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Pension Funds

Commentary: Pritzker’s pension prescription – borrow, defer payments and peddle assets

Illinois Gov. J.B. Pritzker

Gov. J.B. Pritzker's administration Thursday rolled out its plan on how to deal with the most watched issue in state government, describing in detail how it will deal with more than $130 billion in pension debt. And though the proposed solution includes some new items, such as a possible sale or reuse of state assets like the Illinois Tollway, much of it will seem familiar to Illinois voters: borrowing money to shore up the state's pension funds and deferring scheduled payments to them farther into the future.

In a speech to the City Club of Chicago and a phone interview, Deputy Gov. Dan Hynes suggested the key to the plan is to extend the period of time the state has to reach full funding of its pension plays by seven years, to 2052. "Full funding" currently is defined has having 90% of the assets needed to pay promised benefits.

Mr. Hynes said the deferral will buy the state time to examine asset sales and other matters — and give Mr. Pritzker some leeway in dealing with a projected deficit of $3.2 billion in the new fiscal 2020 budget he's set to unveil Feb. 20. Specifically, extending the full-payment ramp to 2052 will reduce the amount the state has to contribute next year by about $800 million. The state "still will have to contribute $8 billion," Mr. Hynes noted. But by deferring the payment owed, the state will run up increased interest costs on debt it legally will have to pay, Mr. Hynes conceded, declining to give a cost figure.

3 step approach

In exchange for extending the repayment ramp, Mr. Pritzker is proposing three steps to boost pension funding down the road.

First, the state will issue a "small scale pension bond of about $2 billion." Unlike the $10 billion pension obligation bond issued by former Gov. Rod Blagojevich, this POB will not be used to offset regular state payments to its pension funds but instead will be a net increase of new money to the pension funds.

Second, the state will consider transferring assets, starting with money from the sale or lease of unused office space scattered around the state. "The state has 20,000 fewer employees than it used to," but still owns or leases the space they used, he said. That asset can be monetized, he said, and it includes the Loop's Thompson Center, which Mr. Hynes confirmed that Mr. Pritzker wants to sell "as soon as possible" and will have authority to peddle under a bill awaiting his signature. (Negotiations with the city of Chicago on needed zoning and the approvals are not completed, Mr. Hynes added.)

Mr. Hynes specifically refused to take a possible sale of the Illinois Tollway off the table. "That's the kind of issue" that a new commission Mr. Pritzker appointed last week is considering, and "I don't want to prejudge anything," Mr. Hynes said.

The third way the administration proposes to help the state's pension systems is to give them a guaranteed annual cut of revenues from the graduated income tax Pritzker hopes to enact into law after voters consider a constitutional amendment in 2020. Specifically, Hynes said the governor will give pension systems a $200 million a year guaranteed cut of revenues from the graduated income tax, money that would be "over and above our legally required payments."

That will be helpful, but is a small portion of the extra $2-billion-a-year boost the Civic Committee of the Commercial Club recommended in a separate budget proposal earlier this month.

'Promised' and 'earned'

Mr. Pritzker also wants to expand a program in which workers voluntarily can get some of their pension money earlier in exchange for reduced benefits later. But he would not cut worker benefits, with Mr. Hynes saying they "were promised" and "earned." Overall, he said, the proposal "will expand our revenue tax base, invest in priorities that will grow our economy, and we'll be able to put our pensions on a sustainable path that keeps our promises to retirees."

In the interview, Mr. Hynes disputed the notion that, by borrowing and deferring needed payments needed into the future, Mr. Pritzker is engaging in the decades-old Illinois practice of kicking the fiscal can down the road.

"What this plan does is recognize reality," Mr. Hynes said. "We're going forward" with the POB and related steps, "giving us time" to seriously consider asset sales and like.

Mr. Pritzker also is pushing plans to consolidate hundreds of smaller pension funds, mostly downstate plans covering police and fire workers, to allow them to cut resources and get better returns on investment.

"Commentary: Pritzker’s pension prescription – borrow, defer payments and peddle assets" originally appeared on Crain's Chicago Business, a sister publication of Pensions & Investments.