CHICAGO – A special Illinois legislative committee charged with solving the state’s pension crisis meets again Wednesday, after a more than four-hour hearing Thursday provided little indication of how the committee will accomplish its task and raised doubts over meeting Gov. Pat Quinn’s July 9 deadline.
The Conference committee chairman, Sen. Kwame Raoul, D-Chicago, suggested the committee move away from focusing on one of two rival plans before the General Assembly. “We’ve reached an impasse” on those two proposals, he said, adding that focusing on them alone won’t “solve this problem.”
Raoul wants to explore “a universe of options” in addition to tinkering with existing ideas.
The conference committee is made up of 10 lawmakers: six Democrats and four Republicans. Quinn pushed for formation of the committee when it became apparent that no action was to be taken on pending reform plans during a special session June 19. The governor set a July 9th deadline for the group to come up with a compromise that can be acted by the General Assembly.
Raoul and other committee members suggested the deadline was too ambitious but the aim would be to reach agreement on a plan in weeks not months.
“I can’t make any such commitment” on a July 9th date, Raoul said suggesting that imposing such deadlines sets lawmakers up for failure. “Time would be needed” for actuarial work on any package before the group could present it to lawmakers.
Quinn on Thursday expressed disappointment at the committee’s slow pace in meeting and suggestion it may not meet the July 9th deadline. Instead of complaining about the deadline the committee should “get the work done,” Quinn said.
The General Assembly impasse over two rival pension reform packages to address $95 billion of unfunded liabilities in a system just 40% funded drove downgrades from two rating agencies in early June.
The downgrades and negative headlines drove up the state’s already steep penalties to borrow when it sold $1.3 billion of general obligation bonds Wednesday. The spread on the deal’s 10-year uninsured bond to the Municipal Market Data benchmark scale rose to 164 basis points from 141 on a sale in June.
Quinn’s administration put a price tag of $130 million on the added costs of the sale over its 25-year life, a figure reached by comparing Illinois’ rates to a double-A level state.
The state is rated in the low single-A category with a negative outlook by all three rating agencies. It lost its double-A rank in 2009.
The committee will reconvene on Wednesday at 9 a.m. It will hear from various stakeholders including the University of Illinois’ Institute for Government and Public Affairs, which has floated a reform plan for public higher education employees some believe could serve as a model for a bigger package.
While the group must meet in public, Raoul said he expected to hold daily conversations with members over what direction the committee should take in reaching its goal. He said both savings and the impact of cuts should be considered.
The committee heard from actuaries, the state’s chamber of commerce, the Commission on Government Forecasting and Accountability, the Civic Club of the Commercial Club of Chicago, and the state’s acting budget director, Jerry Stermer.
Much of the testimony rehashed that of past hearings by regular legislative committees. Actuaries outlined the history and funding of the pension system. They attributed the current crisis in part to the state’s past pension holidays and a funding schedule that does not achieve annually the actuarially required contribution to fully fund the systems.
Union representatives testified that they remain firmly behind the plan sponsored by Senate President John Cullerton, D-Chicago. It asks employees and retirees to accept cuts in exchange for preserving their retiree healthcare subsidies. The unions believe it’s the only path forward that meets the state constitutional language against impairing or diminishing pension benefits. House Speaker Michael Madigan, D-Chicago, sponsored a plan that imposes direct cuts and offers double the savings.
The state’s tarnished bond rating emerged as a repeated theme of the meeting. “This is an emergency…..we need a comprehensive plan,” Stermer said, citing the negative impact of inaction on the state’s ratings, borrowing costs, economy, and spending level on education and other programs. The state’s fiscal 2014 payment will rise to $6 billion from $5.1 billion.
The state is “mired in budget triage,” he said, adding that a central goal of any reform plan should be to establish an affordable funding schedule that eliminates the unfunded liabilities.
Civic committee head Ty Fahner predicted the state’s bond rating could “improve rapidly” if reforms are enacted and suggested that any package include a state guarantee that annual contributions be made with legal recourse for failure.