Illinois is dealing with a titanic pension problem, and its new governor is installing two taskforces to help figure out how to fix it.
Gov. J.B. Pritzker’s two groups, the Pension Consolidation Feasibility Taskforce and the Pension Asset Value and Transfer Taskforce, are geared toward different sectors.
The first team concentrates on consolidation of local plans for police and firefighters—it will look at the 671 smaller Illinois public pension funds and figure out how to combine them in order to cut costs and achieve higher returns. Smaller plans pay higher fees because their dollar values can’t meet institutional standards. This narrows their investment options as well.
The state’s public funds have a combined $170 billion assets under management but are carrying liabilities of more than $355 billion.
Co-chairing the consolidation panel will be William Brodsky, former chairman and CEO of the Chicago Board Options Exchange (now known as CBOE Global Markets), and Pat Devaney, president of the Associated Fire Fighters of Illinois and former Illinois Senate Minority Leader Christine Radogno.
The second study group, the Pension Asset Value and Transfer Taskforce, will examine how to increase funding for the major public plans. The panel is taking a similar approach to Connecticut’s Pension Sustainability Commission. Possible sources of fresh funding include state-owned real estate and infrastructure holdings. The five retirement systems—teachers, state universities, state employees, general assembly, and judges—are in a big jam.
The five major pension systems have racked up $134 billion in liabilities, but the state has tens of billions of dollars in asset classes like real estate that could be put to good use for the funds. Jaqueline Avitia-Guzman, Sears Holdings’ head of corporate development, and Jamie Star, who chairs Longview Asset Management, will co-chair that division.
The two coalitions will submit their findings to Deputy Gov. Dan Hynes, who hopes their ideas will “improve the health of pension funds around the state.”
Illinois is reeling from years of neglected contribution payments and the impacts of global financial crisis of 2008. The state’s 36% funded ratio has left its lawmakers scratching their heads for solutions, going as far as to entertain a $100 billion bond sale last year. If left unchecked, the results could be disastrous.
Last week, Pritzker published a report examining issues with 2020’s fiscal budget that he claims Bruce Rauner, his predecessor, misjudged. Pritzker projected a $3.2 billion budget deficit, which is 16% higher than the former administration determined in November. The newfound gap comes from poor state revenue, and various interest penalties and fees paid. The new governor said the required contributions for the pension systems is “scheduled to hit” $9.2 billion in fiscal 2020. That’s one-quarter of the state’s annual budget, and $600 million more than the current fiscal year will demand.
“Overly aggressive assumptions built into the FY19 budget about implementation timeframes of the voluntary buyouts of pensions or COLAs [cost-of-living adjustments] will likely increase the state’s pension contributions beyond what was previously expected,” said the report. It also noted that due to Rauner’s “four years of failure,” Illinois made “virtually no progress in managing its pension responsibilities and the governor developed no realistic plan to address them going forward.”
Pritzker’s paper said these Rauner-induced problems resulted in eight credit downgrades during his regime. He warned the near-junk status for Illinois bonds will cost Illinois “hundreds of millions” of dollars in annual interest payments for all future refinancing or new borrowing if the credit rating doesn’t reverse.
“Illinois has a long way to go to dig out of the fiscal mess we inherited, but with discipline and focus, we can take common sense steps that will make life better for the hardworking people of this state and restore fiscal stability,” said Hynes.
Neither the governor’s office nor the taskforce leaders have responded to requests for comment.