Illinois pension reform: The time has come
September 16, 2013 9:28AM
Michael Madigan, John Cullerton
Updated: October 17, 2013 6:12AM
A group of Illinois lawmakers has had all summer to drum up a new plan to cut public employee pension costs.
They’re close, with the outlines of their plan already public. The moment has come to put on the finishing touches — and that should include a last drive to lower the percentage of the state’s annual budget eaten up by pension costs.
There’s no reason this can’t happen this week, which would prod Democratic leaders Michael Madigan and John Cullerton to call a special session by the end of September. A last resort would be to move a pension bill during the fall veto session that begins Oct. 22.
This year, just to keep up with a growing $100 billion unfunded pension liability, lawmakers devoted 22 percent of the state’s general revenue fund to pension costs and pension debt. A bite that size wreaks havoc on everything else the state does, forcing cuts to schools, prisons and public health.
The bipartisan pension committee plan includes percentages that would hover between 21 and 24 percent until 2038, before dropping precipitously. (The percentages would drop if legislators extended the current income tax increase).
That is simply too high.
We accept that the percentage bite of the state’s general revenues will be — must be — significant. Even under SB1, a more aggressive cost-cutting bill that was defeated last spring, the percentage of the budget spent on pensions would have ranged between 18 and 20 percent until 2033.
There is no way to responsibly pay down debt without a large annual investment, unless you are prepared to decimate public employee pensions. Not only would that be wrong, it’s unlikely it would hold up in court given the state’s constitutional clause that protects pension benefits from being diminished.
We applaud the committee’s commitment in its 30-year solvency plan to aggressively pay down the state’s debt. They refuse to fall into the trap that has sunk Illinois time and time again: counting future savings today as a way to avoid making big payments in the short term. The result? The savings never materialize, no one wants to pay the bills in the out years and debt only balloons.
The pension plan also calls for funneling dollars that now go toward pension borrowing debt directly into the pensions once that debt is retired in 2019 and 2020. The demands on that money will be great and lawmakers are smart to earmark it in advance.
We’re all for front-loading payments, then, but believe there are still ways to bring down that 20 percent plus figure.
The core of the committee’s plan is reducing retiree annual cost-of-living increases, which is where the big dollars are, far more than in raising the retirement age or asking employees to contribute more to their pensions. The plan calls for freezing cost-of-living increases for a few years and then cutting the current 3 percent compounding COLA to half the size of the consumer price index, which today would be about 1.5 percent. The increase, though, still would be compounding. It’s worth reconsidering full compounding.
The committee also could reconsider limiting how much of an employee’s salary counts toward their pension and raising the retirement age some, relatively modest cost-savers featured in previous pension plans.
This is not to say the savings generated by the committee’s plans aren’t meaningful — they are. The pension committee set out to find a compromise between a plan advanced by the unions and Senate President Cullerton and a plan — SB1 — backed by House Speaker Michael Madigan.
There is no question the compromise leans far more heavily toward Madigan’s plan. Here, for comparison purposes, is how much that $100 billion in unfunded liability immediately would be reduced under each of the three plans: About $27 billion for Madigan’s; about $20 billion for the committee’s plan; between $5 and $9 billion for Cullerton’s. Over 30 years — a less reliable estimate — the savings would be $163 billion for Madigan’s plan, about $140 billion for the committee’s plan and about $57 billion for Cullerton’s.
The pension committee has come a long way — just a few more steps and they have slain Illinois’ pension debt dragon.