Lawmakers have tinkered on the edges of the state budget during the fall veto session, but it now appears they could close shop for the year on Thursday without plugging the deep hole at the budget’s core: Illinois’s underfinanced pension systems.
Pension reform has been one of the most contentious issues of this legislative session. The Civic Committee of the Commercial Club of Chicago has engaged in sharp-elbowed lobbying to increase workers’ pension contributions and sponsored a $1.5 million television campaign, under the name “Illinois is Broke.” Unions brought hundreds of state workers, teachers and police officers to Springfield two weeks ago to shout down plans that would force them to pay more toward their pensions.
The problem is severe. By not contributing adequately to its pension systems for decades, Illinois has racked up an estimated $139 billion in obligations, $85 billion it cannot pay. Resources that have been set aside meet only about 38 percent of pension liabilities, according to the nonpartisan Commission on Government Forecasting & Accountability. The Pew Center on the States has called Illinois’ pension problem the worst in the country.
Lawmakers are concerned that what the state owes to future retirees is playing havoc with the budget. State law requires Illinois to catch up with its pension payments by 2045, an effort that could cost the state $20 billion a year starting by then. And the sale of $17.2 billion in pension bonds in recent years has helped raise the state’s indebtedness and brought Illinois’s credit rating to the brink of junk status.
The focus of the pension controversy this week — Senate Bill 512, which would require current state workers to pay more toward their retirements — was held over from the spring session because legislative leaders lacked the votes to pass it. Speaker Michael Madigan, the Democratic majority leader in the House, and Tom Cross, the minority leader, hosted meetings and public hearings about it over the summer. Each committed to line up at least 30 votes, enough for House passage.
Even if the bill passes the House, the Senate president, John Cullerton (D-Chicago), has said he believes it is unconstitutional.
Interviews with legislative leaders, union officials and business leaders suggest that a vote will probably not take place this week. Pressure from organized labor, incumbents’ nervousness about running for re-election in new districts, concern over inciting primary-election challenges and legislators’ penchant for delay when facing politically treacherous issues are creating a strong headwind.
Ultimately, one person will decide whether to call the pension bill for a vote: Madigan. According to legislative and business leaders who have spoken to him, he has not revealed his plans. “This might be something he’d rather do in the spring, but he has not expressed that to me,” said Cross, who is sponsoring the bill with Madigan. “He doesn’t always explain to you what he’s going to do.”
Cross, Madigan and other legislative leaders met twice last week, but the pension bill was not directly addressed in either session, participants said.
If Madigan does not call the bill for a vote, pension overhaul will be put off at least until the legislature convenes in January. At that point, a delay until after the March 2012 primary may be inevitable, to spare lawmakers making a potentially troublesome vote just before their constituents go to the polls.
Tyrone Fahner, the Civic Committee president, deplored any delay. “This all comes from basic cowardice, and I mean that word sincerely,” he said.
The Civic Committee estimates that a delay into the spring session would tack on an additional $7 billion in unfinanced liabilities and interest on pension bonds.
“The situation only gets worse,” said Fahner, a former state attorney general and former chairman of the Mayer Brown law firm.
The bill is still being amended. As written, it would require current state workers, General Assembly members, judges, university staff and teachers to help ease the state’s pension crunch by paying more toward their retirements.
Workers enrolled in the state’s five pension funds would choose among three options. To receive the same benefits currently guaranteed them, they would need to pay anywhere from an additional 4.37 percent for teachers to 23.04 percent more for General Assembly members. They could also choose to switch to a defined-benefit plan, which would require them to work longer to receive a higher benefit.
Or they could pay less into a defined-contribution plan, which would move them into a 401(k)-style investment vehicle with a 6 percent contribution from employees and a 6 percent match by the state.
By giving workers choices and focusing on contributions rather than on benefit cuts, the bill’s supporters hope to comply with a clause in the State Constitution that defines a pension as a contractual commitment, “the benefits of which shall not be diminished or impaired.”
Proponents say the Senate bill gets around the constitutional issue by asking employees, in effect, to volunteer for any changes. They also argue that increased contributions are not technically the same as benefit reductions. Union officials scoff at both suggestions.
“It’s volunteering with a gun to your head,” said Henry Bayer, executive director of the American Federation of State, County and Municipal Employees Council 31, a leader of the union opposition to the proposed changes.
The dispute over constitutionality has led to a war of writs between corporate-backed proponents of change and the labor-led opposition. Eric Madiar, chief legal counsel for Senate Democrats, in a 76-page legal brief cited transcripts from the 1970 state constitutional convention, case law and other primary sources as evidence that pension benefits could not be reduced from the moment a worker is hired through retirement.
The Civic Committee hired a legal team led by a leading appellate lawyer, David W. Carpenter, and argued that a legislature required to protect the state’s general welfare could not commit fiscal suicide by a blind adherence to pension obligations.
Union leaders warn lawmakers to get the constitutionality issue right. “You pass a bill like 512, and we’re going to be in court for two years,” Bayer said. “We’re going to be successful, and then we’ve delayed for two years and we haven’t begun to solve the problem.”
Union members are flooding lawmakers’ offices with phone calls and angry e-mails. Hundreds of state workers, teachers and police officers staged a protest in October, chanting, “We paid our share; you pay yours.”
“Honor the agreements that we have in place,” said a protester, Dan Dunlap, president of A.F.S.C.M.E. Local 1133 in Dwight. “The money was there when the agreements were put into place. They need to find the money that they squandered.”
While Madigan’s game plan is difficult even for insiders to read, he could move quickly. In March 2010, Madigan and Cullerton pushed through a significant pension reform bill, moving the proposal through committees and onto the floor for passage in a single afternoon.
Madigan’s spokesman said the speaker would call Senate Bill 512 as soon as Cross signaled he was ready. Yet without confirmation from Madigan that he will have the 30 Democratic votes needed for passage, Cross is likely to wait.
“When our friends on the other side of the aisle are ready, we’ll be there,” Cross said. “I’ve been living this issue for so long. I’m ready to get it done.”
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