We frequently use the word “Springfield” as a metaphor, meaning state government and the politicians involved in state government.
But there is also a literal Springfield, a city of some 117,000 souls, located in central Illinois. It not only houses our state capital, but it has to function as a city, like any other city.
A recent Wall Street Journal article is entitled Pension Pinch Busts City Budgets: Municipalities Grapple With Burgeoning Retiree-Benefit Costs; A Costly Perk in Springfield, Ill.
The article shows that like most municipalities in Illinois these days, Springfield is having a hard time managing its fiscal affairs.
The biggest problem is the city’s pension obligations. And gimmicks to inflate those pensions make the problem worse, and they taint the entire system with unfairness.
“Under current labor agreements, employees get a 5% bump in the pay periods around [the anniversary of their hiring date] every year. Workers who retire during the short window get a perk: Their pensions are based on the temporarily boosted paycheck. The provision, which starts after two decades on the job, adds an average of $65,000 in lifetime payouts for each retiree who takes advantage.”
People with normal jobs in the private sector don’t get this sort of treatment. Taxpayers are seeing city services squeezed out to pay for pensions, and they are in increasingly bad humor about these kinds of practices. And the consequences are substantial.
“The price of the problem can be seen around the Illinois state capital. Library branches that closed in the wake of the recession have never reopened. The Springfield Municipal Band, which was established through a 1936 referendum, has shrunk. In older neighborhoods such as Harvard Park, heavy rains overwhelm storm sewers and roads. Vacuum trucks fan out and suck up water because the city hasn’t been able to afford needed road repairs.”
City government was warned as long ago as 2008 that pension payments would consume an increasing share of the budget and would “squeeze out basic municipal services.”
Springfield’s problem is made worse by unrealistic forecasts of the returns on investments in its retirement funds. The current forecast is for a 7.5% annual return, which is not realistic. As a result, Springfield’s pension funds have insufficient assets, the problem is growing worse, and there is inadequate political willpower to address the problem now.
Springfield has cut its workforce and required additional pension contributions. Yet the city’s debt is still high. And interference by state government is no help. Illinois municipalities were required in 2004 to provide benefits to the spouses of dead, retired firefighters. This may sound humane, but this was an additional cost the cities and towns had not budgeted for. This impacted 290 retirement plans around the state. Illinois state government is lavish with other people’s money, in many different ways.
The taxpayers of Illinois, and of Springfield, and other counties, cities, and villages around the state, can only do so much. They cannot be expected to pay more and more in taxes in exchange for less and less service from government, to benefit their retirees, whose plans were never adequately funded.
Political cowardice and shortsightedness and greed have led to this impasse. There will be no painless exit from it. Getting government pensions in line with equivalent private sector pensions is a necessary first step. Moving to fully funded defined contribution plans for all government employees is a further necessary and overdue change.
The wreckage of decades of bad policy decisions needs to be cleared away. It will be dirty work, and thankless. But only when these pension obligations are locked onto a sustainable path will be able to turn this state around. Only then will Illinois be able to achieve its economic potential by creating jobs, attracting and sustaining businesses, and becoming leader it once was—and should be again.