ILLINOIS (WCIA) — In the race for governor, two very wealthy men are proposing two very different ideas for how to solve the single most elusive, expensive financial problem plaguing the state.
J.B. Pritzker, the Democratic challenger, is focused on how to pay the burden down; incumbent Republican Governor Bruce Rauner wants to change the way it piles up.
“What I have agreed with the Senate Democrats, Senate President Cullerton,” is to do what is called a consideration model,” Rauner said on Tuesday. “Basically, go to our hard working state employees and say ‘Let’s tie your salary increases to the type of pension that you choose to be in, either Tier One or Tier Two or Tier Three, and customize compensation to fit depending on what the employee would prefer for a pension and a pay structure.’
“We believe if we give choices to the employees, many will choose different pensions and payment structures and that can save billions of dollars annually.”
Pritzker told the Editorial Board at Crain’s Chicago Business in February that the state’s pension payments are “a financial obligation that you have to pay.”
“You know what that ramp looks like that was put in in 1995,” he said at the time. “Hopefully everybody understands that it was not a Democratic plan or a Republican plan. It was done by both parties. Nobody has done anything about it, or not much I should say. There has been some done. But this problem that we now face is still significant. The only way, I like to liken it to how you might save your home if you had this kind of an amortization schedule.”
The stark figures show the state’s budget headaches will only grow exponentially worse in the years to come.
According to the above chart from the Center on Government Forecasting and Accountability, the state is on track to pay out $15 billion to pension annuitants in 2024, the final year of the next gubernatorial term, and is projected to balloon to more than double what it is now by the year 2040.
While he has not yet said how high he would go in raising the annual pension payments, Pritzker says he would prefer a dramatic increase all at once instead of the continually upward sliding scale that puts increasing year-over-year pressure on the legislature to make spending cuts elsewhere.
“There is really only one good way to do it and that is to step up payments, Pritzker told Crain’s. “Think about the principal payments on your home. Step up principal payments earlier than they are due and try to flatten out the amortization schedule on an annual basis. Flatten it. The result of that will be that we can manage the budget of the state. Because that is really what is at stake here.”
“That’s not reform,” Rauner responded Tuesday. “That’s not really improving anything. All that does is increase tax burdens on people today. What we need is structural reform, structural changes, not just pension changes in payment amounts. We need structural change. And what we really need is economic growth. We will never really fund our pensions properly, we’ll never really have budgets that are balanced unless our economy grows faster than the government spending.”
Pritzker’s campaign responded by highlighting comments he made at a Republican fundraising dinner last fall where he reportedly said he was lobbying Congress to override the state’s constitutional protections of pension benefits.
“Bruce Rauner has spent years attacking working families across this state, so it’s no surprise his real plan for pension reform was unveiled when he lobbied federal lawmakers to allow Illinois to declare bankruptcy,” Pritzker campaign spokeswoman Jordan Abudayyeh said in an email. “That extreme action would devastate retirees, allowing the state to break the promise they made to them when they took jobs working for the people of Illinois. These teachers, fire fighters, police officers and state workers spent decades providing services to the people of Illinois and they do not deserve to have their retirement stolen from them by this anti-union governor. The Supreme Court of Illinois ruled that the state must live up to its promises, and as governor, JB will ensure retirees can retire with stability and dignity.”
Pritzker previously donated to similar efforts to reduce pension benefits at the state level. He said in March that he gave to that cause because “I was asked by Democrats to do it.”
While Pritzker acknowledges the short term pain that would accompany his plan, he argues it would benefit the state in the long run.
“It’s not more [expensive],” he retorted during his February meeting. “Over time, it turns out to be less. But it’s more earlier.”
“I’m putting forth growth proposals,” Rauner said. “Pritzker’s only proposals are about hiking taxes. That would be devastating. You can look at what’s happened in New Jersey or Connecticut or California. They’ve got really high taxes, even higher than us. That’s amazing because we’re high. They can’t balance their budgets or pay their pensions. It’s about stronger economic growth. That’s what we need to do.”
From the earliest days of his campaign, Pritzker has consistently stated that economic activity and job growth are a core focus of his budget-making plans, and that no state budget is complete without considering that figure together with taxes and spending.
To pay for the higher pension payments, Pritzker says he would attempt to install a progressive income tax, though it too is currently unconstitutional in Illinois, and he has not yet released his proposed plan for the rate structure. In the past, he has argued those tax rates would have to be negotiated by the legislature, which suggests he may not announce his proposed tax rates before the election.
Critics of the consideration model question if it would pass constitutional muster in a state where the Supreme Court has ruled against past efforts to diminish benefits. The governor says he hasn’t given up hope on restructuring the way the debt piles up.
“Many state employees and some of the unions agreed on that plan several years ago and I’m advocating that now,” Rauner said. “President Cullerton and I have agreed on it. We both believe it’s constitutional. So far, Speaker Madigan and his House has refused to vote on it. But we will stay consistent. We believe those reforms will save billions annually in the pension system and allow for tax reduction for the people.”
“I would call it just a commonsense trade-off,” he explained. “There is a present value to money. For some folks, it’s very valuable to have some money today. For others it’s no big issue and they think they would rather get some more later on. Giving people a choice, giving them options is the way to go.”
According to the Center on Government Forecasting and Accountability, the state’s unfunded pension liability in Fiscal Year 2016 hit a record high of $129.8 billion, and dropped slightly in FY17.