A top aide to Illinois Gov. JB Pritzker outlined plans to borrow and extend a mid-century funding deadline Thursday as part of a new push to confront the state’s massively underfunded pension systems.
The Pritzker administration also pledged to devote a portion of the proceeds from a proposed graduated income tax to the state’s retirement systems, though that vow is contingent on legislative and voter approval next year.
The package laid out by Deputy Gov. Dan Hynes, a former state comptroller, amounted to a teaser to Pritzker’s Feb. 20 budget address, where the governor is expected to lay out his vision for addressing the state’s $133.5 billion pension crisis.
What to do with the ever-escalating budgetary bite that state pension payments take out of the Illinois budget arguably ranks as the single largest fiscal challenge facing the newly seated Democratic governor.
In the mid-1990s, former Gov. Jim Edgar and the legislature embarked on a long-term repayment plan that aimed at getting the state’s five pension funds 90 percent funded by 2045. Under the existing pension payment ramp, the state will have to devote $9.2 billion to pensions in Fiscal 2020, roughly a quarter of the entire state operating budget.
Today, the pension systems are slightly more than 40 percent funded, and Pritzker is proposing extending the 90 percent funding deadline by seven years to help free up more operating funds in next year’s budget, Hynes said.
Pushing pension costs farther into the future has been a non-starter for bond-rating agencies that have rated Illinois’ creditworthiness at one notch above junk status.
Hynes told an audience at the City Club of Chicago that he believes those credit analysts eventually will come around to Pritzker’s efforts.
“I think they’re going to find, especially after the graduated income tax becomes a reality, that this is a plan that works not just for one year but for future generations,” Hynes said.
Hynes said Pritzker favors borrowing $2 billion and immediately applying those proceeds to the pension systems. He also intends to pledge $200 million annually from new revenues generated by replacing the state’s flat income tax with a tax structure that will have sliding tax rates based on income. That change, however, is entirely contingent on changing the state’s constitution.
Earlier this month, Moody’s Investor Services warned that effort that would “defer or reduce contributions for fiscal relief would revive questions about pension plan sustainability.” On Thursday, a Moody’s spokesman declined comment on Hynes’ remarks, noting that the Pritzker administration’s pension plan is only “in the proposal stage.”
An aide to state Senate Minority Leader Bill Brady, R-Bloomington, said he intends to withheld judgment on the pension framework but “looks forward to seeing how this piece of the puzzle fits in with the governor’s overall budget proposal being unveiled next week.”
Dave McKinney covers Illinois state politics and government for WBEZ. Follow him @davemckinney.