. Johnson, who heads up the institute&rsquo;s Program on Retirement Policy. Johnson&rsquo;s analysis found that Illinois&rsquo; downstate public safety workers also pay more than average toward their own pensions, though they do not have to pay Social Security taxes.</p><p>Instead, Devaney said municipalities shouldn&rsquo;t be allowed to wriggle out of making their required pension payments. He contends towns have been making artificially low contributions for decades - though they should have anticipated the present problems.</p><p><strong>&lsquo;We saw it coming&rsquo;</strong></p><p>Rather than &ldquo;pension sweeteners,&rdquo; longtime Illinois police and fire pension actuary Art Tepfer said the rapidly rising pension costs that towns are struggling with came about by design.</p><p>&ldquo;This is the way that Illinois retains it&rsquo;s No. 1 ranking as having the worst-funded pension funds in the country,&rdquo; said Tepfer, who serves as an actuary to more than 100 downstate and suburban public safety funds in Illinois.</p><p>Tepfer points to a 1993 change in state law, when legislators approved a pension funding scheme that functioned similar to an adjustable-rate mortgage: low payments at first, but rapidly rising payments in the future.</p><p>&ldquo;Well, we&rsquo;re in the future now,&rdquo; Tepfer said. &ldquo;This is what&rsquo;s happened. And that&rsquo;s why we have a pension crisis. We saw it coming.&rdquo;</p><p>Tepfer said smaller funds are also limited in how much money they can invest in stocks, which limits the amount of money they can make on their investments.</p><p>Back on the tour of Mount Prospect, Assistant Village Manager Dave Strahl points out a whopper of a pothole that&rsquo;s eaten the road to its very foundation.</p><p>The longer it goes unfixed, the worse it gets.</p><p>Mayor Arlene Juracek leans in from the back seat to say that&rsquo;s the same reason state lawmakers need to change downstate police and fire pensions - soon.</p><p>&ldquo;If not now, when?&rdquo; Juracek asks. &ldquo;You need to start because the problem gets worse every single year. You need to start at some point in time and really get the ball rolling and impress on everybody the urgency of getting a solution.&rdquo;</p><p><em><a href="http://www.wbez.org/users/akeefe" target="_blank">Alex Keefe</a> is political reporter at WBEZ. You can follow him on <a href="https://twitter.com/WBEZpolitics" target="_blank">Twitter</a> and <a href="https://plus.google.com/102759794640397640028" target="_blank">Google+</a>.</em></p></p> Mon, 12 May 2014 12:27:00 -0500 http://www.wbez.org/news/chicago-suburbs-grapple-their-own-pension-crisis-110166 Illinois' pension problem: How big is it, really? http://www.wbez.org/news/illinois-pension-problem-how-big-it-really-109659 <img typeof="foaf:Image" src="http://llnw.wbez.org/main-images/flickr_matt Turner_springfield.jpg" alt="" /><p><p>The controversial changes to Illinois&rsquo; public pension systems enacted in December came after years of fierce debate. And one of the key points of contention among academics and fund leaders was this fundamental question: Exactly how bad is the pension shortfall?</p><p>The number kicked around by politicians and reporters is usually around $100 billion, based on <a href="http://cgfa.ilga.gov/Upload/1113%20SPECIAL%20PENSION%20BRIEFING.pdf">estimates</a> from the state&rsquo;s five retirement systems.</p><p>That is what is known as the state&rsquo;s &ldquo;unfunded liability&rdquo;&mdash;a fancy way of saying the amount Illinois will owe state workers in future retirement benefits but will not be able to pay if the systems&rsquo; finances do not change.</p><p>But there are economists, including a recent <a href="http://www.chicagomag.com/Chicago-Magazine/December-2013/Q-and-A-with-University-of-Chicago-Economist-Eugene-Fama/">Nobel Prize winner</a>, who thinks the real amount of this pension debt is at least two or three times bigger than that.</p><p>Economists, lawmakers, and pension fund leaders agree that Illinois&rsquo; pension underfunding is a gargantuan problem, no matter what math you use. But the math does matter, they say, because it produces the number they are trying to hit when they determine state contributions or pension reform laws.</p><p>The bigger the number, the more taxpayers and state workers may feel the sting in the form of benefit reductions, tax hikes, or budget cuts.</p><p><strong>A question of risk &amp; optimism</strong></p><p>Jeffrey Brown, a financial economist at the University of Illinois, believes the state&rsquo;s unfunded pension liabilities are more likely around $250 billion.</p><p>He is part of that school of economists who have raised big questions about the way all American public pension funds are crunching their numbers. The result, academics such as Brown claim, is that public pension debt is made to look far smaller than it really is.</p><p>&ldquo;They&rsquo;re being too optimistic because they are failing to account for risk,&rdquo; Brown said.</p><p>At issue are the assumptions that pension funds make about how much money they will earn off of their investments in the future.</p><p>Running a public pension fund is basically like being a fortune teller, with a calculator instead of a crystal ball. Pension fund actuaries try to predict how much of today&rsquo;s dollars they will need in order to pay retirement benefits decades down the road.</p><p>To do that, they also try to predict how much money they are going to make from their investments. The more they assume their investments will grow in the future, the smaller they assume their future pension debt will be.</p><p>The number pension funds use to predict their future financial condition is called a &ldquo;discount rate.&rdquo; Right now, Illinois&rsquo; five state pension funds assume those investments will bring in 7 percent to 8 percent a year. Many pension funds in Illinois have hit or exceeded that mark when returns are averaged over the last 30 years.</p><p>But economists such as Brown <a href="about:blank">argue</a> that assumption is too optimistic, regardless of what happened in the past.</p><p>&ldquo;If I go to Las Vegas, and I bet my house, and I actually win, it doesn&rsquo;t mean that it was a smart thing to go to Las Vegas and gamble my house, because I could have just as easily lost,&rdquo; Brown said.</p><p>Brown said a safer rate of return would be around 4 percent, and some economists have said it should be even lower. But there is a more fundamental issue, he said. Because public pensions, unlike 401(k) plans, are supposed to be guaranteed payments to workers, pension funds should not be using something as unpredictable as investment returns to discount what they will owe.</p><p>&ldquo;Whether you invest the money...in Beanie Babies, or whether you invest it in stocks, or whether you put it under your mattress, doesn&rsquo;t affect how much we owe,&rdquo; Brown said. &ldquo;And the same thing is here. They&rsquo;re really separate decisions.&rdquo;</p><p><strong>The &lsquo;reality&rsquo; of public pensions</strong></p><p>Brown&rsquo;s pitch of new pension math has not gone over well with many pension fund leaders.</p><p>&ldquo;What you&rsquo;ve just described is pure finance theory,&rdquo; said Keith Brainard, director of research at the National Association of State Retirement Administrators, which represents public pension leaders nationwide. &ldquo;However, public pension plans are not operating in a world of theory.&rdquo;</p><p>Brainard has been a <a href="http://www.nasra.org/content.asp?contentid=133">vocal critic</a> of the more conservative math that economists such as Brown are advocating. He points out that the funds&rsquo; financial predictions are not simply based on past investments, but also on what they think will happen in the future with interest rates, inflation, and the performance of a wide range of assets.</p><p>And he sees an agenda behind some financial economists&rsquo; estimates, which would make America&rsquo;s public pension problems seem so bad as to be almost unsolvable, absent huge tax hikes or deep budget cuts.</p><p>&ldquo;It would make the cost of providing that benefit so prohibitive that state legislatures and city councils by and large would be forced to close those pension plans,&rdquo; Brainard said.</p><p>Some economists have <a href="http://suaa.org/assets/pdf/AreStatePublicPensionsSustainable.JD%20Rauh.pdf">predicted</a> that very outcome. Brainard dismissed that notion as a scare tactic, often wielded by groups that believe public pensions are unsustainable, and that workers should be shifted over to 401(k)-style retirement plans.</p><p><strong>Illinois&rsquo; challenging pension math</strong></p><p>State Sen. Daniel Biss, D-Evanston, was one of the architects of the state&rsquo;s new pension law. He said the type of pension math advocated by some financial economists would be particularly hard for Illinois&rsquo; cash-strapped state government.</p><p>Assuming less money from future investments would mean Illinois must kick in more money to pay for pensions -- perhaps too much money, if investment returns exceed the lowered expectations.</p><p>And Biss said Illinois simply cannot afford to be conservative with its math, but rather needs to try to guess its pension obligations right on the nose.</p><p>&ldquo;If we had enough money as a state to - in addition to funding schools and health care and human services and infrastructure - also create a Scrooge McDuck-style vault of coins for the pension systems to play in for no reason, I think that might be a cool tourist attraction,&rdquo; Biss said.</p><p>But not a practical one.</p><p>Still, for financial economists like Brown, this whole debate is about transparency. Brown does not advocate for the abolition of public sector defined benefit plans, but thinks they are not being honest with themselves&mdash;or with taxpayers.</p><p>&ldquo;If you&rsquo;re gonna have those discussions, regardless of where you come down, you need to be working with accurate numbers, &ldquo;Brown said. &ldquo;And you don&rsquo;t want to hide the true cost of things.&rdquo;</p><p><em><a href="http://www.wbez.org/users/akeefe">Alex Keefe</a> is a political reporter at WBEZ. You can follow him on <a href="https://twitter.com/WBEZpolitics">Twitter</a> and <a href="https://plus.google.com/102759794640397640028">Google+</a>.</em></p></p> Fri, 07 Feb 2014 14:00:00 -0600 http://www.wbez.org/news/illinois-pension-problem-how-big-it-really-109659 Study: Pension savings 'barely dent' Illinois fiscal woes http://www.wbez.org/news/study-pension-savings-barely-dent-illinois-fiscal-woes-109547 <img typeof="foaf:Image" src="http://llnw.wbez.org/main-images/jimmywayne.jpg" alt="" /><p><p>If you think Illinois&rsquo; new pension law will fix the state&rsquo;s money troubles, think again.</p><p>Savings from the controversial pension overhaul will &ldquo;barely dent&rdquo; Illinois&rsquo; budget shortfalls over the next decade, according to a new study released Tuesday by researchers at the University of Illinois.</p><p>Even with the new law, Illinois&rsquo; budget shortfall is still on course to grow to $13 billion by 2025, according to estimates produced by U of I&rsquo;s Institute of Government and Public Affairs.</p><p>Chalk it up to state government&rsquo;s propensity to spend more money than it takes in, said Richard F. Dye, who co-authored the study.</p><p>&ldquo;It just doesn&rsquo;t add up,&rdquo; said Dye, an economics professor assigned to the institute. &ldquo;We like government services. We don&rsquo;t like paying taxes. We like politicians that tell us it&rsquo;s gonna be fine. But it ain&rsquo;t fine.&rdquo;</p><p>Backers say the pension law, <a href="http://www.wbez.org/news/legislature-passes-historic-pension-vote-109287">passed by lawmakers</a> and quickly signed by Democratic Gov. Pat Quinn in December, will save the state $160 billion over the next 30 years. Much of those savings comes from scaling back annual benefit increases for state workers, a provision organized labor groups say violates the <a href="http://www.ilga.gov/commission/lrb/con13.htm">state constitution&rsquo;s guarantee</a> that benefits &ldquo;shall not be diminished or impaired.&rdquo;</p><p>But the law&rsquo;s savings are backloaded and will not be fully felt for years, Dye said, even if the law survives legal challenges.</p><p>Illinois would save between $1 billion and $1.5 billion each year for the next decade, according to his analysis. Even with those savings, the state would face a roughly $3 billion hole in 2015, which would swell to $13 billion in 2025.</p><p>Darkening the forecast is the scheduled 2015 expiration of the income tax hike -- aimed at closing the state&rsquo;s budget gaps -- that was <a href="http://www.wbez.org/story/news/quinn-holds-income-tax-increase">championed by Quinn</a> and enacted in <a href="http://www.chicagopublicradio.org/story/illinois-legislature-approves-major-tax-increases">2011</a>. That will mean less money to the state starting next year, unless that law is extended.</p><p>But even if lawmakers do continue the increased tax rate beyond 2015, things do not get much sunnier, Dye said. That would still leave Illinois on track to have its deficit grow to $5.5 billion in 2025.</p><p>&ldquo;We are spending beyond our means,&rdquo; Dye said. &ldquo;And, you know, greater cuts in education or social services are on the way. It&rsquo;s just not sustainable.&rdquo;</p><p><em><a href="http://www.wbez.org/users/akeefe">Alex Keefe</a> is a political reporter at WBEZ. You can follow him on <a href="https://twitter.com/WBEZpolitics">Twitter</a> and <a href="https://plus.google.com/102759794640397640028">Google+</a>.</em></p></p> Tue, 21 Jan 2014 00:39:00 -0600 http://www.wbez.org/news/study-pension-savings-barely-dent-illinois-fiscal-woes-109547 Experts say Chicago has a public pension system set up to fail http://www.wbez.org/news/experts-say-chicago-has-public-pension-system-set-fail-109329 <p><p>Illinois lawmakers may have approved a fix for the state&rsquo;s pension crisis. But Chicago is still facing a massive spike in required pension payments to help bring its own funds up to speed.</p><p>The city&rsquo;s four pension systems &mdash; for police, firefighters, laborers and municipal workers &mdash; were short by a whopping $19.5 billion at the end of 2012. That does not include the ailing pension fund for Chicago teachers, which has its own $8 billion shortfall at the end of the last fiscal year.</p><p>Increased benefits for city workers, early retirement offers and market downturns put pressure on the city&rsquo;s four pension funds in the late 1990s and early 2000s. But pension experts, labor leaders and politicians also point to a more fundamental problem &mdash; a quirk of state law that experts say may have set the system up to fail.</p><p>Retired Chicago firefighters George Beary, 70, says he wasn&rsquo;t making a lot of money when he started at the fire department back in 1967. But he still remembers the words of consolation he got from one of his officers in the fire academy.</p><p>&ldquo;When we got on the fire department, we were taken care of from the time we walked through those big red doors, to the time they haul your ass outta church to go in the ground,&rdquo; Beary recalled. &ldquo;You&rsquo;re covered. Exact words.&rdquo;</p><p>But for Beary, they don&rsquo;t ring as true today.</p><p>He and a group of fire department retirees - they call themselves &ldquo;oldtimers&rdquo; - sipped coffee and munched on donuts one recent morning at the Chicago Firefighters Local 2 Union hall, on the city&rsquo;s South Side.</p><p>Altogether, Chicago&rsquo;s four pension accounts were just 36 percent funded at the end of 2012. But the one for firefighters and paramedics is the worse off by far.</p><p>For every dollar it owes in benefits, it has just a quarter in the bank.</p><p>&ldquo;See the gray hair? That comes from worry,&quot; said retired Capt. Peter Qualizza.</p><p>He&rsquo;s one of roughly 4,100 beneficiaries in the firefighters&rsquo; pension fund which some experts project could go broke in less than a decade.</p><p>&ldquo;So everyone here has gray hair,&rdquo; Qualizza said, drawing laughs from the other retirees sitting around a long conference table. &ldquo;Some of &lsquo;em color it, some of &lsquo;em don&rsquo;t, okay? But everyone of us has gray hair because we&rsquo;re concerned about the future.&rdquo;</p><p><strong>Chicago&rsquo;s unrealistic pension math</strong></p><p>The roots of Chicago&rsquo;s pension troubles go back decades, long before Qualizza and the other oldtimers starting going gray.</p><p>At issue is the so-called &ldquo;multiplier&rdquo; equation by which City Hall calculates how much money to chip into its pension piggy banks each year. It may sound complex, but the math is simple: City Hall bean-counters take the amount that workers in each fund paid into their pensions from two years prior, then they multiply that by a number that&rsquo;s set in state law.</p><p>As a matter of state law, Chicago&rsquo;s pension math is set by Springfield legislators. But the unique multiplier number for each of the four funds hasn&rsquo;t increased since 1982.</p><p>&ldquo;This is really one-of-a-kind in my experience,&rdquo; said actuary Jeremy Gold, who studies public pensions all over the country. &ldquo;There are no other public pension plans that I am aware of...that pays the way Chicago pays.&rdquo;</p><p>Gold says the fundamental problem is this multiplier doesn&rsquo;t change with the times. That means the money going into each fund stays relatively flat, regardless of whether retirees get richer benefits, stock markets crash or the system is burdened by thousands of early retirements, as it was under former Mayor Richard Daley in 1998 and 2004. (Daley declined WBEZ&rsquo;s interview request.)</p><p>The relatively static funding level is akin to offering to pay your grocer the 1982 price for a gallon of milk.</p><p>A 2010 <a href="http://www.chipabf.org/ChicagoPolicePension/PDF/Financials/pension_commission/CSCP_Final_Report_Vol.1_4.30.2010.pdf">report</a> commissioned by Daley found this inadequate funding was the main reason Chicago&rsquo;s police and fire pension funds have taken a such dive in the 2000s. The report blamed benefit increases for the dire condition of the laborers&rsquo; and municipal workers&rsquo; funds, though the inadequate funding has made it harder for them to recover.</p><p>&ldquo;At this point, after having been in place for 30 years, it no longer bears any relationship to the realistic cost of providing these benefits,&rdquo; Gold said.</p><p><strong>Pension problems that go back decades</strong></p><p>In fact, the problem is much older than that.</p><p>In his downtown office, fire pension fund secretary Tony Martin flips through a massive, shopworn book containing notes from pension board meetings going back more than a century, from 1887 to Dec. 18, 1931.</p><div class="image-insert-image "><a href="http://www.wbez.org/system/files/styles/original_image/llo/insert-images/pension_chart_for_al.jpg" target="_blank"><img alt="" class="image-original_image" src="http://www.wbez.org/system/files/styles/original_image/llo/insert-images/pension_chart_for_al.jpg" style="height: 247px; width: 400px; float: right;" title="Sources: WBEZ analysis of data from the Chicago Firemen’s Annuity and Benefit Fund, Policemen’s Annuity and Benefit Fund, Municipal Employees’ Annuity and Benefit Fund and the Laborers’ Annuity and Benefit Fund" /></a></div><p>Martin finally lands on a<a name="chart"></a> yellowed, typewritten letter the firefighter&rsquo;s pension board sent to state lawmakers on Wednesday, May 4, 1927.</p><p>The letter&#39;s author is complaining about the way Chicago funds its pensions - about a system that&rsquo;s awfully similar to today&rsquo;s multiplier - and the board is asking state lawmakers for relief.</p><p>&ldquo;It&rsquo;s amazing!&rdquo; Martin said. &ldquo;We never really dealt with the structural issues of these pension funds.&rdquo;</p><p>Martin says the stock market boom of the late 1990s only masked those structural issues - especially for police and fire pensions. But he says the chronic underfunding means investment losses hit them even harder during the Dot-com bust and the 2008 recession.</p><p>Now, the pensions are forced to sell off the very assets they&rsquo;re supposed to be investing.</p><p>&ldquo;Basically what&rsquo;s happening is the money that&rsquo;s coming in from firemen today and the money that&rsquo;s coming in from the city today, is going out the door today,&rdquo; Martin said. &ldquo;We&rsquo;re not saving for tomorrow.&rdquo;</p><p>The rate at which the city&rsquo;s pension funds are cashing out investments has more than tripled since the year 2000, according to a WBEZ analysis. Last year, the four funds liquidated more than $1 billion.</p><p>The more the funds liquidate, the less money they can make on investments, which could lead to even more liquidation in order to have enough money to pay out to retirees. Pension experts say this is a dangerous cycle - kind of like eating yourself to avoid going hungry.</p><p>This whole situation makes Tony Martin angry - and he says it should make taxpayers angry, too.</p><p>&ldquo;They should be outraged that we&rsquo;re even in this situation,&rdquo; Martin said. &ldquo;It should have never gotten to this point. And who is to blame?&rdquo;</p><p><strong>Blame everybody</strong></p><p>The structural funding problem with Chicago&rsquo;s four pension systems is not entirely responsible for the current crisis, experts and observers say, but it left the funds ill-equipped to deal with the market downturns of the early 2000s.</p><p>And political deals between City Hall and labor unions burdened the system even more.</p><p>&ldquo;If you&rsquo;re looking for who to blame, it&rsquo;s everybody,&rdquo; said Dana Levenson, who served as Chicago&rsquo;s Chief Financial Officer from 2004 through 2007.</p><p>Levenson says even Daley&rsquo;s partly responsible, when he agreed to benefit increases and early retirement offers in order to ease budget pressures on City Hall. Levenson says it would have been hard to justify short-term pain, such as property tax hikes or layoffs, because the problem hadn&rsquo;t yet reached the crisis point.</p><p>&ldquo;By nature, we are all crisis managers,&rdquo; Levenson said. &ldquo;We don&rsquo;t necessarily want to do anything that is going to solve a potential crisis when that potential crisis is way off in the distance.&rdquo;</p><p>After all, the pension funds for city laborers and white-collar workers started the new millenium in pretty good shape. They had so much money the city stopped paying into the laborer&rsquo;s pension fund, and cut back payments to the municipal fund.</p><p>In hindsight, this was a bad idea, said Henry Bayer, who heads up the American Federation of State, County and Municipal employees, a union representing about 3,500 city workers.</p><p>&ldquo;You know, if this were going on in the private sector, there&rsquo;d be employer&rsquo;s going to jail,&rdquo; Bayer said.</p><p>But along with those cutbacks in funding in 1998 came benefit increases - increases the union fought for, even though they heaped more future debt onto the pension funds.</p><p>Although he wasn&rsquo;t directly involved in the negotiations, Bayer defended the deal.</p><p>&ldquo;These folks getting these pensions have no social security,&rdquo; Bayer said. &ldquo;We&rsquo;re a world-class city, and we can&rsquo;t afford a pension system for people that served the public?...I don&rsquo;t accept that.&rdquo;</p><p>Finally, in 2010, Illinois lawmakers tried to rectify these decades of underfunding by <a href="http://www.wbez.org/story/chicago/daley-calls-general-assembly-change-police-firefighter-pension-plans">forcing City Hall</a> to dump more money into the police and fire funds - about $590 million more in 2015 - a payment Mayor Rahm Emanuel says Chicago simply can&rsquo;t afford.</p><p>&ldquo;Should Springfield fail to pass pension reform for Chicago, we will be right back here in the council early next year to start work on the city&rsquo;s 2015 budget -- a budget that will either double city property taxes or eliminate the vital services people rely on,&rdquo; Emanuel told aldermen during <a href="http://www.wbez.org/news/mayor-emanuel-warns-pension-cliff-2014-budget-speech-108993">this year&rsquo;s budget speech</a>.</p><p>Emanuel says Chicago needs a break from its state-mandated spike in pension payments. He says there is no Plan B.</p><p>And exactly what Plan A looks like is still unclear.</p><p><em><a href="http://www.wbez.org/users/akeefe">Alex Keefe</a> is political reporter at WBEZ. You can follow him on <a href="https://twitter.com/WBEZpolitics">Twitter</a> and <a href="https://plus.google.com/102759794640397640028">Google+</a>.</em></p></p> Sun, 08 Dec 2013 11:38:00 -0600 http://www.wbez.org/news/experts-say-chicago-has-public-pension-system-set-fail-109329