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CTBA agrees that using POBs to “offset an annual pension contribution”—ie, to replace funding that would normally be coming from tax revenue—is irresponsible. That was one of the upshots of our Crain’s editorial in August.
But I think it’s not right to say the POBs in the reamortization plan are “offsetting an annual pension contribution.” Those POBs are *in addition to* the amounts paid with tax revenue as scheduled under current law. In other words, CTBA’s reamortization plan doesn’t create false savings by substituting tax-funded spending with debt-funded spending; it uses all of the POB proceeds to directly increase contributions to the pension systems as a bridge to the level-dollar amortization contributions.
As for the 70% funded ratio target, two things. First, and most importantly, by putting more money in the pension systems up front, CTBA’s reamortization plan actually increases the funded ratio *faster* than the current ramp through about the mid-2030s. That’s crucial in the short term because it gives the pension systems more breathing room in the increasingly likely case of a recession. In the longer term, it’s important because it means that, fifteen years from now, if the state decides it wants and is in a position to increase its funded ratio target for 2045, *it will be in no worse, and maybe a better, position to do that than under the current ramp*. Because, again, the funded ratio is actually higher under the CTBA reamortization than under the current ramp through the mid-2030s.
Second, while pushing the pension systems’ funded ratios higher is important, it needs to be weighed against the state’s capacity to raise revenue and fund crucial public services. Our view is that the current ramp—which achieves a 90% funded ratio in 2045 by calling for annual contributions approaching $20 billion at the end of the schedule—is just not sustainable without unrealistic, and intolerable, revenue increases and service cuts.
In large part because of the pressure created by pension debt in the ramp, Illinois’ real per capita General Fund spending on current services has already declined by more than 20% since FY2000, including a 50% cut to higher education. We understand that a 70% funded ratio target isn’t ideal in the abstract, but in the actual circumstances Illinois finds itself in, we believe it is part of a plan that responsibly stabilizes the pension systems while creating room for the state to meet other obligations that Illinoisans depend on.