Two weeks after the modest pension cuts that the Illinois legislature passed with much kicking and screaming comes the realization that the state has barely even begun to deal with its toxic fiscal problems. State and municipal credit ratings are still bad and getting worse, as Chicago’s 2014 budget not only underfunds its pensions by millions—it doesn’t build up the revenue or make the cuts necessary for a $590 million state-mandated contribution increase in 2015. The Chicago Tribune reports that if Illinois law isn’t amended to let Chicago off the hook for a little while, or if the city and state don’t make any actual changes, the pension systems could start down the road of insolvency by 2022:
Chicago’s large and growing pension liabilities led Moody’s in July to drop the city’s credit rating three notches to A3 with a negative outlook from Aa3.
“While the General Assembly’s recent actions presumably bring the state a few steps closer to addressing Chicago’s pension issues, the Chicago City Council’s Nov. 26 adoption of the 2014 budget is a negative credit development because it continues the practice of significant pension underfunding,” the report stated.
Public officials in Chicago and Springfield know exactly where this road leads if incremental but numerous and meaningful reforms aren’t made. They know exactly the nature of the beast they face in union opposition and in primary challengers. If Chicago one day meets the fate Moody’s is warning against and in which Detroit now sadly wallows, it will likely be because city and state officials just couldn’t come up with the will or strategy to make an honest and convincing case to voters about the mess they’ve created and the fixes they have no choice but to make.
Meanwhile, a thousand miles to the southwest, there seems to be a model of governance from which Illinois and its debt-ridden blue brothers could perhaps take a cue. The Houston Chronicle reports that the Employees Retirement System of Texas is looking at many of the same problems plaguing pension systems nationwide, and that if nothing is done by 2052 the money might well be gone. Lawmakers are apparently looking to address this issue in the next legislative session, four decades ahead of schedule:
The Austin American-Statesman reports that lawmakers at the next legislative session could consider raising the shared contribution rate for the state and employees from 14.6 percent to 20 percent. It could also make a massive one-time addition of $4.5 billion.
Law enforcement officers also could be separated from the rest of the system, which serves state workers outside of higher education and elected officials.
We’re not holding our breath that lawmakers in Texas will be quite as heroic as this report hopes they might, but we don’t remember officials in Illinois showing this kind of far-sighted fiscal prudence before the roof came crashing in.