The Governor has called a special session for August 17th to deal with the State’s Pension Crisis. Unfortunately, I believe this is more political than substantive in nature. It is highly doubtful that a resolution on an issue as important and complicated as pension reform can be accomplished in just a couple hours on a Friday afternoon.
Why be concerned?
The State Pension System, the most unfunded in the country, now absorbs over 20% of the State’s General Revenue Budget. The pension payment this year was $6.5 Billion and continues to grow at an unsustainable rate. Each day the problem is not addressed, the debt increases by millions of dollars — making the solution even more painful.
While I do not believe this will be the final product, below are highlights of the pension reform legislation from which the House will be working during the Special Session.
Also, below are some points regarding the Democratic leader’s proposal to shift some of the pension liability to local school districts and property taxpayers.
Pending Pension Reforms: The only reform legislation that was voted on this year passed the Senate in May. HB 1447 made reforms to pensions, but ONLY to the state employees (SERS) and legislative (GARS) pension systems. This legislation is currently in the House and may be voted on when the legislature meets for Special Session on August 17th. As currently drafted, HB 1447 is limited in its scope which means limited in its impact.
- HB 1447 would require a 3/5 majority vote to pass due to the immediate effective date. (Making the likelihood of passing in Special Session less probable.)
- The reforms would ONLY affect state employees and legislators — leaving the University System, K-12 System and Judicial System untouched. This means the majority of the pension system, from a liability standpoint, would remain untouched.
- State employees, legislators and retirees would be given a CHOICE of the following:
- Keep their full 3% compounded COLA on their pension benefit. However, lose access to retiree health care . . . or
- Keep access to health care, but with a 5-year delay in COLA. As well as convert to the lesser of 3% or half the rate of inflation, NOT compounded.
- Would ban future employees of private associations from getting state pensions, including the Special Olympics, Illinois School Board Association and others.
- The estimated savings in state annual payments over the next 30 years would be $20 Billion.
The Pension Cost Shifting Issue – The three Chicago Democratic Leaders — Governor, Speaker and Senate President — continue to push for a “cost shift” as part of any pension reform (plan excludes Chicago). This plan would shift some of the State’s pension liabilities to the suburban and downstate school districts as well as to the universities and community colleges. As Republicans, we have opposed this plan knowing that just shifting liability from the State to Local property taxpayers does not address or reduce the $100 Billion-plus in unfunded liability in the pension system.
Concerns With the Pension Shift Plan as Currently Being Discussed:
- This shift would lead to local property tax hikes, cuts in local education programs and tuition increases at our colleges. This, on top of taxpayers already feeling the impact of the Democrats’ 67% income tax increase last year.
- Discussion of any cost shift proposal must be in context of a broader education funding discussion. Any shift to local property taxpayers should also be fair in its impact which means the current proposal that excludes Chicago should be changed.
- If pension costs are shifted to local taxpayers, the General Assembly (which has a long history of doing so) could enhance benefits in the future knowing local property taxpayers would have to bear the cost of that action.
- Lastly, the chart below gives some projections of what the cost to local districts and property taxpayers could be under the two different scenarios being looked at under the pension shift concept. The numbers on the chart will be considerably higher if interest assumptions are not met and if the latest mortality tables would be used.
Let me stress that doing nothing is not an option. The current system is not sustainable.
For those who are not happy with the discussion about reducing or changing benefits, I don’t blame you. However, that anger should be directed to those political leaders who made promises and enhanced pension benefits over the last 30 years — knowing full well the actuarial viability of those promises were not sustainable. More to come!