Sticker shock: Illinois on hook for as much as $500M next year
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Already facing a budget crisis, Illinois can tack on as much as $500 million in the next fiscal year’s spending, after the board of the state’s largest public-pension fund voted Friday to assume a lower rate of return on the fund’s investments.
The decision by the board of the Teachers’ Retirement System, which serves 400,000 teachers outside Chicago, will lower the assumed rate of return from 7.5 percent to 7 percent, a move that will increase the amount the state has to contribute to the hugely underfunded account. TRS spokesman Dave Urbanek said the rate change could add between $400 million to $500 million to the roughly $4 billion the state contributed to the fund last fiscal year.
Adding drama to a dry discussion of actuarial tables and interest rates, Gov. Bruce Rauner’s administration had warned of a crippling impact to the state budget as well as higher taxes and “devastating impact” on education and social services if the board voted for the lower rate. Rauner wanted the vote delayed, arguing that the board’s meeting agenda hadn’t been posted in compliance with the state Open Meetings Act.
“With less than two hours’ notice, Illinois taxpayers including our social service providers and small business owners were just handed a bill for nearly a half-billion dollars,” Rauner spokesman Lance Trover said in a statement after the meeting Friday. “While questions remain about the legality of today’s action, it further underscores the need for real pension reform in Illinois.”
TRS Director Dick Ingram responded to the criticism, reading from a statement before the start of the meeting that pointed out the decades-long role of politics in creating the massive unfunded liabilities facing the fund.
“Political science has always trumped actuarial science in Illinois,” Ingram said. “More contributions now means lower required contributions later. Putting off the pain does not change the reality of what it costs to fund the benefits.”
Political observers have speculated the governor, who appoints six of the 13 members of the TRS board, felt lowering the rate was a plot to further stress state finances and force Rauner to compromise in his battle with the Democrat-controlled legislature on a budget.
On Friday morning, Rauner attempted to fill three vacant TRS board slots, but only two of his appointees were seated— the third was deemed ineligible because he was a Chicago resident. Rauner’s newly installed appointees, marketing executive Anne Marie Splitstone and venture capitalist Laura Pearl, both abstained from the vote on the rate change, as well as every other item on the board agenda.
Before the vote, Ingram conceded the impact of lowering the rate would be painful but said the move was necessary because the state had failed to make necessary contributions and adjustments many times before.
“No one should think we’re being insensitive,” Ingram said. “But what’s been devastating is 70 years of underfunding.”
“The music has stopped and there have been a lot of chairs pulled away from the table,” Ingram said.