Illinois Gives Plan Details for Bailout of Pensions
Published: November 29, 2013 - New York Times
CHICAGO — Seeking to repair one of the nation’s
worst-financed public pension systems, legislative leaders in Illinois on Friday
began urgently trying to sell a rescue plan that cuts cost-of-living increases
for retirees, raises the age of retirement for some employees, and sets a cap on
pensions for those with the highest salaries.
The details of the proposed deal to save $160 billion
over 30 years were handed out to rank-and-file lawmakers as the state’s leaders
sought to solve the state’s pension crisis and move beyond many months of
contentious debate. But the deal, announced without any detail on Wednesday,
seemed certain to create a showdown in the capital, Springfield, next week.
Around the nation, officials wrestling with rising
pension costs and underfinanced systems will be watching closely to see if
Illinois, a populous state under the control of Democrats and the home of
President Obama, is willing to challenge labor. For Democrats especially, given
a long alliance with unions, the notion of slashing retirement benefits to
bolster pension systems is politically difficult.
For many state and local governments, pension costs
have become a central challenge with no easy political or legal answers. Detroit
officials have cited $3.5 billion in unfunded pension costs among a list of
debts that has left that city seeking federal bankruptcy protection. In San
Jose, Calif., Chuck Reed, the Democratic mayor, championed efforts to pass a
referendum to reduce pension benefits, though city workers say the move is
illegal. The mayor now says he hopes to mount a statewide ballot initiative next
year that would change the state Constitution to allow cities to cut pension
benefits.
Under the plan being debated in Illinois, the state
would be required to make additional payments into the pension system until it
is fully funded, no later than the end of 2044. Workers who are 45 or younger
would need to retire later — working as much as five years longer, depending on
their age. And cost-of-living increases would apply only toward a portion of a
person’s pension in many cases, under a formula based on how long they held
their job.
While top legislative leaders of both parties here say
they are working to win enough votes to pass an overhaul many fiscal experts
call necessary, if painful, labor leaders denounced the plan as “catastrophic,”
and written behind closed doors without public comment. They said they intended
to lobby lawmakers against it at every opportunity before a vote during a
special session scheduled for Tuesday.
“This is a grotesque taking of employees’ retirement
security that seems both patently illegal and unfair,” said Daniel J.
Montgomery, the president of the Illinois Federation of Teachers.
“It’s a sharp jab in the eye — and the heart — of public employees. There’s a
lot of anger out there.”
For years, the state has wrestled with an overwhelming
pension problem. The system is underfunded by $100 billion, helping to make
Illinois the state with the worst credit rating in the nation. That has meant,
according to a
recent report, that about 20 cents of every taxpayer dollar must be
dedicated to pensions, money that could go to other state needs.
Still, answers have been hard to come by. Democratic
leaders in the legislature have long disagreed about how to solve the problem
without infuriating labor unions and how to navigate the Illinois Constitution,
which prohibits pension benefits from being “diminished or impaired.”
Gov. Pat Quinn, a Democrat who is expected to have a
difficult re-election challenge in 2014, has repeatedly put solving the pension
crisis at the center of his agenda, and leaving the issue unaddressed would
offer endless fodder for a strong cast of Republican candidates who want his
job. Rahm Emanuel, the mayor of Chicago and a Democrat, has also vehemently
urged lawmakers to change the state system, and, in so doing, to create a model
for changes to the deeply underfinanced pension system in his own city, the
state’s largest.
Still, in what was perhaps a sign of how politically
delicate the issue is, the special session was called for Tuesday, a day after
the filing deadline for any primary challenges. That means lawmakers will know
which of them might be most vulnerable to an election fight if they approve the
measure.
If some Democrats were worried that the proposed
changes go too far in cutting benefits for unions, some Republicans were already
suggesting that on the contrary, the plan does not go far enough or fully fund
the pension system as quickly as they would like. But Christine Radogno, the
state Senate’s Republican leader, said in an interview, “I really believe that
it has become more of a political liability not to solve this than it is to
solve it.”
Leaders on both sides of the aisle, she said, were
busy counting votes and urging their rank-and-file members to support the plan.
“This does set the state on sound financial footing,”
Ms. Radogno said. “It doesn’t erase the unfunded liability in one fell swoop,
but it certainly puts us on a path to get it paid off in a minimum of 30 years.”
Among the provisions laid out Friday: most pension
matters would no longer be part of collective bargaining; some workers could
choose to switch to a defined benefit system, like a 401(k), rather than their
pension; and workers would be asked to contribute 1 percent less of their
salaries to retirement.
But union leaders, representing some of the thousands
of state employees, teachers outside of Chicago and university workers whom the
proposal would affect, said the changes to cost-of-living increases appear the
most drastic. Current workers would be asked to skip some increases to their
pensions — as many as five times over a decade for the youngest among them.
A new formula further limiting those increases would
be devastating to many, the union leaders said. According to a coalition of
unions, known as We Are One
Illinois, the result would be a loss of thousands of dollars in pension
payments, on average, to a retired teacher or nurse over the next five years.
“If we’re not successful in stopping this train, then
our next step is litigation,” said Anders Lindall of the American Federation of
State, County and Municipal Employees.