CHICAGO — A group of prominent Illinois-based civic groups Thursday banded together to intensify pressure on lawmakers to act now during a special legislative session to overhaul the state’s pension system weighed down by $95 billion in unfunded obligations.
The Civic Federation of Chicago, the Metropolitan Planning Council, and the Better Government Association along with several other civic and business groups gave their backing to House Bill 6258 floated last month by a bipartisan group of House members as a framework for reforms.
“We strongly urge the General Assembly to take up this bill now. Illinois lawmakers owe it to state employees, retirees and taxpayers to embrace this opportunity for reform and start securing a stronger financial future for our State,” said Civic Federation president Laurence Msall said.
The plan limits cost of living increases in retiree annuities, phases in an increase in the retirement age for some employees, increases employee contributions, imposes caps on pensionable salaries, and gradually shifts from state coffers the cost of funding local school teachers’ pension to districts.
The proposed plan is aimed at fully funding four of the state’s five funds at a 100% ratio by 2043. The package includes a legally enforceable provision that the state meet its required contributions. The funds are currently funded at just a 40.4% ratio.
The latest reform plan –if adopted and it survives a likely legal challenge by unions – could shave about $28 billion off the state’s $95 billion of unfunded liabilities. If the new actually-based funding schedule based on the changes was adopted the state’s fiscal 2014 scheduled pension could be lowered to $4.4 billion from $6.2 billion.
“Getting Illinois on sound financial footing is critically important not only to run state government day-to-day, but also for a strong economy that attracts businesses and supports healthy communities,” said Metropolitan Planning Council president MarySue Barrett.
The groups all cited the watchful eyes of the rating agencies, noting the state’s increased borrowing costs due to its pension woes.
Unions have called the proposed changes unconstitutional contending they violate state law that affords strong contractual protections for pensions benefits and some other civic and watchdog groups have warned the package does not go far enough to overhaul pensions.
The state Senate began meeting in a lame-duck session this week and the House convenes on Monday ahead the swearing in of a new General Assembly on Jan. 9. Gov. Pat Quinn has pressed lawmakers to act now during the lame-duck session. “Illinois lawmakers must take heed and act quickly in this Jan. 2 – 8 session to address our state’s own fiscal cliff,” Quinn said in a statement Wednesday. “Illinois cannot move forward without pension reform.”
Moody’s Investors Service last month revised its outlook on Illinois’ A2 general obligation rating to negative from stable, warning that the state’s massive pension obligations will likely worsen over the near term. The pressure on the state’s balance sheet is heightened by the partial sunset in 2015 of a state income tax hike. Standard & Poor’s rates Illinois’s $32.8 billion of GO debt A with a negative outlook. Fitch Ratings assigns an A rating and stable outlook.
A recent state mandated independent actuarial analysis of the state’s pension funds conducted by Cheiron Inc. affirmed the various funds’ latest data and fiscal 2014 payments but it also recommended that three of the state’s five funds reduce their assumed annual investment return rates in the future. The report notes that the total requested payments in the next fiscal year is $6.87 billion.
Cheiron also agreed with the recommendations of the various systems which have suggested moving to a funding schedule that fully funds the system in a shorter time frame, according to the report on state Auditor General William Holland’s website. The current plan adopted in 1995 adheres to a schedule to put the state at a 90% funded ratio in 2045.
All of the funds lowered their assumed rates between .50% and 1 % in recent years and they now range between 7% and 8 %. Cheiron recommended that those at 7.75% to 8 % consider further reductions.