No one likes a good story about pensions to get his heat pumping as much as I do, or if you are Rich Miller, it gets your blood boiling to have Illinois referred to as “Greece by the Lake Michigan” in the New York Times (after consultation with the decidedly non-Greek. and coincidentally primary candidate Dan Hynes, of all people). Miller wants to know who said that, which probably won’t fix the budget and pension problems in Illinois, so I thought we could go on a different tack.

I am a big proponent of cookouts with neighbors. There is something about smoked meats and lukewarm beer that makes our middle aged conversations spill over to pensions and retirement after about the second round. Two of our neighbors being teachers, one retired couple and one near retirement, bring a lot of “gross hyperbole” (Rich Miller’s term) into any discussion about teachers pensions in Illinois. So pull up a lawn chair, grab a Bud Light Lime and join in the discussion here.

1) Our retired neighbors, suburban school district have explained that the State of Illinois, and not the local school district is on the hook for any pension payments to retirees AND medical insurance. So naturally local school districts bump up salaries when an employee nears retirement age, so that the final pension calculation is a high one, billed to the state and not the school district. Our near retirement age neighbor says, yup, works fine for her. Dan Hynes (him again!) thinks that practice has ended. But the Tribune thinks it still goes on. It seems abusive to me, but where does this stand?

2) The State has been very generous with offering (and even mandating) pensions over the years, but miserly in paying into pension funds. A sharp guy, Professor Joshua Rauh, at Northwestern (could be a neighbor, must invite him over to next cookout, Sunday evening, beef brisket, if you are interested) was kind enough to provide the following scale.

Total (education related) Pensions paid out in 2009 $3.7 Billion
Total property tax revenue was $20B in 2007.

So about 18% of property taxes is consumed by pension payouts (not deposits on future pensions).

How about medical coverage? Total payout including medical was $5.3 Billion in 2006, so the number is more like 25% of property taxes being consume by pension and benefit payouts. That is as above, just paying out 25% not contributing to some imaginary pension fund. So if your taxes are $10,000 per year on your homestead, $2,500 goes to NOT teaching the neighborhood children to read, write etc.

3) But we do have a professionally run pension system, the TRS, in Illinois, right? Well the TRS is all huffy that Tony Rezko and Stuart Levine (neither of Greek heritage to the best of my knowledge) were mixed up in their investment schemes, so was Bob Kjellander (who seems like a good guest at a cookout, despite it all).

Since giving Levine the heave-ho, TRS has proceeded to invest in Credit Default Swaps (CDS). Any of you teachers at our virtual cookout pleased with the performance of Credit Default Swaps? TRS lost $4.4 billion by investing in 2009 (we would have been $105 Million ahead by investing in T-Bills). Love them or hate them, wouldn’t the bad press that CDS have received over the last 3 years make TRS shy away? The S&P 500 was up 23% in 2009….that would have gone a long way ($6 Billion or so) toward filling in the pension holes, WITHOUT investing in CDS.

4) While we’re on the subject, why does the State fund Teacher Pensions to begin with? Why don’t the local school boards just pay for it themselves out of property tax? Chicago is on a different Teacher pension system, CTPF, where do they get the money to fund their pensions…ah transparency please, on page 16/104 of the 2008 annual report for CTPF, it is suggested that the “the employer and state were required to make additional contributions in the amount $20,812,000 during fiscal year 2008″ so there must be some State input as well. How much? When does the state kick in?

5) Another guy quick with the wit and the pie chart, Laurence Msall from the Civic Federation has a few more comparisons. Every person in Chicago (man, woman, child) has a liability $5821 towards pension payments to various Chicago government retirees, including teachers. That is the unfunded liability, on an ongoing basis. Including State worker pensions, total per capita unfunded liability for the public pension funds supported by Chicago residents was $10,037 in fiscal year 2008, up from $2,442 in fiscal year 2000…..begging the question, How much does every person in Chicago (or Rockford or DeWitt) pay each year, if pensions were fully funded?

I’ll do this part of the math, $588 per person is spent on pensions OUTSIDE of Chicago each year on education alone. Now put in police, fire, prison guards, and we get…anyone? Remember our TRS system is losing money, so there really is no gain to be had from keeping money there for safe keeping.

I have way too many apples to oranges comparisons above (one too many Bud Light Limes) but the proposition is out there. About 25% of our property taxes go towards retirees (if you quit cost shifting, for sanity’s sake). The State of Illinois is in a credit category better than Greece (rest easy Rich Miller) but worse than Portugal or Michigan. Is this the way we want the State of Illinois pensions to run?

Comments very welcome…(provided you don’t say, there isn’t a pension problem there is a problem that Illinois has not funded pensions, duh, that will get you booted from this cookout)

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John Powers is the Executive Chef at the Chicago Daily Observer.

image Smoked Beef Brisket