Former Gov. Edgar’s ‘compromise’ pension plan led to Illinois’ fiscal crisis
Under former Gov. Jim Edgar’s pension ramp, unfunded pension liabilities have increased nearly $100 billion despite taxpayers contributing $16.4 billion more to the five state-run pension systems than required under the Edgar plan.
In Illinois, the idea of “compromise” has become synonymous with “passing the buck.”
Whether it was former governors Jim Edgar, George Ryan, Rod Blagojevich or Pat Quinn, politicians always seem to have ended up striking deals with House Speaker Mike Madigan that avoided real pension and spending reforms. Their compromises – more debt, skipped pension contributions, and pushing off bill payments – accelerated Illinois toward the financial crisis that it finds itself in today.
Perhaps the best example of that Illinois-style compromise – and its failure – is the once-praised Edgar ramp.
In 1994, Edgar spearheaded a bipartisan pension bill he claimed would solve the state’s then-$15 billion pension deficit. The basic setup? Drastically reduce pension payments at the plan’s onset and then steadily increase payments in the future.
“We had a time bomb in our retirement system that was going to go off in the first part of the 21st century,” Edgar told The State Journal-Register in 1994. “This legislation defuses that time bomb.”
In reality, all the Edgar ramp did was pass the growing pension crisis from one governor to the next.
That’s because Edgar’s plan didn’t structurally reform pensions. Instead, it created a 50-year repayment schedule that saved Illinois politicians from making hard decisions. The ramp kept the state’s pension contributions artificially low in the first 15 years while pushing the state’s pension obligations far off into the future – all in the hope that later legislatures would fix the pension problem.
Now, there are those who would argue that the ramp was the best bipartisan deal that was politically tenable at the time, but this argument misses the point.
The truth is that Edgar – and Madigan – passed on making hard choices and enacting real reform. Instead, they created an unrealistic 50-year plan that made the pension crisis progressively worse for each future governor.
For proof of the ramp’s failure, look at what the Securities and Exchange Commission said about the ramp in its 2013 indictment of the state of Illinois for securities fraud.
“The statutory plan structurally underfunded the state’s pension obligations and backloaded the majority of pension contributions far into the future. This structure imposed significant stress on the pension systems and the state’s ability to meet its competing obligations – a condition that worsened over time.”
Edgar’s pension ramp was the result of compromise – and an abrogation of responsibility. It demanded that later governors make the hard spending choices that Edgar and Madigan refused to make in 1994.
By avoiding real reform in favor of a bipartisan plan that absolved both parties from having to make difficult decisions, Edgar paved the way for two decades of pension politics that wreaked havoc on Illinois’s finances and created a $111 billion pension debt.
Edgar’s precedent enabled Blagojevich and Quinn to operate from the same “pass the buck” playbook. They borrowed, taxed and delayed pension payments to stave off dealing with the ever-growing crisis. And Madigan – with the consent of government-worker unions – “compromised” on every one of those plans.
Blagojevich ended up borrowing $10 billion to fund pensions and passed a “pension holiday” that reduced the state’s contributions. Both of these actions hurt retirees and taxpayers alike. By the time Blagojevich left office, the state’s pension debt had grown to $78 billion, five times higher than when Edgar passed his ramp.
Quinn did more of the same. He worked with Madigan and the General Assembly to borrow $7.2 billion more to pay for pensions. And when borrowing didn’t work, lawmakers passed the massive 2011 income-tax hike that sucked more than $31 billion from taxpayers, of which 90 percent went to pay for pensions.
Those actions of borrowing, taxing and pension holidays failed miserably in fixing the pension crisis. The state’s pension shortfall stood at $111 billion in 2015 – seven times higher than when Edgar passed his pension bill – despite taxpayers contributing $16.4 billion more to the five state-run pension systems than required under the Edgar plan.
Unfortunately for struggling Illinoisans, the state’s pension crisis continues to grow – all because of Illinois-style compromise.
Putting an end to compromise as usual
Illinois doesn’t need bad budgets in the name of compromise.
They’ve done nothing but create misery for ordinary Illinoisans trying to make ends meet under the nation’s worst jobs recovery and the nation’s highest property tax burden. Illinoisans have watched as manufacturing jobs and residents leave the state in record numbers.
Illinoisans can’t afford that kind of compromise anymore.
The state’s financial crisis will continue to grow until politicians are brave enough to stop the bleeding – and that means structurally overhauling Illinois’ spending habits, not prolonging the problem.