ST. LOUIS POST-DISPATCH - Saturday, January 7, 2012
BY KEVIN McDERMOTT
SPRINGFIELD, Ill. • The pension reform law that Gov. Pat Quinn signed this week was about as politically easy as pension reform gets: It outlaws double dipping by union officials who were gaming the system to secure their own six-figure public pensions.
But even as political leaders of both parties congratulate themselves on the new law, Illinois' broader pension crisis — an $83 billion shortfall in funding that is supposed to be guaranteed for retired teachers and other public employees — remains unsolved.
The ratio of Illinois' unfunded pension liability remains the worst of any state, with just 43.4 percent of the long-term pension burden currently funded. The implications were starkly defined this week, when Moody's downgraded Illinois' credit rating to A2, the lowest mark it gives to any state, citing in part the state's failure "to implement lasting solutions to its severe pension underfunding."
Republicans say the problem is an overly generous public pension system, and they point to abuses like the ones addressed in the new law.
In one case, a teachers union president retired on a $185,000 pension based on a few years of teaching in the 1970s, which allowed him to apply the state teacher pension formula to his much higher union salary. In another, two union lobbyists were able to secure inflated teacher pensions by substitute teaching for a day.
"We've learned that this is a system that is frequently abused," says Collin Hitt, senior director of government affairs at the Illinois Policy Institute, a conservative think tank.
More to the point, Hitt says, "It promised benefits to everyone that were not sustainable." Those benefits average about $60,000 a year for what Hitt calls "career educators," the biggest chunk of the public retirement system.
But union officials and Democrats say those abuses are aberrations in a system that, overall, isn't unduly generous, averaging just $32,000 a year per retiree in annuities when it takes into account all public employees.
The problem, union supporters say, isn't that the workers are getting too much but that state leaders have been shortchanging the system for a generation, avoiding tough budgetary choices in lean years by failing to make the pension fund payments they were supposed to make. The failure to adhere to that payment schedule, they say, is what dug the hole that some now want to fill by cutting workers' benefits.
"The problem is not the cost of benefits. The problem is the failure of politicians to make adequate contributions over decades," says Anders Lindall, spokesman for Illinois' chapter of the American Federation of State, County and Municipal Employees. "Rather than raising adequate revenue or cutting services (to address budget shortfalls), they simply skipped the required pension payments."
In any case, the result of the shortfall is a state pension payment that this year will hit almost $5 billion — about 10 percent of the total state budget. The majority of that money is needed for the postponed backlog of previously missed payments, and interest on that debt, rather than for current contributions.
Union supporters say the solution is to pay up on that shortfall, even if it means raising taxes.
"It's time ... to ask rich people to pay their fair share" by instituting a graduated income tax in place of Illinois' current flat-rate 5 percent tax, said Lindall. The idea would be to use the additional income from that new tax system to fill the pension shortfall.
But doing that may be difficult in a state that just recently imposed an income tax hike last year.
Another approach is laid out in pending legislation that would cut the state's obligation for front-end payments on pension benefits of current public employees, requiring them to pay to keep to their current benefits or accept lesser benefits. A third option would be for them to go to a 401(k)-type investment plan.
"I don't think we can afford not to see something this spring," said House Minority Leader Tom Cross, R-Oswego, co-sponsor of the bill.
He and other supporters stress that the changes would affect only current workers' accrued benefits going forward, and not retroactively.
That kind of reduction in benefits was recently imposed for future hires on Illinois' public payroll. But the suggestion of requiring it of workers already on the public payroll is controversial and possibly unconstitutional.
Even some of those who say they favor the change in concept argue that changing the benefit structure of current public employees, without an agreed-upon contract change would be struck down by the courts — if it can get out of the Legislature first.
"I don't think there is a firm indication of enough bipartisan support to pass this bill," said Steve Brown, spokesman for House Speaker Michael Madigan, D-Chicago, who is co-sponsor of the bill but hasn't yet called it in the House. "Speaker Madigan remains supportive of the effort, but it's not going to happen overnight."
Senate President John Cullerton, D-Chicago, is suggesting a third course: bargaining with unions to secure their agreement to changes like the one envisioned in the bill, which would negate a constitutional challenge.
"He wants to work with the unions, not against them," said Cullerton spokesperson Rikeesha Phelon.
Of course, that would likely be a tough sell to union officials who believe that the core problem, as AFSCME's Lindall puts it, is that "the state has not paid its fair share for decades."
As legislative leaders hash out how to handle the problem, it isn't going away. The Illinois Policy Institute last week released a study showing that Illinois this year will spend $2 billion on retirement costs for higher education, which will "almost certainly" surpass what the state sends to higher education for other purposes — the first time that has happened.
(The bill to change benefits for current public employees is SB512).
David Nicklaus of the Post-Dispatch contributed to this report.