Progress Illinois

Since it was published last week, the Sun-Times has received a lot of publicity for its four-part series on the state's pension system. For instance, the AP picked up the story on the national level and some local editorial boards decried the "golden public pensions" highlighted by the paper. Even Gov. Quinn -- who is waiting to hear back from a pension reform task force -- responded that "we have to do something about it."

While we agree with the governor that some of the "abuses" reported by the Sun-Times need to be addressed, we read the series a bit differently than most.

Particularly we took issue with the articles' sensational style ("Want to retire with a fat pension?" the first piece read. "Get a government job in Illinois") combined with the absence of important context. (While highlighting the 4,000 pensioners who receive more than $100,000 per year, for example, the reporters' never mentioned that the average pension is under $20,000.)  As a result, the series left the general impression that greedy state workers are sucking the state dry.  In fact, only a small minority of retired state employees receive such exorbitant pensions.

The Sun-Times' flawed emphasis was brought home again on Friday when reporter Chris Fusco served as a panelist on WTTW's Chicago Tonight. Asked to comment on his work, Fusco vaguely declared that the pension system is "broken" and will take major reforms to fix. Watch it:

When you look at the system structurally, it is broken and it is going to come at the expense of taxpayers -- road projects, education dollars. And if something isn’t done from this point on to do something about it, it's going to cost us.

By highlighting the sliver of exorbitant pension packages and simultaneously declaring the system broken, readers are left to think that large payouts are the foremost contributor to the state's pension debt.  BusinessWeek's 2005 feature on state pensions highlights the real story:

Take Illinois. The fifth-wealthiest state in total income, Illinois nevertheless has a 30-year history of shirking its pension promises. According to an analysis by the Civic Federation, a Chicago research group sponsored by the business community, since 1970 Illinois has not once paid its annual pension bill in full. Over the next 40 years the state will have to contribute $275.1 billion if it is to reach its goal of 90% funding -- and that's presuming no benefit changes are made. Through bull markets, bear markets, and sideways markets, the state has consistently lagged, and over time those delays have become more and more expensive. The culprit: reverse compounding. A pension plan's obligations are determined in part by the expected investment return on its assets. In the case of Illinois, that is 8%. So for every dollar not added to assets in time, the state is effectively borrowing from the pension plan at 8% interest. That's a high price in today's market, where municipal bonds typically pay closer to 6%. Illinois Governor Rod R. Blagojevich says that if the state follows its current spending plan, it will have paid $220 billion in interest before it fills the hole.

After 30 years of the state's procrastination, the pension burden has grown backbreaking. Illinois' five pension funds are $35 billion in the red, a serious shortfall for a state with a general operating budget of $43 billion this year. Illinois owes $2.6 billion this year, and within five years that will reach $4 billion annually. By comparison the state will spend $5.9 billion total on kindergarten through 12th-grade education next year. "If we were a business we wouldn't be in Chapter 11, we'd be in Chapter 13," says Ralph M. Martire, executive director of the Center for Tax & Budget Accountability, a Chicago-based nonprofit think tank. "We'd have to liquidate." Illinois is not a fast-growing state that can hope that future population and tax growth will bail it out. D'Arcy of the University of Illinois calculates that Illinois should be 97%-funded based on the rate of its income growth. Instead, retirement funds are 62%-funded.

The problem has only gotten worse in recent years as state lawmakers have continued to borrow against the pension system to pay off their bills.

Some sacrifices will need to be made to put the state back on a path to financial stability. This will likely include some reforms to the pension system. But the Sun-Times' generalizations on this issue did the debate a disservice.