CHICAGO (AP) — Illinois lawmakers are hustling to close loopholes in government pension plans to prevent abuses. They’ve already passed laws changing retirement provisions for future employees. But so far this fall, they’ve been almost silent on a m
CHICAGO (AP) — Illinois lawmakers are hustling to close loopholes in government pension plans to prevent abuses. They’ve already passed laws changing retirement provisions for future employees. But so far this fall, they’ve been almost silent on a much bigger challenge: reducing the state retirement systems’ massive $85 billion unfunded liability, by far the government’s largest unpaid bill.
Warning that the problem could soon grow too big for the state to remedy, legislative leaders introduced a proposal last spring to change future pension benefits for current employees but then withdrew it amid intense opposition from unions. Tax watchdog groups say it’s the only way to make sure the state can keep its promises to retirees; state workers say it would violate the constitution and spark political and legal battles.
Now the question is whether lawmakers are ready to force the matter, or if they’ll delay it again.
House Minority Leader Tom Cross says he’s lined up 30 Republican votes and hopes to act on the bill when the legislators return to Springfield early next month, if House Speaker Michael Madigan can get an equal number of Democratic votes. A Madigan spokesman says the speaker can’t ask lawmakers how they’ll vote on the bill until he sees a final version, which is still being tweaked.
The Cross-Madigan bill gives current employees three choices that would save the state money: stay in the current traditional pension plan but contribute more of their pay, pay a lower amount to join a similar plan that offers lower benefits or join a new 401(k)-style plan.
Senate President John Cullerton, a Democrat, believes that would be unconstitutional, but would allow a vote in his chamber.
"There is no benefit to waiting because the problem just gets bigger the longer we wait," said Laurence Msall, president of The Civic Federation. "I would hope they would have political will to get this done … it’s not going to go away by ignoring it."
But state employees — thousands of whom rallied at the statehouse on Wednesday — say they’ve been paying their share while lawmakers dug the state’s five pension systems into a deep hole by skipping or skimping on state payments for years while diverting money for other purposes.
"We’ve made very clear to leaders and rank-and-file lawmakers that we recognize the problems in the pension funds because we’re the ones who have been sounding the alarm long and loud," said Anders Lindall, spokesman for the American Federation of State, County and Municipal Employees. "(Now) public employees are under assault … CEOs are trying to villainize them and blame them for state’s fiscal problems."
Although Illinois’ pension crisis isn’t unique, its scope may be unmatched.
State officials say the difference between what is promised to retirees and current assets is $85 billion and growing. But Northwestern University economist Joshua Rauh says a more realistic figure exceeds $200 billion — $213 billion just for the three largest systems — because officials almost certainly are overstating the interest pension-fund investments will earn.
Regardless of the exact liability, it would not disappear even if all state employees immediately converted a 401(k) or some other pension option, said Rauh. But pension changes combined with major budget reforms might put the state in a "reasonable position" to issue bonds and borrow money to repay the money over a longer period of time, he said.
The state has borrowed money and used a recent income-tax increase to make its pension payments, but neither will generate nearly enough to meet future obligations.
"When you have $213 billion of credit card debt that you just woke up and realized, none of the options is going to be appealing," Rauh said. "You’re looking at tax increases, spending cuts or substantial increase in contributions from employees."
Unions are willing to work with lawmakers on a solution — preferably including an increase in taxes on the wealthy — but reducing the already-modest benefits that most state workers will get when they retire isn’t acceptable, said Lindall. The average retirement benefit is $32,000 a year and 80 percent of workers are not eligible for Social Security.
What’s more, he said, the Illinois Constitution bars reducing retirement benefits for current government employees, though it doesn’t spell out whether that applies to benefits already earned or everything an employee potentially could earn. Even so, they’re prepared to defend it in court.
"I don’t think there’s any question you would have a very long line at the courthouse door," Lindall said. "It is unwise to provoke a long and costly court battle that we feel confident the state will lose."
But some lawmakers and civic groups say the state is in such a deep hole — regardless of how it got there — that there’s no choice but to change pension benefits, even if it means having the courts clarify the constitution. Cross has said if the system isn’t changed now, pension costs will eat up most of the state’s annual revenue — and the pension funds, which already are selling assets to pay retirees, will start running out of money in less than 10 years.
"There is not enough money in the state treasury to provide the amount of unfunded liability the state has," and it can’t grow its way out of the problem, said Msall. "That’s why pension reform needs to be at the forefront of anything we do …. or it will have a horrific impact on local government as well as service providers."
James Farrell, chairman of the Civic Committee of the Commercial Club of Chicago, said he understands why state workers are upset, but says the bill would not reduce benefits for people who are retired or the benefits that current workers already have accrued.
If the state doesn’t change the law or does and loses a constitutional challenge, he said, "pension payments will continue to crowd out all other important things in the state."
But he’s still not convinced that lawmakers are ready to tackle a challenge that they’ve put off for so long.
"I’ve never been a cynical person," he said. "But on this, I’m cynical."
Lindall said he has talked with lawmakers who opposed the plan in the spring, and sees no evidence that any of them have changed their minds. Given the sour economy and political climate, lawmakers certainly will be worried about how any action, or inaction, plays with voters.
In the first week of the fall veto session, legislators’ attention was focused more on preventing pension abuses. The House approved a measure barring labor officials from taking public pensions based on their union salaries after media reports of "egregious" double-dipping.
But Cross said the larger unfunded pension crisis is prompting more s
oul-searching.
"I think the public has gotten stronger and stronger in their desire to see pension reform, and I think that has moved members as well," Cross said.
Even so, Rep. Kevin McCarthy, an Orland Park Democrat who chairs the House Personnel and Pensions Committee, said backers might not want to call the bill for a vote unless they’re sure it will pass, because "it could be more of a hindrance to get something done in the future."
If it is brought back during the legislature’s spring session, he said, "I think the support would be there with the general public."
Associated Press writers Deanna Bellandi and Christopher Wills contributed to this report from Springfield.
Copyright 2011 The Associated Press.
(AP Photo/Seth Perlman, File)
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