May 24, 2007

Illinois State Treasurer Alexi Giannoulias’ office will introduce legislation that guarantees all money generated from his office’s unclaimed property division will go toward paying down the state’s unfunded pension liability.

Currently, unclaimed property revenue offsets the state’s annual pension contribution that comes from general revenue funds and other sources.

Giannoulias wrote the legislation after his office transferred a record $333 million to the state for pension purposes in April.

The state expected a transfer of just $187 million from unclaimed property. Instead of using the $146 million windfall to pay down unfunded pension liability, the state is holding onto the money to offset its scheduled pension payment next year.

Under Giannoulias’ legislation, state officials must commit this year’s unclaimed property windfall to pay down the state’s $40 billion unfunded pension liability.

In addition, the legislation requires all future revenue generated from unclaimed property to go toward unfunded pension liability instead of offsetting the state’s annual payment to the pension system.

Giannoulias used a credit card analogy to explain the change. He compared the state’s $40 billion in unfunded pension liability to a high credit card balance and the state’s annual pension contribution to a minimum monthly payment.

“Currently, unclaimed property funds are used to pay a portion of the minimum monthly credit card payment. If there is a windfall in unclaimed property, the state still only makes the minimum monthly payment – just a greater amount of it comes from unclaimed property funds,” he said.

“Our proposal says that from now on the state will still have to make the minimum monthly payment on its own, and then whatever money is generated in unclaimed property will be used to pay down the outstanding balance. Unclaimed property revenue will go above and beyond the state’s payment, not in lieu of it,” he added.

Noting that Illinois has the largest unfunded pension liability of any state in the nation, State Sen. Deanna Demuzio (D-Carlinville) and State Rep. Robert Molaro (D-Chicago) have announced their support for Giannoulias’ efforts.

“Unclaimed property revenue should supplement the state’s annual payment, not supplant it,” Demuzio said. “We should stop pre-sweeping this money and allocate it all to the state’s suffocating, unfunded pension liability.”

Molaro is sponsoring the bill that would require the state to abide by Giannoulias’ initiative.

“Whatever comes out of unclaimed property should go free and clear to pension liability,” he said. “We always want some debt reduction; this measure just adds discipline to our budget process.”

Ralph Martire, executive director of the bipartisan Center for Tax and Budget Accountability, also supports Giannoulias’ efforts.

“Illinois has the worst unfunded pension liability in the nation”, Martire said. “The Treasurer’s proposal is a common sense utilization of unclaimed property to pay the state’s biggest bill and be responsible stewards of the taxpayers’ money.”

If the Treasurer’s Office put $146 million toward the unfunded pension liability this year and $88.5 million toward the liability each year through 2045 (Illinois law requires the pension funds to be 90 percent funded by 2045) the office will have paid down $3.3 billion in pension debt.

That $3.3 billion is worth much more if you think about how much it would cost the state if that money was not used, Giannoulias said, returning to his credit card analogy.

“If the state skips a pension payment, its debt increases rapidly,” Giannoulias said. “Without our $3.3 billion contribution, the state’s debt continues to increase and the hole continues to grow deeper. However, with our $3.3 billion the state will save $20 billion in future payments.”

The Treasurer’s Office generates revenue from the Unclaimed Property Trust Fund, the account which holds all the lost, forgotten or abandoned cash and property collected by the office each year.

The Treasurer’s Office recovered an unprecedented amount of cash and stock in recent months from insurance companies undergoing demutualization, the process of converting a mutual company to a stock company.

Last year, demutualization contributed to a record $84 million that the Treasurer’s Office returned to 48,438 people and businesses who claimed money that the state owed them.

Once the demutualization process is complete, unclaimed property revenue is expected to return to typical levels. Since 2000, the median transfer was $88.5 million.

The Treasurer’s Office retains all funds received under the Unclaimed Property Act in a trust fund. On April 15 and October 15 of each year, the Treasurer’s Office deposits any money in excess of $2.5 million into the state’s pensions fund.

The $2.5 million balance is maintained to pay claims to Illinois residents who seek to recover their unclaimed property. Assets can be claimed at any time.

Past transfers from unclaimed property to the pensions fund are as follows:

FY 00 $80.2 million
FY 01 $84.3 million
FY 02 $83 million
FY 03 $89 million
FY 04 $114 million
FY 05 $88.6 million
FY 06 $119.6 million
FY 07 $333 million