CHICAGO – State pension legislation that could shave $1.25 billion off the Illinois' fiscal 2018 contributions and provide $215 million in one-time pension help for Chicago Public Schools cleared a state House committee.
Dueling bills that offer identical proposals passed the Personnel and Pensions Committee late Tuesday but their fate on the House floor is uncertain given the ongoing state budget impasse.
“I think it’s time for us to move forward and get another proposal back before the General Assembly and obviously before the courts,” said House Minority Leader Jim Durkin, R-Western Springs, who is sponsor of House Bill 4027. Rep. Barbara Flynn Currie, D-Chicago, is sponsor of House Bill 4045.
The bills are modeled after plans previously debated that have been stuck in the state’s nearly two-year-old budget gridlock. They also closely mirror a Senate proposal that’s part of the bipartisan “grand bargain” budget fix that remains under negotiation there.
Senate voting on that package will resume Wednesday.
The House bills would provide $215 million in one-time help for CPS to help cover its more than $700 million payment owed to its teachers’ fund next month.
Gov. Bruce Rauner’s veto of pension aid for the district -- which was tied to passage of state pension changes -- prompted a funding crisis for the district that put the school year at risk. Chicago Mayor Rahm Emanuel’s administration is working on a plan to help cover the deficit and more than $400 million in state grant payment delays.
The bills use what’s referred to as the “consideration model” crafted by Senate President John Cullerton, D-Chicago. Supporters believe it will pass state constitutional muster where other changes have failed.
Members of four of five of the state pension funds and the Chicago teachers fund would be offered a choice. If they agree to cost-of-living-adjustment cuts, their pay increases will continue to count toward their pensionable salary. They would receive a 10% refund of their employee contributions and they would pay less annually into the fund. If not, raises would no longer count.
The state judges' fund is left because the courts will decide any legislation's legality.
No savings are expected in the next fiscal year because unions have threatened to challenge the changes, which they argue would violate the state constitution’s pension clause that protects member benefits from being impaired or diminished. Future savings are estimated at $1 billion annually.
Supporters argue the plan can pass the test because a choice is offered, but numerous union representatives and lawyers made the opposite argument at Tuesday's hearing.
Employees don’t really have a choice that doesn’t involve an unconstitutional benefit cut, argued Dan Montgomery of the Illinois Federation of Teachers. “This is a forced diminishment,” he told the committee.
“One party cannot change the rules,” said attorney John Stevens, who represents the We Are One union coalition. “There’s no mutual consent…they are forced into a choice” with no option for simply leaving their current benefits in place.
Backers counter that the continued counting of raises toward pensionable salary is not a guaranteed pension right and so the state can use it to offer the choice.
Other changes in the legislation include a phasing in of assumption changes made by the pension fund boards such as the rate of return. Payroll from later hires in the state’s Tier 2 pension plan would be included when determining annual pension contributions. The state would shift the contribution costs for higher paid employees in the teachers’ fund and state university fund to the local employer and it would curb end of career salary spiking.
Those pieces could save an estimated $750 million annually beginning in fiscal 2018.
A defined contribution plan similar to a 401(k) would be offered to a limited number of employees and a new Tier 3 hybrid defined benefit/defined contribution plan that would be offered to some plan members would be established.
The governing bodies of Chicago’s four pension funds, its sister agencies, Cook County funds, the Metropolitan Water Reclamation District, and Illinois Municipal Retirement Fund could also establish a Tier 3 Hybrid plan.
The new hybrid plan could save $500 million annually beginning in fiscal 2018.
Pieces of the plan could be severed so they remain intact if other pieces are found unconstitutional.
The hearing followed bickering between Rauner and House GOP members and the House Democrats who unveiled various non-budget reform proposals portrayed as an effort to meet Rauner reform demands. Currie questioned why Rauner had not responded to House members’ request for meetings on those reforms.
Rauner accused House Speaker Michael Madigan, D-Chicago, of trying to derail Senate “grand bargain” talks by pursuing the separate package. “House Democrats under Speaker Madigan have shown really no good faith, willingness to engage in negotiations with true change, true reforms to our system,” Rauner said.
Voting is expected to resume Wednesday on the “grand bargain” which includes bills that would raise taxes, enact procurement reforms, expand gambling, authorize fiscal 2017 appropriations, and allow for more local government consolidation. It would also authorize short term borrowing to pay down a portion of the state’s backlog that the state comptroller said Wednesday has risen to $14.3 billion.
Republicans are expected to withhold their support as they’ve yet to settle their differences on several issues including the length of a local government property tax freeze and worker’s compensation reforms.
The Democrats are also expected to de-link the bills so that any one bill that wins approval can move on to the House. Previously the more than 10 bills that make up “grand bargain” were linked so all needed to pass. The Senate also will attempt to pass the current version of negotiated fiscal 2018 budget that is balanced with cuts, savings, and tax increases. Republicans are expected to oppose it because of their demands for passage of non-budget reforms that have yet to be finalized in the “grand bargain.”