July | August 2017


 

 

 

 

 

 

Public Pensions Still a Priority--Policy Academy Offered

by Jennifer Burnett, director of fiscal and economic development policy
Last week, after Illinois Comptroller Leslie Munger announced that a cash flow problem caused by a deadlock in the state’s budget negotiations would force Illinois to delay its November pension payment, Fitch Ratings--one of the “Big Three” credit rating agencies--lowered the state’s bond rating. 
“This decision came down to choosing the least of a number of bad options and it saddens me that we've reached this point. But the fact is that our state simply does not have the revenue to meet its obligations,” Munger said in a press release. “We will use every available dollar in the higher revenue months this spring to catch up with our commitments and ensure that our retirement systems are paid in full.”
The credit rating agency cited “exceptionally high” unfunded pension liabilities along with “continued deterioration of the state's financial flexibility” and ongoing budget gaps as the primary reasons for downgrading the state’s outstanding general obligation bonds from A- to a BBB+.
Fitch points out that public pensions are a major, ongoing fiscal concern for Illinois. “Annual pension contributions, which total almost $7 billion in fiscal 2016, or 22% of expected revenues, have been increasing significantly but remain below actuarially-calculated levels. Growing pension contributions have been crowding out other expenditure growth and absorbing revenue growth, in Fitch's view.”
While the state of public pensions in Illinois is one of the most extreme examples--it is often called the worst-funded system among states--it is not the only state that is struggling to balance fiscal obligations and reform efforts with responsibilities to public employees.
For many states, pension reform has been achieved only after long, and often contentious, battles across all three branches of government.
“It's been a long road since Rhode Island began the efforts to reform the state pension system with the Rhode Island General Assembly working with then general treasurer and now Gov. Gina Raimondo,” said Rhode Island state Rep. Brian Patrick Kennedy.
After legislation to overhaul Rhode Island’s retirement system was signed into law by former Gov. Lincoln Chafee, it was challenged by various labor unions and retirees. The litigation finally ended in May following a five-day fairness hearing in which Judge Sarah Taft-Carter noted that the settlement “is not a perfect solution” but it is “fair, reasonable and adequate.”

According to Kennedy, public employee unions and retiree coalitions sued to block the state’s 2011 pension overhaul that created a hybrid retirement plan, raised retirement ages and suspended cost-of-living increases for participants in the $8.3 billion Rhode Island Employees' Retirement System as a cost-saving measure. 

“The process involved in creating the legislation, defending the law and upholding the proposal with minor modifications at the court level involved extensive efforts on the part of many state government officials from all three branches of government,” Kennedy said. “The pension plan had an effect on so many of our constituents across the state, but in the end the ultimate goal of creating a stronger Rhode Island employee retirement system appears to have been achieved and stabilized with the adoption of the proposal.”

Although state public pension systems may be improving, the aggressive debate over pension reform won’t abate anytime soon. A July 2015 report by the Pew Charitable Trusts Pew report found that pension debt is expected to remain at “historically high levels” as a percentage of U.S. gross domestic product—more than $1 trillion when state and local shortfalls are combined.  
“The good news from the 2014 data is an expected reduction in states’ unfunded pension liabilities and strong investment returns,” said Greg Mennis, director of Pew’s public sector retirement systems project, in a July 2015 press release. “But there’s still a high level of debt, and policymakers cannot count on uncertain returns to close the gap.”
To help state leaders better understand how their fellow policymakers are tackling pension concerns, CSG will host a public pension and retirement security policy academy on Thursday, Dec. 10, in conjunction with the CSG 2015 National Conference in Nashville, Tenn. The session will begin with Pensions 101, an overview of pension and retirement security issues facing states. The afternoon will move into Pensions 201, diving deeper into state reform efforts, attempts to balance public employee benefits with fiscal responsibility, and emerging trends in policy and governance.
To register for the conference and the policy academy or to learn more, visit http://www.csg.org/2015annualconference/default.aspx or contact Jennifer Burnett, director for fiscal and economic policy, at (859) 244-8114 or jburnett@csg.org.
 
 

 

 

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