Savings from Illinois pension “fix” only $14 billion
Though House Speaker Mike Madigan claims his new pension proposal will save $160 billion over 30 years, much of what the Speaker calls “pension reform” is little more than a mix of accounting changes and a plan to commandeer more taxpayer funds. Madigan needed to find more savings since this version of his bill allows...
Though House Speaker Mike Madigan claims his new pension proposal will save $160 billion over 30 years, much of what the Speaker calls “pension reform” is little more than a mix of accounting changes and a plan to commandeer more taxpayer funds.
Madigan needed to find more savings since this version of his bill allows state employees to pay 1 percent less toward their pensions. His previous pension bill, Senate Bill 1 asked employees to pay 2 percent more. That 3 percent change in employee contributions created a loss of more than $30 billion in projected savings over a 30-year period.
Madigan’s plan has been reported to cut the state’s contributions by $160 billion. But according to information released in caucus meetings, only $92 billion comes from a reduction in benefits, including cost-of-living adjustments, changes to the retirement age and a cap in pensionable salaries.
The remaining $68 billion comes from approximately $35 billion in future accounting changes and $30 billion in additional taxpayer funds, part of which includes funds currently dedicated toward paying down the state’s pension bonds. Madigan wants to take those taxpayer funds, once the bonds are paid off, and apply it toward pensions. He also wants to take future pension “savings” and funnel that taxpayer money back into pensions.
But relying on more taxpayer funds to fix the pension crisis can’t and shouldn’t be called pension reform. That $30 billion grab of future taxpayer dollars is equal to extending the 2011 income tax hike for several years. Without a doubt, this pension plan is a tax grab.
The result of Madigan’s proposal is that only 58 percent ($92 billion of the $160 billion) of the bill’s 30-year savings actually comes from true benefit changes – the only changes that should be called reform. The rest of the savings comes from what Madigan calls “add-ons,” which are either accounting-based or include new taxpayer funds.
And cuts to the unfunded liability are also understated due to accounting tricks. That’s because the bill delays adopting the Entry Age Normal actuarial method to FY 2016. When they do implement the new actuarial method, the unfunded liability will jump by nearly $7 billion in 2016, according to information released in caucus meetings.
This means that the reported $21 billion in savings are only approximately $14 billion.
Madigan’s alleged $21 billion in savings only take Illinois back to the crisis levels of 2011. Even those savings weren’t enough to stabilize Illinois’ pensions.
But $14 billion is an insult to taxpayers and pensioners. And it should be an embarrassment for the politicians who support this bill.