Dissecting Illinois’ Pension Problem Part IV: History of Neglect (The 2000s)

The following is a continuation of Dissecting Illinois’ Pension Problem Part IV: History of Neglect (The 1990s)

Overview

The State of Illinois’ growing underfunded liabilities was the folly of many and not subjected to a single action. It was the compounded effect of many various decisions made by different individuals over decades. Part IV in our Illinois Pension series documents how the problem started and perpetuated into the issue it is today.

George Ryan and H.B. 2671

Governor Edgar’s successor, George Ryan, also signed off on a measure which inflated liabilities. In 2002, Governor Ryan signed H.B. 2671 designed to incentivize workers to retire early as a way to free up funds due to declining revenue caused by 9/11 and the burst of the dot com bubble. At the time of passage, it was estimated that the move would “save the state $64.4 million” as it attempted to balance the budget for the upcoming FY 2003-2004. However, the move yielded counterproductive results just as it had under the previous two governors. The primary consequence is that government workers are retiring early and living longer, costing the state more money in giving recipients what they were promised.

Some political pundits have asserted that there was a political motivation for Governor Ryan’s signing off on the legislation. According to The Chicago Tribune, Ryan, “wanted to provide generous retirements to loyal party members who have served under Republican administrators” when it became apparent that the Democrats would regain the governorship in 2003. Further, Crain’s Business Chicago asserts Ryan “signed off on a lucrative exit strategy for thousands of state employees who got their starts under Republican administrations as it became clear Democrats would retake state government.” Nevertheless, the exit strategy resulted in high long-term costs. According to the Illinois Pension Laws Commission, an estimated 7,365 public servants took advantage of the plan at a cost to the pension system of $543 million over ten years.

Governor Blagojevich’s shortening payments for two years

Governor Blagojevich followed suit by signing off on a bonds plan which was intended to stabilize Illinois’ finances and strengthen its pension system. The plan put new resources into the state’s pension system without using taxpayer money and dipping into the general fund. Instead, the state would borrow $10 billion through bonds and put off payments for two years in order to free up budgetary funds. Approximately $7 billion went to the systems’ underfunded liability and the remaining $3 billion went toward pension payments for FY 2004-2005. According to the Illinois Board of Higher Education Faculty Advisory Council, the cost of those general obligation bonds could be $14 for every dollar raised.