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Monday, May 12, 2014

Illinois pension fix -- not really

As more details about Illinois' pension "fix" come out, it doesn't look like such a fix after all.

What's known is that it has to clear constitutional hurdles. I don't think it will, but I could be wrong.

What's not really known because the details of the bill, and a detailed actuarial study, were not done before the bill was passed -- yep, that's right -- is that the bill itself it a bit of a sham.

These details come from David McSweeney at Reboot Illinois.He's channeling a report by the Commission on Government Forecasting and Accountability (COGFA), which is a state agency. 

The savings aren't $160 billion, but only $137 billion.

The savings are backloaded -- only 6% occur in the first 10 years. There are no savings at all until 2016. 82% of the savings occur from 2035 to 2045.  That's partly due to compounding effects, but also partly because these legislators will no longer be around by then.  Because the savings are small in the next few years, this won't help Illinois' short term fiscal situation much.

Because those savings are backloaded, the present value of those savings isn't $160 billion, or $137 billion, but $23.8 billion.  This isn't chicken feed, but not quite what we were led to believe, either -- particularly since the legislature has a long history of not living up to its pension funding promises, and this is yet another promise.