Quick Hit Matthew Blake Monday April 23rd, 2012, 3:46pm

Unions Face Tough Battle With Quinn’s Pension Cut Plan

Gov. Pat Quinn’s proposal Friday to reform Illinois’ public employee pension system was met with firm resistance by state unions, who represent the workers directly impacted by the governor’s proposal.

However, Senate President John Cullerton (D-Chicago), who sided with unions against earlier pension proposals, provisionally backs Quinn’s plan, and, unlike unions, says it passes state constitutional muster.

Illinois AFL-CIO President Michael Carrigan released a statement Friday sharply critical of the governor.

“Considering that the subject at hand is the ability of hundreds of thousands of Illinoisans to support themselves in retirement, we believe the proposals are insensitive and irresponsible,” Carrigan said, adding that labor was not invited to Quinn’s pension working group.

Kelly Kraft, Quinn’s budget spokeswoman, says that the governor is negotiating with unions, and that a labor-friendly plan to address the state’s $83 billion in pension liabilities is still possible.

Last year, unions successfully fought back a pension deal from House Minority Leader Tom Cross (R-Plainfield), and supported by Speaker of the House Mike Madigan (D-Chicago).

Cross wanted current state employees moved into a new pension plan. Unions – and Cullerton’s own legal counsel –said Cross’s proposal violated the Illinois constitution, which reads that state pension payments “shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”

By contrast, Quinn’s plan would make Illinois’ pension system solvent by 2042 through giving employees a choice of two unpleasant options: Increase their contribution by three percent and get lower annual cost of living adjustments to their benefits; or keep their current level of payments and benefits, but receive no retirement health care subsidy. The current plan pays for heath insurance of retirees.

The Illinois AFL-CIO says Quinn’s plan is unconstitutional. “Forcing public servants to choose between sharply diminished pension plans is no choice at all,” Carrigan said.

Quinn, and Cullerton, says that this choice is precisely what makes the plan constitutional. “The only way to change benefits is some sort of offer, consideration, or exchange – [Quinn’s proposal] does that appropriately,” says Cullerton spokeswoman, Rikeesha Phelon.

Cullerton supports the “framework” of Quinn’s pension plan, according to Phelon. “That said, all the details have not been worked out,” she added.

Indeed, key parts could either be figured out by the General Assembly – or lead to the plan’s collapse.

One is whether the state transfers retirement costs to local school districts, community colleges, and universities outside of Chicago, which has its own retirement system. The Chicago Tribune reported that these payments are 78 percent of the state’s yearly pension costs.

Almost all sides, including credit rating agencies like Moody’s that have downgraded the state’s bond rating, acknowledge that pension liability stems from Illinois using its pension fund like a bank account – using money earmarked for pension obligations to instead pay down other debts or fund state programs, and, in doing so, shortchanging public employees.

Ralph Martire, executive director for the Center for Tax and Budget Accountability, a Chicago think tank, wants the state to treat pension debt like it would bank debt or any other outstanding obligation.

“We need to treat it for what it is – real debt – and pay it back through real debt payments,” Martire says, like front-loading interest payments and back-loading principal payments. But, Martire says, “this is not being discussed.”

Comments

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I strongly doubt Quinn's plan will stand up in court. Yes, retiree health benefits (unlike pensions) are not constitutionally guaranteed. But the notion that the State of Illinois can selectively cut health care benefits punitively only for those members of a retirement system who refuse to waive their constitutional rights and accept a greatly reduced pension is dubious, to say the least. By way of analogy, this would be like saying that the Federal Government can selectively cut you off of Medicare, audit your tax returns every year, etc. etc. etc. if you exercise your constitutional right to freedom of religion. The State can cut retiree health benefits for all retired employees, just like the Feds can cut Medicare, but not selectively in retaliation for refusing to waive a constitutional right. And if this provision in Quinn's plan is struck down by the courts, the whole plan falls apart, because no rational employee will choose to accept a lower pension than they are guaranteed by the Illinois Constitution.

Indeed, even if the plan is not struck down, the expectation that 75% of employees will choose to waive their constitutional rights and accept a lower pension, in return for a "promise" not to eliminate their retiree health benefits, is preposterous. What is to prevent a future governor or legislature from reducing or eliminating their health benefits anyway? Does the Governor really believe that 75% of state employees are fools?

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