Your NPR news source

Illinois Gets Creative to Address Massive Pension Debt

SHARE Illinois Gets Creative to Address Massive Pension Debt

First aired on NPR.

When I say this next story is about “pension liabilities” you might be inclined to tune out for a couple of minutes. But what if I tell you that, by one estimate, state and local pensions lost a whooping $1 trillion between October 2007 and October 2008. Got your attention now? The falling markets have wrecked havoc on pension investments. Few states will feel the pinch as much as Illinois—and it’s coming up with some creative ways to try to fill the coffers.

The state of Illinois is auctioning bags of nickels to help pay down its pension debt… That’s right….nickels. It’s using E-bay to sell Jefferson nickels and other stuff people have abandoned in safe deposit boxes.

GIANNOULIS: We’ve got gold $50 coins. We’ve got some engagement rings; we’ve got really nice diamond earrings; we’ve got antique watches.

That wanna be jewelry salesman is actually the Illinois state treasurer—Alexi Giannoulis. His office will take the money it earns from the sales…and put it toward paying down the state’s massive pension debt.

HILL: Now my understanding is that pension liability is somewhere in the range of, probably well over 42-Billion dollars. I mean is this a dent. Ring by ring. Does it make a difference?

GIANNOULIS: We’re doing everything we can to bring new revenue…as you said, bit by bit.

Illinois needs all the bits…and all the nickels… that it can get. Even in better times, like just a year ago, Illinois pensions were only about 63 percent funded. Now, the financial market melt-down has made the gap much worse.

Lawrence Msall is the executive director of the budget watchdog group the Civic Federation.

MSALL: We’re hearing losses in the range of 20 percent or more.

He’s guessing the state might be as much as 50-Billion dollars behind now… to put that into perspective, that’s more than the state’s entire annual budget.
MSALL: The word “no” is something that elected officials don’t seek office in order to use. Illinois politicians are no different than other politicians. They like to say yes. They like to start new programs. They like to say yes to the employees unions.

All that yes-ing has led to higher pension obligations. And Msall says, it has caused the state to reroute money that it might have put into the giant pension pot toward other programs.

The state is constitutionally required to pay full pension benefits. But, by Msall’s count, Illinois government has under-funded its pension system for at least the last 30 years. There aren’t a lot of ways to raise the piles of money it needs—other than looking for money in creative places—it can borrow, raise taxes or cut other programs.

MUNNELL: Sooner or later some taxpayers are going to have to come up with the money to pay these benefits. So these are firm and fixed commitments that someone is going to have to pay at some time.

That’s Alica Munnell. She’s the director of the Center for Retirement Research at Boston College. She says when it comes to pensions, things aren’t good around the country. But she says there’s no reason to panic.

MUNNELL: Everything looks so awful right now. But the plans, every plan in the country has the money it needs to pay benefits next year and the year after and the year after.

She says it’s sensible to take a breath and wait and see how the financial crisis plays out. Here in Illinois, big changes to pension funding may be required sooner rather than later though. But for now, the state’s tackling the mounting debt in smaller ways….with forgotten nickels, antique watches and bracelets.

The Latest