Prior to Governor Pritzker’s budget proposal, he appointed two task forces to take a closer look at some potential solutions to Illinois’ pension underfunding problem. Or underfunding catastrophe. One of these task forces is looking into the benefits of consolidating Illinois’ approximately 650 pension funds as a way to cut down on administrative costs for these funds. I will cover consolidation in a separate blog post. But today, the focus is on the other task force that was established – asset relocation.
First, what exactly is “asset relocation”? Well, it’s a fancy term for transferring public assets– ostensibly from a government’s general fund to a pension fund to boost its value. Voila, problem solved, right? Well, not so much. But with asset relocation, there are two options. Relocate an income-producing asset, which is what New Jersey did , by transferring its lottery and assigning it to one of their public pensions; to the tune of approximately $1 billion dollars in a year. The other option is to take an asset that is not currently producing income and find a way for it to generate new revenue and then funnel that income to a pension fund. Such as putting a parcel of government-owned land into a trust and selling it to a power provider or other end-user.
The first type of asset relocation is not one that would essentially help the problem because it simply takes revenue from one part of the government’s budget and places in a new part without a feasible way to fill in the newly created gap. The second method is one that produces new revenue and could actually help start filling the bottomless cup that is our pension system.
Pritzker’s plan for the Asset Assessment Taskforce was to take a look at the billions of dollars worth of assets that the government controls in things like real estate and infrastructure. Similar to New Jersey, this could include looking at the Illinois Lottery. The task force is also going to look at toll road revenue as an asset to fund the pension systems. If Illinois were successful in transferring these assets to the pension system, the plan is that it could lower the annual contribution to the funds that are needed, or at least reduce the unfunded portion of the funds.
An announcement from the task force, which is led by Jacqueline Avitia-Guzman, stated that they will be looking into the tens of billions of dollars worth of assets that could be transferred over to the pension system. The best asset transfers under this system would not be one-time revenue increases but instead, consistent revenue producers. If this ultimately occurs it should be noted, the legal propriety may well be challenged.
Out of the two task forces that are looking into the pension debacle, I am more inclined to side with the consolidation. The fact that there are specialized task forces at all is a step in the right direction. Now let’s see if they are able to follow through with any decisions that are made.