Unions Blast Proposed Pension Reforms in Illinois

CHICAGO — A coalition of public unions attacked pension reform plans floated by Gov. Pat Quinn and lawmakers as unconstitutional and offered to increase their contributions if the state guarantees to annually fund its share needed to shore up the system.

The group — known as the We Are One Illinois coalition — said Wednesday the state could raise more funds to cover its own contributions by halting some corporate tax benefits and imposing a range of new taxes to generate $2 billion annually for pensions.

In exchange state workers would pay 2% more, raising about $350 million annually. The unions also want an iron clad guarantee that the state doesn't take future pension holidays.

"The workers in Illinois want a real pension solution and we invite the state's political leaders to work with us in finding real solutions that can be enacted soon," said Dan Montgomery, president of the Illinois Federation of Teachers. "There is no doubt that a long-term pension solution is a long-term fiscal solution and that must involve truly shared sacrifice."

The state is struggling with $97 billion of unfunded pension obligations for a funded ratio of just 40% and faces payments that are growing by more than $1 billion annually. The state's pension woes have contributed heavily to a round of rating downgrades and to interest rate penalties imposed by investors on state debt sales.

Moody's Investors Service late last week revised its outlook on Illinois's A2 general obligation rating to negative from stable, warning that the state's pension obligations will likely worsen over the near term.

Pension reforms stalled over the spring and summer and lawmakers are slated to return to work early in January to possibly hammer out a package although Republicans and Democrats remain divided over key pieces of any plan.

Quinn has proposed cutting cost-of-living increases and other benefit changes along with gradually shifting the cost of teacher pension contributions on to the backs of local districts from the state. His plan asks employees to shift to the new plan in exchange for preserving their retiree healthcare subsidies. A group of lawmakers recently floated their own plan that cuts COLAs and other benefits, raises the retirement age, and employee contributions.

Any reforms that are enacted face likely legal challenges due to state constitutional language that affords strong contractual protection to promised retiree benefits.

The coalition Wednesday took aim at the proposals labeling them unconstitutional because they would trim benefits already promised to employees. The group warned the proposals would have a devastating impact on retiree incomes, draining $3 billion in economic activity. Coalition officials called on state officials to hold a summit to discuss viable reforms.

When asked about the unions' proposals at an unrelated news conference, Quinn said: "We always want to look at everything … it's useful to look at everybody's ideas."

"We want to work with the labor unions," but taxpayers come first, he added. "I'm optimistic we can come up with a fair plan."

Standard & Poor's rates Illinois general obligation debt A with a negative outlook. Fitch Ratings assigns an A rating and stable outlook.

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