PI Original Adam Doster Thursday March 25th, 2010, 12:10pm

Illinois' "All-Out-Offensive" On Union Pensions

Organized labor is furious over the pension bill that was rushed through the General Assembly yesterday. They have reason to be.

Well, that was fast.

In the blink of an eye yesterday, the General Assembly passed (by a wide margin) a historic overhaul of Illinois' public employee pension system. Facing the possibility that the state's bond rating might be downgraded next month when the state borrows about $1 billion to fund a portion of the capital construction plan, the Democratic leadership whipped into action, tossing together legislation that whizzed through the Statehouse in less than 12 hours.

It's important to remember that these cuts do not effect current employees; opening those contracts (the benefits are outlined here) would likely violate the state's constitution. The changes only apply to new hires in 13 of the state's systems. So let's review what the bill does and how much money the Pension Modernization Task Force estimates the changes will save between 2010 and 2045:

* Raises the retirement age at which workers can receive full benefits to 67. Currently, teachers and legislators can retire at 55 while other workers can hang it up at 60.  Estimated savings: $88.3 billion.

* Limits the salary level on which pension benefits are based to $106,800 to cut down on the small number of lucrative packages. Estimated savings: approximately $30 billion.

* Limits post-retirement cost-of-living adjustments to half the rate of inflation or 3 percent, whichever is smaller. Estimated savings: $12 billion.

* Bases pension benefits on the highest average salary earned during eight consecutive years of pay rather than four years. Estimated savings: $4.5 billion.

* Prohibits "double-dipping, in which a worker collects a pension from one system and then draws a salary from another system. Estimated savings: Unknown

Keep in mind that the legislation exempts police officers and firefighters, so the task force's estimates might be a little liberal. Also, the vast majority of cost savings won't be realized for another 35 years or so, when the first batch of new employees retire. The Commission of Government Forecasting and Accountability projects that the bill will save the state between $500 million and $1 billion next fiscal year, not nearly enough to close the state's budget deficit.

Democratic leadership, including Gov. Pat Quinn, is firmly in support of the bill. Republicans approved it without issuing major complaints. It pleased business groups like the Illinois Chamber of Commerce, as well.

Organized labor, on the other hand, is furious over the legislation -- and with good reason. Illinois' current level of benefits are modest and in line with other states in the region. The primary reason the state’s pension system is so out of whack is that state lawmakers -- instead of reforming the tax system to raise revenue sustainable and fairly -- have skimped on payments for decades, using money designated for the pension system to cover core services. In short, lawmakers misrepresented the problem instead of owning up to their own failures. And in devising a political solution, they threw their key allies under the bus. "This bill is nothing more than lawmakers shifting the burden of the state’s past mistakes onto future teachers and public employees," Ed Geppert, president of the Illinois Federation of Teachers, told the Sun-Times. "The problem of our pensions," echoed AFSCME Council 31 president Henry Bayer, "is not a problem of rich benefits."

The bill also leaves unanswered some critical policy questions. The cost-of-living adjustment, as the Sun-Times editorial board argues, is way too severe. (We've previously investigated the faulty math behind this reform proposal.) On the retirement age provision, is it fair or practical to keep teachers or construction workers working until their late 60s? If teachers accrue more seniority, will those salaries burden local school districts further? (Higher a 22-year old college graduate is much cheaper than keeping on staff a 66-year old veteran.) And why are we supposed to believe that this reform will do anything to prevent lawmakers from pushing aside pension payments in the future?

This legislative action begs one more crucial question: Will Republicans agree to fundamental tax reform in lieu of this big economic "reform," which experts agree is the only way Illinois can close its unfunded pension liability? For months, the GOP has complained that the Democrats needed to prove they were serious about cutting spending and implementing economic reforms before the legislature raised the state's income tax. Last year's budget slashed spending by $2 billion. Gov. Quinn's FY 2011 budget proposal does the same. Now, the Assembly has passed "pension reform," chief among the GOP's political (and largely empty) demands. Speaker Madigan won't move without them. Will this force them to act responsibly?

Not likely. This Tribune editorial should give a good indication of where the Republican caucus' head is at:

What the politicians can't pretend, though, is that this bill repairs how Illinois spends money today. Until they've made the major spending reforms that this page and other voices keep advocating, Gov. Pat Quinn is free to keep scaring people with his threat to slash education funding by $1.3 billion.

Moving on from Wednesday's action to real pension reforms affecting current employees should, by itself, mean school districts wouldn't have to fire all those thousands of teachers.

Changing how Illinois spends today also should silence Quinn's call for a tax increase — something this jobs-starved state should avoid if at all possible.

Yesterday, an AFSCME action alert called the bill "the first step in an all-out offensive to drastically reduce public employee pensions." It's hard to see disagree with them. And we still aren't anywhere close to solving the economic crisis this bill ostensibly addresses.


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