All eyes are on Springfield Tuesday as state lawmakers are expected to take another shot at approving legislation that addresses Illinois' $100 billion in pension debt, which is the worst in the nation. Progress Illinois takes a look at the proposal and includes some of the reaction about the plan thus far.
All eyes are on Springfield Tuesday as state lawmakers are expected to take another shot at approving legislation that addresses Illinois' $100 billion in pension debt, which is the worst in the nation.
The state’s failure to pay its share of pension payments in the past is largely to blame for the ballooning debt, which threatens funding for education and other critical services. Illinois' continuing pension problem, and other financial woes, has led to numerous credit downgrades, meaning the state has to pay more to borrow money due to higher interest rates.
The day before Thanksgiving, Senate President John Cullerton, House Speaker Mike Madigan, Senate Minority Leader Christine Radogno and House Minority Leader Jim Durkin announced they had reached a consensus on a pension reform plan that, if passed, would reportedly save $160 billion over the next three decades. The 327-page measure (PDF), which was released Monday, looks to fully fund the state's five pension systems by no later than the end of fiscal year 2044.
If approved, the measure would save the state $1.5 billion in 2015 alone, Laurence Msall, president of the Civic Federation, said during an appearance on WTTW's Chicago Tonight Monday night.
The current pension reform proposal is "not a panacea," Msall stressed. "But it's a very big and important step in the right direction" in improving the state's fiscal stability.
But during the Chicago Tonight segment on pension reform, Ralph Martire, executive director at the Center for Tax and Budget Accountability, stressed that the current pension proposal is unconstitutional, citing language in the state Constitution that says public pension benefits "shall not be impaired or diminished."
"Because it's not constitutional, it doesn't solve the problem," Martire noted. "And we will be back in this chair talking about the pension unfunded liability [that will look] far worse in about four years when it finally winds its way through the courts and we have to pay back everything we saved plus interest, which happened in Arizona, which has very similar constitutional protections to us."
The plan is very similar to Senate Bill 1, the contentious pension bill backed by Madigan that originally passed through the House, but failed in the Senate last session. Unions strongly opposed the measure.
The majority of members on the bipartisan pension conference committee, which was set up in June to craft reform legislation, gave the current plan the OK Monday. The committee was created after the Illinois legislature fumbled on passing a pension reform measure during the spring session.
A number of state lawmakers have expressed worry that the pension vote is being rushed, seeing as how most lawmakers and the public have had one day to comb through the plan's details.
“That’s not enough time to digest it,” State Rep. Raymond Poe (R-Springfield) told the State Journal-Register over the weekend. “You don’t give the people it affects enough time to do some research and crunch the numbers and see how it works. I think it puts everybody who’s affected by it at a serious disadvantage. Their people need a little time to digest this thing.”
In a Monday interview with the Associated Press, State Rep. Linda Chapa La Via (D-Aurora) added that, "I haven't even looked at the paperwork."
"I think everyone would like more time," she stressed, but if not, "give us enough evidence to review it."
State Rep. Tom Cross (R-Oswego) noted Monday that, "This is going to be the biggest vote most legislators make in their career. You've got one shot at this and you want to do it right."
U.S. Sen. Mark Kirk (R-IL) also chimed in on the matter, writing in a statement Monday that “the Illinois General Assembly shouldn’t pass a bill that neither lawmakers nor the voters have had time to read."
"What we do know is that this legislation relies heavily on accounting gimmicks, fails to prevent a permanent income tax hike, and falls short of finding the savings needed to solve Illinois’ fiscal crisis," the senator continued. "There will be no federal bailout for the state of Illinois, so legislators must get this right.”
Gov. Pat Quinn, who supports the current proposal, has been pushing for comprehensive pension reform since he took office. Tuesday's vote is politically important for Quinn, a Democrat, as he's up for re-election next year. Out of the four Republican candidates vying to challenge Quinn, only State Sen. Bill Brady of Bloomington has said he supports the proposal.
Over the summer, the governor suspended the pay of Illinois state lawmakers due to pension inaction. Although a judge later struck down the governor's move to hold legislator pay until a workable pension reform plan was proposed, Quinn vowed that he would not collect his own pay until the pension problem was fixed.
“When I proposed the creation of a conference committee in June, I asked members to draft a plan that eliminated the unfunded pension debt and fully stabilized the systems, and this plan meets that standard," Quinn said in a statement last week.
But Illinois public employee unions are furious with the proposal, calling it unconstitutional, an "extreme pension scheme" and just a "repackaged SB1."
Union members and retirees took to a number of state legislators' district offices on Monday to rally against the pending pension proposal. Near north suburban teachers, for example, protested outside the Skokie district office of State Sen. Daniel Biss (D-Evanston), one of the 10 members on the conference committee, in opposition of the pending pension bill. They say the bill is illegal and was "crafted by legislative leaders behind closed doors."
The proposed pension measure would raise the retirement age for those who are 45 or younger by up to five years, depending on the worker's age. It includes a state funding guarantee that also provides a retirement system with the right to sue if the state does not make a pension payment or a supplemental contribution.
The plan would impose a cap on pensionable salary at about $110,000 and allow some workers to opt into a defined contribution system, similar to 401k plans. It would remove many matters involving pensions from the collective bargaining process.
One of the key provisions that has caused much uproar involves changing the current 3 percent compound interest on cost-of-living adjustments (COLAs). Under the new formula, COLA's would be based on giving retirees 3 percent on an amount determined by the number of years they have been on the job times $1,000, or $800 for those who receive Social Security. For example, if a retiree worked 30 years, the 3 percent annual COLA would only apply to the first $30,000 of their pension. The $1,000 and $800 would be adjusted yearly to the Consumer Price Index (CPI).
Additionally, the measure would impose some so-called "COLA holidays" of up to five years, depending on a current worker's age. In exchange, employees would contribute 1 percent less of their salary toward their pension under the proposal.
Robert Bruno, director of the University of Illinois at Chicago Labor Education Program, said the combined proposed COLA changes would result in "a sizable loss of income" for retirees down the road.
As such, pensioners are likely thinking, "If you're voting to reduce my retirement income, thereby compelling me to do a number of things, I have to work a part-time job. I have to cut back on what my retirement plans would have included. I have to look for ways to reduce the debt load that I have if I'm a retiree. If I'm not a retiree, it might mean I have to think about staying in my position longer beyond the point that I would be most efficient," Bruno explained.
The We Are One coalition of labor unions says the proposed COLA changes mean a 49 year-old teacher, for instance, who retires at a typical age with a $48,000 pension would miss out on $14,000 in the first five years of retirement. In the long run, that same teacher would lose more than $225,000 by their 25th year of retirement, according to the coalition's calculation.
"It seems to be retirees who always get the short end of the stick," said Emily Twarog, assistant professor at the University of Illinois at Urbana-Champaign’s School of Labor and Employment Relations. "It's the state who wasn't paying into the fund. That's why we're in these big problems. All the workers, myself included, have been paying into this fund all the way along ... It's infuriating that it's the workers themselves, who have been saving all this money, who end up having to pay the cost of the state not paying the money they were supposed to be paying."
Democratic Lt. Gov. Sheila Simon, who is running for Illinois Comptroller, said she does not support the measure because it "puts too much of the burden on lower income workers and retirees.”
“I appreciate the requirement that the state pay its share, but the legislation should be made more fair for those who have worked and earned their pensions, " Simon said in a statement Monday. “Many state workers have had no opportunity to contribute to Social Security, and a small pension that does not keep up with inflation is a recipe for poverty."
Simon also took a jab at the current Illinois Comptroller, saying "We are in this situation because of the last generation of politicians like Judy Baar Topinka. It is now our generation's responsibility to fix the problem, and fix it fairly."
GOP gubernatorial candidate State Treasurer Dan Rutherford, who does not support the current measure, believes the legislation would not "withstand judicial review" if it clears the state legislature. State Sen. Kirk Dillard (R-Hinsdale), who is also running in the Republican primary for governor, hasn't yet announced whether or not he backs the plan. Dillard has, however, called for two days of Senate hearings regarding the legislation.
The remaining Republican candidate for governor and millionaire venture capitalist Bruce Rauner argues that the proposal's reported $160 billion in savings is "insufficient" and makes the possibility of future tax hikes more likely. The current proposal saves about $3 billion less than Madigan's original SB1 plan.
Rauner's ideal pension reform legislation would "cap the current system," which means ending COLAs for retirees, and "fully put in place a 401k-style program that is similar to the retirement plans of most Illinoisans," he said in a statement Sunday.
Among other concerns, Rauner said the current proposal's funding guarantee "means payouts to government union bosses are ranked ahead of investments in our schools, public safety, and the social safety net."
"Provisions like the pension guarantee give government union bosses more power in a system that is already rigged in their favor," Rauner continued. "Government union bosses are funded by your tax dollars and use your money to elect and lobby politicians who will grow government and give them more money. It’s a closed loop system with taxpayers left standing on the outside."
Meanwhile, Ty Fahner, president of the Civic Committee of the Commercial Club, told Greg Hinz of Crain's Chicago Business Monday morning that while the proposal "could be better," but still said it's “a damned good bill." Fahner also took to task Rauner's own pension reform plan, saying such a proposal “would not pass in 50 years — or two years, if he becomes governor."
Overall, Bruno said he fears legislators have not thoroughly looked at the possible unintended consequences of the pension reform proposal, which may sway people away from pursuing or staying in public sector professions, such as teaching.
"You don't just disincentivize people to go into the profession, but you deter the most talented, the most skilled, the most capable who would have made this a first career professional choice, and instead you end up with people going into the profession who choose it as second and third choices and see it more as fallback opportunities," he said. "It will in fact have a damaging impact on recruiting people into the profession."
Bruno also noted that what has been missing largely from the pension reform discussion is the positive contribution that pensioners contribute to the state of Illinois.
"Instead of talking strictly on the expenditure side of this, we should be talking about the revenue that's generated when you send a pensioner a check," he said. "When they get a check ... where does that money go? Does it go to Florida? Does it go to buying race horses? ... No. It gets spent. Where does it get spent? Close to three-quarters of it or more gets spent in Illinois."
A special committee hearing regarding the current proposed pension changes kicked off this morning. Lawmakers in both the House and Senate may consider the bill later today.
Check back with Progress Illinois as this story develops.