Total state retiree debt $200 billion, think tank says

By Chris Wetterich
June 20, 2012

State and local governments in Illinois owe more than $200 billion to
current and future retirees when it comes to pensions and health care,
according to a report released Wednesday by the Illinois Policy
Institute, a conservative think tank.

Collin Hitt, senior director of governmental affairs at the institute,
said the IPI wanted to spotlight the total liability of state taxpayers.

The state’s pension debt is often reported to be $83 billion, the amount
owed by state government to the retirement systems for teachers, state
workers, university employees, judges and lawmakers.

However, the IPI said, the state also owes $54 billion for retiree
health care and $15.5 billion on bonds sold to make state pension
payments. On the local level, cities, counties and other local
governments owe $38.2 billion for pensions, $10.7 billion for retiree
health care and $1.9 billion for pension bonds.

Need ‘hard bargain’

The General Assembly passed legislation this year allowing the
Department of Central Management Services to set health-care premiums
for retirees, which could reduce that portion of the state debt.
Retirees who had worked 20 years for the state previously had paid no
premiums for their own insurance.

“The governor has yet to sign that bill and yet to exercise the powers
given to him in that bill,” Hitt said. “We hope the governor strikes a
hard bargain. The whole situation makes us nervous.”

Labor organizations say the legislation unfairly places the burden of
the state’s financial problems on retirees’ backs and that many who took
early retirement were assured that health care would be there when they
agreed to the deal.

Most of the pension underfunding at the local level is in the more than
600 police and fire pension funds around the state and in Chicago and
Cook County’s various retirement systems. The Illinois Municipal
Retirement Fund, which covers non-police and fire employees who work for
local governments downstate, is 86 percent funded, mostly because it
can garnish tax money sent by state government to cities if they do not
pay their actuarially required contributions.

City pension debt

The city of Springfield owes its police and fire pension funds $174.6
million. The police fund is 57 percent funded, while the fire fund is
49.2 percent funded, according to Mayor Mike Houston.

Houston hopes a two-tiered pension system created by the legislature in
2010 will reduce the city’s pension red ink. Police and firefighters
hired after Jan. 1, 2011, will have to retire later and will receive
reduced pension benefits, which will eventually save the city money, he
said.

One factor that contributed to the city’s pension debt was
overestimation of the pension funds’ earnings. The city used to assume
the funds would return 8 percent annually. It now assumes 7.5 percent,
but that number may need to be lower, Houston said.

“What I would like to see is a gradual reduction,” he said. “For every 1
percent that you drop there, there is a large increase in the amount of
the dollars that the city needs to contribute to the fund. What we’re
trying to do is deal with the problem and provide services to the city
of Springfield.”

Health plan

The IPI report estimated that Springfield’s liability to its retired
employees for health care is $273 million. The figure was derived from
the city’s comprehensive annual financial report, but Houston he is not
sure that amount is correct.

The city of Springfield is self-insured for health insurance. The city
pays 75 percent of the plan’s costs, active employees pay 12.5 percent,
retirees pay 10 percent, and the remainder is covered by miscellaneous
revenues. The city pays 75 percent to 80 percent of an active employee’s
premiums and 55 percent for retirees, Houston said.

The self-insurance fund was in financial peril 10 years ago, but a
labor-management committee has righted things, Houston said, and a
pay-as-you-go program for retirees has worked. It would be difficult to
take away insurance for retirees because that is laid out in
collective-bargaining agreements, Houston said. Setting aside money for
retiree health care also would mean cutting city services, he said.

“Certainly there is a liability out there,” Houston said. “If you looked
across the state of Illinois, I think you will see there would be very
few, if any, cities that have put aside money for this.”

Chris Wetterich can be reached at 788-1523.

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