The latest op-ed on pensions that has us scratching our heads is from a new face on the scene.
That’s Amanda Kass, writing in Crain’s. Her advice:
The best course of action for the near term is for both Illinois and Chicago to make the payments required under current law. Only after the downward trend in the pension systems’ finances has been reversed should lawmakers even consider extending the repayment schedules and/or lowering the funding targets.
That may seem harmless, but hold on. What would it mean to continue making payments required under current law until pensions get to treadwater status – when “the downward trend in our pensions reverses?
Let’s take Chicago’s pensions first. That won’t happen until 2033, even assuming Chicago can somehow figure out how to fund the up-ramp in taxpayer contributions required under current law, By then, annual taxpayer contributions for unfunded pension liabilities will have doubled to $2.6 billion from this year’s $1.3 billion and the unfunded pension liability will have increased another $4 billion.
Those are the city’s own numbers for its four pensions combined, contained in its most recent Annual Financial Analysis. That means the numbers are overly optimistic, built on the usual phony assumptions and accounting, which invariably prove wrong resulting in never-ending downward adjustments. And the numbers don’t include Chicago’s other overlapping pensions for the school district, water reclamation district, Cook County and Forest Preserve, which are in the same boat.
Mayor Lightfoot is already floundering for solutions to meet near-term scheduled contributions, first asking for a state bailout and now perhaps a sales tax on services. The unfunded liability is already nearly $30 billion. Yet Chicago should just pay more and more into the pensions even as the hole deepens?
It’s a similar story for the state’s pensions. Under current law, the state says its pensions wouldn’t get to treadwater status until 2028. By then, taxpayer contributions will have had to jump by another $2.4 billion and unfunded liabilities will be up another $6 billion. Current state contributions of $9.2 billion already consume almost a quarter of the budget, driving out spending for other purposes. Unfunded pension liabilities already have the state’s credit rated near junk.
And what about the state’s pensioner healthcare costs, which Kass doesn’t mention? Today, it’s a staggering $73 billion, which increases the true pension hole by about 50%. It’s entirely unfunded so it just grows and grows. It will never reach the reversal Kass wants to see before changing course.
How does Kass propose we pay for the increased pension contributions needed to get to treadwater status? She doesn’t say.
What’s the reasoning behind her proposed course of action? Well, it’s not something that should be called a “crisis,” she says, and that’s “because pension systems’ finances are in constant flux, and unfunded liabilities represent a long-term form of debt. As such their financial condition is not something to be ‘solved.’”
Got that? Long-term debt is nothing to worry about. You don’t “solve” it. It’s been “in flux,” which apparently helps make it OK. Never mind that it’s in flux only in the sense of worsening every year.
And what does Kass suggest we do when the pensions get to treadwater status, assuming we could do it? Then, it would be alright for lawmakers to “consider extending the repayment schedules and/or lowering the funding targets.” In other words, kick the can again! There’s no mention of any other pension reform in the article. Nor have I seen her elsewhere propose any material pension reform other than putting more money into them sooner.
Kass’s article is a short version of an academic paper she published recently along with two co-authors, Robert Bruno and David Merriman. Aggressively pro-union, they are regular authors of research papers purporting to back up standard talking points of Illinois public unions. Read through that paper’s academic jargon if you want, but it says little more than Kass’s Crain’s article.
Kass is the new go-to source for folks who defend the current pension system and deny the severity of the crisis. Columnist Rich Miller, for example, wrote “If Amanda Kass is part of a study, you know it’s good,” referring to that aforesaid paper.
Formerly with the Center for Tax and Budget Accountability, Kass is now with the Government Finance Research Center at the University of Illinois at Chicago’s College of Urban Planning & Public Affairs. Those two co-authors are also with taxpayer-supported Illinois universities. Aren’t you happy to know what your tax dollars are supporting?
A pension actuary writing in Forbes this week said succinctly exactly how we see things:
I can only repeat again and again: There is no solution to the woefully underfunded pensions in Chicago and in Illinois that does not involve benefit cuts subsequent to a 2020 constitutional amendment or municipal bankruptcy. And the sooner Pritzker and Lightfoot figure that out, the better off we’ll all be.
They haven’t had to figure that out because voters haven’t figured that out, thanks, in part, to what they’re reading in op-eds by authors who haven’t figured that out.
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Author: Tyler Durden