While this proposal is a good first step, such efforts would only affect 5.5% of the state’s total pension burden.
CHICAGO (Oct. 28, 2019) – Consolidating more than 640 local police and fire pension funds outside Chicago could be on the top of lawmakers’ to-do list as they return to Springfield today for the fall veto session.
Analysis from the nonpartisan Illinois Policy Institute shows that while this proposal is a good first step, such efforts would only affect 5.5% of the state’s total pension burden. Downstate and suburban police and fire funds hold about $11 billion out of the state’s $200 billion total pension debt.
The ease of having funds in one pot could also make it ripe for a bailout that would trigger statewide tax hikes. This would punish communities that have properly funded their pension plans.
Illinois Policy Institute experts are available in Chicago and Springfield to comment on why lawmakers should add protections to the proposal to prevent it from becoming a state bailout of local pension funds.
How much could pension consolidation save?
By creating one combined fund for police and another for fire, the pooled assets in the funds are estimated to bring in as much as $160 to $288 million in additional annual revenue, according to Gov. J.B. Pritzker’s Pension Fund Consolidation Feasibility Task Force. This would amount to between 8% and 15% of total annual taxpayer contributions to the systems.
Would this be enough savings?
The task force calculated savings by comparing to other, better-funded systems so estimates may be overly optimistic. Declining economic growth could also slow projected investment returns. In addition, the state leaves as much as $21 million a year on the table by not consolidating the 640-plus plans’ administrative functions.
What still needs to be resolved?
These reforms pose the danger that lawmakers could claim to fix Illinois’ pension problem, despite failing to address the other 94.5% of the state’s pension debt. Revenue has never been the main problem with Illinois’ pensions, but rather its unsustainable growth. In order to address the root cause, lawmakers would need to come together in support of a pension constitutional amendment that protects earned benefits while allowing for changes in the growth of future, unearned benefits.
To learn more about pension fund consolidation, visit https://illin.is/31b1fQA.
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