CHICAGO — Democratic and Republican backers of legislation to fix Illinois’s pension mess portrayed it as landmark legislation that represents the best shot at both stabilizing the system and the state’s fiscal foundation. Unions attacked it as unfair and unconstitutional.
Many of the comments came during a hearing held Tuesday by the legislative conference committee established in June to craft a compromise proposal aimed at resolving a political impasse that has blocked action for two years.
The state’s $100.5 billion unfunded liability tab and inaction on reforms have dragged the state’s general obligation rating down to the weakest among states and driven up borrowing costs for the state and most other borrowers located in Illinois. Rising annual payments are blamed for crowding out spending on education and public health and safety.
The sole hearing on the new package agreed to by the General Assembly’s four leaders just last Wednesday adjourned after two-and-half hours, setting the stage for what’s expected to be a heated debate ahead of votes in the Senate and House later in the day. The committee on Monday had approved the bill forwarded by the leaders.
The bill, which cuts benefits, revises the state’s funding structure, and guarantees state contributions, is estimated to shave $160 billion off expected state payments with full funding achieved in 30 years. It could trim $1.5 billion off the state’s near-term scheduled annual payments.
“We have before us the best opportunity” to enact reforms in a bipartisan fashion, Gov. Pat Quinn’s acting budget director Jerry Stermer told the committee. “This is a reasonable compromise that will stabilize the system” and restore the state’s fiscal position while protecting funding for state services.
Three of the four legislative leaders attended the hearing and spoke in the bill’s favor. House Speaker Michael Madigan, D-Chicago, defended the changes to the cost-of-living adjustment which would end the current automatic 3% compounded annual COLA. “We all acknowledge the reason we are here today is that Illinois pension systems are just too rich to be afforded as the state goes forward,” Madigan said.
Madigan said the proposed COLA change is designed to lessen the impact on long-term, lower income workers. Those with fewer years of service and higher annuities would suffer a greater impact.
While the benefit cuts will trim the state’s contribution levels overall, the legislation calls for the state to make supplemental contributions in addition to annual scheduled payments. Those funds will come from revenue that will be freed up after 2019 when debt service on existing pension-related borrowing is retired and from savings expected under the new schedule.
“This bill is a well thought-out balanced response to the problem,” Madigan said.
Republican Senate Minority Leader Christine Radogno, of Lemont, warned that lawmakers must “seize” the moment because without action the state faces further rating downgrades.
Democrats hold a majority in the General Assembly, but opposition and support for the reform package transcends political affiliations with unions lobbying members hard to reject it.
State Sen. Bill Brady, R- Bloomington, who sat on the conference committee and is running for governor in next year’s election, highlighted the difficult balance lawmakers are trying to achieve between preserving pension benefits and curtailing the growing strains of on the budget.
“It puts us in a very difficult position” because pension payments will eventually consume 26% of the general fund, said Brady, who supports the legislation.
A number of civic and business groups that have long pushed for reforms endorsed the plan. Ty Fahner, head of the Civic Committee for the Commercial Club of Chicago, in testimony Tuesday called the legislation a “good bill and a fair bill” that stabilizes the system.
The group including the Civic Committee, The Chicago Civic Federation, the Chicagoland Chamber of Commerce, and Metropolitan Planning Council issued a statement calling the legislation a “significant step forward” in addressing the state’s fiscal challenges and solving the “pension crisis.”
A handful of union and retiree representatives attacked the legislation during the hearing, warning of the dire impact on benefits. They expressed confidence the courts will side with them and rule the cuts violate the state constitution.
“The cuts are so deep we call it theft,” said Dan Montgomery, president of the Illinois Federation of Teachers. He argued that ultimately the plan won’t result in any savings and that all parties will be back to square one a year from now after the courts have their say. “We feel it’s blatantly unconstitutional.”
Unions have also questioned the savings projections, the sturdiness of the so-called funding guarantees in the legislation, and the cap on pensionable salary levels that doesn’t take into account overtime work that is sometimes mandatory. They also dislike a provision that eliminates collective bargaining on pension benefits.
The state constitution considers participation in a retirement system an enforceable contractual relationship for which the benefits can’t be diminished or impaired. The backers of the plan are banking on several arguments to support the challenge threatened by unions.
Contract law allows for alterations in some cases when either accepted by the parties or when consideration is offered. The plan’s authors believe that a cut in employee contributions, the funding “guarantees” in the law, and the infusion of new revenue offer annuitants “consideration” for the reduced benefits.
Unions dismissed that argument during the hearing, saying those provisions don’t make up the lost value of their benefits.
The state also will argue that without change the system is insolvent and there’s no solution absent the proposed overhaul. Madigan laid out a lengthy preamble to the bill designed to make the state’s case on that front.
Unions are not the only critics of the plan. Several Republicans in the 2014 governor’s race slammed it, as have some Democratic and Republican congressional representatives. Some said it won’t solve the state’s pension mess over the long term, while others expressed concern over the impact on public sector retirees and workers and its constitutionality.
State Treasurer Dan Rutherford, who is seeking the Republican nod for governor, said in a statement: “Having examined the information available, I do not support the current legislation. I do not believe it will withstand judicial review should it pass the Illinois General Assembly.”