Governor's pension plan far-sighted to some, flim-flam to others

SPRINGFIELD, Ill. - Gov. Rod Blagojevich's latest state budget is built on the idea that government can cut expenses decades from now but spend some of the savings today - an idea that worries a lot of people.

From financial experts to his usual Republican critics, people looking at his plan to trim pension costs say the state might end up spending money that never materializes. But Blagojevich insists the idea is both safe and vital for balancing the budget.

"These changes are necessary to avert a looming crisis," the governor said in his annual budget address before the General Assembly last week.

His plan for pensions would also let him claim $750 million in savings, a huge step in Blagojevich's struggle to close a $1.1 billion gap between state spending and expected revenue. If that plan backfires, though, future governors and taxpayers will be paying the price.

Blagojevich wants to limit the state's growing payments to the pension systems for retired state employees, university workers and downstate teachers.

Ten years ago, the state paid in $635 million. In the upcoming fiscal year, pensions will take up $2.6 billion of a $53 billion budget. In 40 years the state's annual payment could top $14 billion, according to the governor's budget office.

Illinois' pension systems, after decades of neglect by the state, are among the most troubled in the nation. The costs are growing so dramatically because of interest on old debt, continued low funding and frequent improvements in pension benefits, among other things.

Many state pension systems face similar problems. California Gov. Arnold Schwarzenegger has proposed the dramatic step of converting that state's pension system to "defined contributions," where workers would no longer be guaranteed specific benefits when they retire.

Blagojevich doesn't want to go that far, but he says Illinois can't afford to let pension costs keep climbing so freely.

"This is a crisis that we must solve," he said. "And we'd better solve it now."

Blagojevich, adopting many ideas from a special pension commission he appointed a year ago, wants to reduce benefits promised to future employees by raising the retirement age and lowering automatic increases. The changes would save the state $55 billion over the next 40 years, he says.

That part of the proposal has critics, but it's the next part that really gets people worked up.

Blagojevich says the $55 billion in savings - again, savings on the retirement of people who haven't been hired yet - is certain enough that the state can go ahead and account for it in the state's annual payments to the pension systems.

Instead of paying $2.6 billion next year, the state can pay about $1.8 billion, Blagojevich says. Each year, state government could keep a little more money that would otherwise go to pensions and spend it on anything else, from schools to prisons.

But critics say it's risky to base the budget on the assumption that savings will materialize years down the road.

"Until we prove we've saved it, we shouldn't spend it," said Sen. Bill Brady, a Bloomington Republican who served on the governor's pension commission.

Brady worries that future officials could decide to reverse any pension cuts that might be approved today, increasing the costs, and that assumptions about the number of government workers and their salaries 30 years from now could be seriously flawed.

Others outside politics share some of Brady's concerns.

Jon Bauman, executive director of the Teachers' Retirement System pension fund, called it "extremely risky." Kevin Ahlgrim, a pension expert at Illinois State University, said the idea of spending now on the basis of future savings is "kind of a scary thing."

Even some supporters of the governor's plan acknowledge a risk.

"There are risks with acting under the assumption that future General Assemblies are going to abide by the decisions of the current General Assembly," said Laurence Msall, a member of the pension commission.

But he remains confident that the projected savings are dependable and that the bigger risk is doing nothing. Using some of those savings today would make it easier for lawmakers to justify taking the painful step of voting to reduce future benefits, he said.

Msall and other supporters of the plan maintain the projected savings are as certain as any other pension estimate, which are all based on long-term assumptions. All Blagojevich is doing, they say, is changing the assumptions about retirement benefits for future employees and plugging those numbers into the same old formula.

While Blagojevich calls the pension situation a crisis, it is an old problem that stands out now because the state is short of money.

Article copyright REAL TIMES Inc.

Photograph (Rod Blagojevich)