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The liberal case for pension reform: Financially necessary reforms not aimed at organized labor

Wed, May 29, 2013

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As Illinois gets tantalizingly close to reforming its pension system, it’s tempting to view the reductions in pension benefits as an assault on state workers.

The possible retirement age increase, benefit cut and cost of living adjustment (COLA) rate decrease can seem like an attack on labor. State employees were promised these benefits – sometimes instead of immediate raises – and based their retirement plans off them. Changes will affect approximately 750,000 people: Illinois’ university employees, state workers, teachers, and lawmakers. (Judges, who receive average pension benefits of $117,000 annually were exempted, so that they can impartially rule on the constitutionality of the legislation, according to House Speaker Michael Madigan, D-Chicago.)

Shirking these obligations goes against everything we as a society believe about fidelity, fairness and the value of public service.

But unfortunately, Illinois has no choice.

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The state has $97 billion of unfunded pension liabilities, increasing by $17 million a day. (The state’s total operating budget in Fiscal Year 2013 was $24 billion; 16 percent of that was spent on pensions, up from 6 percent of the FY 2008 budget.) Only 38 percent of the state’s $138 billion pension liability is funded.

Illinois has the worst credit rating of any state in the country, which increases the state’s borrowing costs by millions. A months-long backlog in the state’s bill paying has put huge pressure on social service organizations.

In FY 2010, Illinois spent about twice as much on education as it did on pensions. Every year since, education spending has decreased, while pension spending has risen. That’s fewer dollars invested in future economic growth, with more money spent on public services already provided.

On top of that, the state’s pension obligations are increasing exponentially, and the three percent COLA is greater than current inflation rates.

Cleary, something has to give.

The solution to this fiscal crisis isn’t meant to be a political statement against organized labor. As Bill Clinton once said, “it’s arithmetic.”

But in a world of limited means, the state ought to prioritize its resources by answering a simple question: “Who needs it most?”

To me at least, it’s hard for the Democratic Party to prioritize pension obligations over social services. And ultimately, that’s what it comes down to.

Chicago Public Schools gets 31 percent of its funding from the state. Illinois spends money on programs targeted at homelessness, rape prevention, drug addiction, sexual education, hunger and unemployment.
For the almost 1.9 million Illinoisans who lived below the poverty line in 2011, according to the U.S. Census Bureau, those programs mean a great deal.

Of course, it’s natural to wonder how things got this bad. To begin with, it’s easier to increase pension benefits for state workers than to find the money for immediate raises. It’s easy to assume the state could earn high interest on its pension fund, meaning it would have to set aside less money. And it’s easy to skip payments, rather than set aside the necessary money.

From 1996-2011, the state took pension “holidays,” leading to nearly half the growth in the unfunded liability, according to the Civic Committee of the Commercial Club of Chicago.

To many conservatives this proves two things: Democrats lack backbone and fiscal responsibility. But Illinois’ fiscal crisis represents another reality: it’s hard for a progressive state to cut social services.

It’s hard to cut public benefits too. But there’s no choice now. Here’s to hoping lawmakers make the right difficult choices.

By Duncan Weinstein,
StreetWise Editorial Intern

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