CHICAGO (AP) — Gov. Bruce Rauner's administration says a pending move by Illinois' largest public-pension fund would increase the state's required payment by hundreds of millions of dollars, potentially leading to higher taxes or massive cuts to education and social services already suffering amid a budget crisis.
The board of the Teachers Retirement System, which serves more than 400,000 teachers outside of Chicago, is scheduled to vote Friday on whether to lower its expected rate of return on investments. A reduction would trigger a larger contribution from the state, where the Republican governor and Democrat-led Legislature have gone more than a year without agreeing on how to close a multibillion-dollar budget hole or address a $111 billion unfunded pension liability.
The retirement system won't make public the recommended change or its impact on Illinois' payment for the next fiscal year until Friday's meeting, spokesman Dave Urbanek said Wednesday.
When the system last changed its assumption — from 8 percent to 7.5 percent in 2014 — it cost Illinois an additional $200 million. That's almost the total combined state funding for six public universities last year, Rauner's senior adviser for revenue and pensions warned.
"Unforeseen and unknown automatic cost increases will have a devastating impact on the state's ability to provide adequate resources to social service programs and education," Michael Mahoney stated in a memo sent Monday to Rauner's chief of staff. He also called the lack of public discussion ahead of Friday's vote "troubling."
The possible board action comes as pension systems nationwide are reporting lackluster returns for the most recent fiscal year, and analysts and credit rating agencies are increasingly pressuring them to lower assumptions to ensure there's enough money to pay benefits. While retirement systems set their estimated rate of return based on 20 or 30 years of projections, some analysts predict the coming years won't meet many systems' expectations.
Several funds already have dropped their projections, including the $185 billion New York State and Local Retirement System, which lowered its assumed rate from 7.5 percent to 7 percent in September. Other major pension systems have also said they're considering it.
Illinois' Teachers Retirement System reported a 4.6 percent return for the 2015 fiscal year. It will release preliminary returns for the fiscal year that ended June 30 on Friday, Urbanek said.
Illinois' pension problems go back decades, however, due largely to state lawmakers voting for years to skip or short the annual payment. Illinois now has the worst-funded pensions of any state, with the accounts holding about 42 percent of what's needed.
To cover benefits as promised and make up for years of missed payments and investment returns, Illinois' contribution to its five pension funds this year will be about $7.8 billion — roughly one-fifth of its general revenue fund.
Republican state Senate leader Christine Radogno, a key Rauner ally, said she agreed the system should lower its rate when it did so in 2014, and it may need to do so again. But she took issue on Wednesday that the board could vote within minutes of receiving a briefing from its actuaries on Friday, and without discussing it with Rauner or legislative leaders. She said they were briefed in 2014.
"I just think that needs to happen again because of the impact on taxpayers," said Radogno, who wants the board to delay its vote.
Urbanek said the board has historically taken the vote in August of every other year because of a deadline to provide the information to state budget officials.
The 13-person board includes six people elected by system members. They include vice president Cinda Klickna, who also is president of the Illinois Education Association and has clashed with Rauner over his anti-union positions.
Rauner appoints the other members, though three of the seats he fills are vacant.