LINDA WERTHEIMER, host:

This week, we've been hearing how states are funding their public pension plans. Today, why Illinois is the worst in the nation when it comes to setting aside enough money for state workers and retirees. Illinois has socked away less than half the money that's been promised for public pensions. And that big gap keeps growing. NPR's David Schaper wraps up our series with this report.

DAVID SCHAPER: Illinois has five public pension funds for teachers, state employees, university employees, judges and legislature. Think of them as one big home mortgage. And instead of making the required house payments, Illinois' governors and state lawmakers have been paying much less than they should, even skipping some payments and borrowing money to make others.

Mr. LAURENCE MSALL (President, The Civic Federation): Basically, the state of Illinois is upside down on its home mortgage and it's maxed out its credit cards and its applying for more credit cards.

SCHAPER: Laurence Msall is president of the Chicago-based Civic Federation, which keeps tabs in government finances. He says Illinois has so badly underfunded its pensions that the unfunded liability has ballooned to a whopping $78 billion.

Mr. MSALL: That means every man, woman and child in the state of Illinois is on the hook for $6,031 of pension promises that we don't have the assets for.

SCHAPER: Msall and others say Illinois pension deficit has exploded in recent years because the state's politicians have used budget gimmicks. They've taken pension holidays, and they've borrowed heavily.

Just this January, Illinois issued $3.5 billion in pension obligation bonds to make this year's pension payment. So the state has to begin paying that borrowed money back next year to the tune of $800 million. Illinois' bond rating is now lower than any other state's except California, so it pays high interest rates. And if its bond rating goes any lower, Illinois soon may not be able to borrow money at all.

Eden Martin is president of the Civic Committee of the Commercial Club of Chicago, a business group. He says while the politicians have been underfunding Illinois pensions, they've also sweetened pension benefits.

Mr. EDEN MARTIN (President, The Civic Committee of the Commercial Club of Chicago): For example, in Illinois, if you're a state employee, you can retire at either 60 or 55, depending on which pension plan you're in, with a full pension if you have enough years in the pension system. That's pretty early.

SCHAPER: Martin says early retirement incentives over the years have thousands more retirees drawing pension checks for longer periods of time. He adds that Illinois retirees get automatic three percent annual pay increases, regardless of the rate of inflation. And the state pays their health insurance premium.

Mr. MARTIN: The pension have become, with the passage of time, more generous, out of sync with what's going on in the private sector, and that's where reform has to happen.

SCHAPER: Martin's group and others are pushing for Illinois to raise the retirement age, and to implement a two-tiered retirement system so future state employees would be on a defined contribution plan instead of the defined benefits system in place now. Illinois' Constitution prohibits a reduction in benefits earned by current retirees and employees. And many of those retirees say they're hardly living high on a hog, as has been portrayed.

Ms. IDA CALLOWAY (Former Mental Health Technician): Okay, this is my living room. This is nothing fancy in here.

SCHAPER: Seventy-year-old Ida Calloway shows off her modest, three-bedroom ranch home in the Chicago's south suburbs. Calloway worked for the state for 24 years as a mental health technician, bathing, dressing and feeding people with developmental disabilities in a state home.

Ms. CALLOWAY: There was some who couldn't walk, couldnt feed themselves. I know I had to learn how to massage food down their throat. It was hard. You'd get feces thrown on you. You'd get spit on.

SCHAPER: Calloway says she deserves every penny of her $1,473-a-month pension, and she doesn't think it's fair to reduce benefits for current and future state employees who do this kind of work. The American Federation of State, County and Municipal Employees says Illinois pension benefits are on or below par with other states.

The union's Hank Scheff says employees contribute at least 4 percent of their pretax salary into the pension funds, and he argues they shouldn't be asked to give up benefits or pay more.

Mr. HANK SCHEFF (AFSCME Director of Research and Employee Benefits): I mean, if the problem was created by underfunding, the solution is funding.

(Soundbite of crowd chanting)

SCHAPER: Current and retired state workers were among the groups rallying at the Illinois capital earlier this month for a big tax increase to, in part, better fund the pension plan. They're a potent political force, which makes lawmakers queasy about reducing benefits and raising taxes in this election year. But the experts say kicking the can down the road, as Illinois has done so many times before, only moves this state's pension funds closer to the brink of going broke within the next decade.

David Schaper, NPR News, Chicago.

WERTHEIMER: You can hear more stories in our series Deferred Promises: America's Pension Crisis at our Web site: npr.org.

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