Why is Thad Glad?

I occasionally see the rallying cry ‘Pensions are a promise!’   But, are generous Cost of Living Adjustments (COLA) a promise too?  Is it really a good promise that people with state funded pensions should get higher annual raises than people living on Social Security?  Is it a true promise that Illinois government retiree COLA can exceed inflation?  I am sorry to report that it sure seems that way in Illinois.

I am all for government employees having some retirement security.   However, giving current retirees annual raises above inflation and above those received by Social Security recipients puts retirement security of younger workers at risk and increases the need for more taxes from people who do not get similar benefits.

For the last 10 years (2010-2019) people living on Social Security have received average annual COLA of 1.4%¹ because their increases are linked to inflation calculations.  During this same time, people who get government pensions from the state of Illinois received 3% adjustments every year because the rate is fixed in law.

Because COLA adjustments compound over time, the inequality only increases.  For example, let’s look at the benefits paid to a hypothetical Social Security recipient and a similar Illinois government pensioner who both retired with a $30,000 retirement benefit in 2009.  After receiving annual compounded COLA for 10 years, starting in 2010, the retiree with Social Security would get $34,315 in 2019 and the Illinois government pensioner would get $6,003 more with annual payments of $40,317.  To put it another way the person with an Illinois government pension would now receives a benefit that is 14% higher than that of the Social Security recipient.

This sweet deal is protected by the Illinois Constitution and fixing it requires a change to the Illinois Constitution.   Conservative leaning news outlets and think tanks frequently push for a Constitutional change that protects earned pension benefits, while allowing changes to those not yet earned.  If approved, they believe it could pass legal muster.  This idea is no longer limited to conservative circles.   Recently the prominent Democrat and Chicago Mayor, Rahm Emanual, also called for a Constitutional change as he seeks to resolve the city’s pension crisis.   Perhaps momentum will continue to build with bipartisan support.

While COLA fairness is one problem with Illinois government pensions, there is a bigger politician-made funding crisis at the root of our state’s fiscal mess that prevents any progress on property tax relief.  The five large Illinois state-run pensions are funded at around 40% of where they should be and the official state pension debt is $146 billion. However, I am more inclined to believe the independent credit rating agency Moody’s Investor Services which reports the debt at $250 billion or about six times the state’s annual budget.  Either way it’s a massive problem.

It’s is time for elected officials to address the pension crisis to protect tax payers and the people most hoping that pensions are a promise that can be honored.  Let them know.

¹Social Security COLAs are adjusted each year in December, while IL COLAs start on Jan 1.  Calculations assume both start on Jan 1 for comparison purposes.  Between 2010 and 2019 Social Security COLAs ranged from 0% (2010,2011,2016) to 3.6% (2012). http://www.ssa.gov/oact/cola/colaseries.html