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Legislature Passes Fix For $100B Pension Crisis

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Michael Madigan

Illinois Speaker of the House Michael Madigan, D-Chicago, argues pension legislation while on the House floor during session at the Illinois State Capitol Tuesday, Dec. 3, 2013 in Springfield Ill. (Seth Perlman/AP)

The Illinois Legislature has approved a historic plan to eliminate the state's $100 billion pension shortfall, considered the worst in the nation.

The House voted 62-53 Tuesday in favor of the plan, which the Senate approved just minutes earlier. It now goes to Gov. Pat Quinn, who has said he will sign it.

Legislative leaders say the plan will save the state $160 billion over 30 years by cutting retirement benefits for hundreds of thousands of workers and retirees.Ahead of the vote, House Speaker Michael Madigan defended the pension plan, saying it is not a one-sided bill.

“There will be changes here, much needed changes," Madigan said. "This bill is a well thought out, well balanced bill that deserves the support of this body, the state Senate, and the approval of Governor Quinn.”

Republican House Minority Leader Jim Durkin also stressed the importance of passing the pension overhaul.

“I think it’s ironic today that the Detroit bankruptcy judge as it was mentioned earlier did rule that the city of Detroit is eligible for bankruptcy protection," Durkin said. "Our failure to act and to move in a positive manner like today could ultimately put these systems in the same position as the city of Detroit and shame on us if that occurs.”

Lawmakers in the two Democrat-controlled chambers took up the plan after years of inaction on a problem that other states have addressed. It has damaged Illinois' credit rating and diverted key funds from schools and social service agencies.

"This landmark legislation is a bipartisan solution that squarely addresses the most difficult fiscal issue Illinois has ever confronted," said Gov. Pat Quinn in a statement. “This bill will ensure retirement security for those who have faithfully contributed to the pension systems, end the squeeze on critical education and healthcare services, and support economic growth."

One of the most significant changes is a reduction in cost-of-living adjustments. Supporters of the change say even that phrase is misleading, since state retirees get automatic, three-percent raises every year, regardless of the actual cost of living.

Now, retirees will get smaller raises on just a portion of their income, tied to the consumer price index, and on a sliding scale based on years of service. 

So, what does this all mean for the average state retiree? That's tough to say, since that group includes rural kindergarten teachers and janitors and prison guards and neurosurgeons at state university medical schools.

Still, the Center for Tax and Budget Accountability took a shot at coming up with an example. (The group calls itself a bi-partisan think tank, though it does get financial support from labor unions.)

OK, so picture your favorite teacher, ready to retire after 30 years of service. Her initial pension starts out at $67,000. Right now, after 20 years of retirement, that would grow to more than $120,000. But under the new system, it would only reach $91,000. That's a cumulative difference of more than $280,000.

"There's only one way to describe that kind of blatant taking of one's life savings. We call it theft," said Dan Montgomery, president of the Illinois Federation of Teachers.

He points to a section of the Illinois Constitution that seemingly bans this sort of thing. It says membership in a government pension system is a contractual relationship, "the benefits of which shall not be diminished or impaired."

On Tuesday before the legislature voted, Jim Littleford, the superintendent in the Charleston School District, said he worries the agreement approved by lawmakers could turn prospective teachers away from pursuing an education career in Illinois.

“Well, if they’re not out there and not available, it’s going to be more difficult to recruit them obviously," Littleford explained. "It could lead I think in the future to teacher shortages.”

This week, University of Illinois President Robert Easter maintained his criticism of the pension overhaul. In a letter signed on Monday by the chancellors on the U of I’s three campuses, Easter said the pension plan will hurt public university employees, and put Illinois higher education at a competitive disadvantage.

State Sen. Bill Brady (R-Bloomington) was the only east central Illinois lawmaker in either chamber to back the pension plan.  

“It’s a win-win," Brady said hours before the vote. "It protects the interests of state employees. It asks them to give up a little bit of how their pensions going to grow, but not dramatic, and it solidifies state finances to a point where we can save $160 billion dollars in 30 years, rather than have a system that is 90 percent funded with 35 billion in obligation. We’re fully funded.”

Brady is seeking the Republican nomination for governor of Illinois. His opponents in the GOP Primary - State Treasurer Dan Rutherford, Chicago venture capitalist Bruce Rauner, and State Sen. Kirk Dillard (R-Hinsdale) - oppose the pension plan.

“The pension system remains broken and badly underfunded," Rauner said in a statement. "State spending has never been higher, or less productive. Another tax hike is looming around the corner. State government is in desperate need of reform."

"Litigation is inevitable, and I hope that the courts issue an expedited ruling as to the constitutionality of the legislation," Rutherford noted. "The sooner the better, so we can move our great state forward.''

"Idon’t believe this bill can survive a court challenge," Sen. Dillard added in a seperate statement. "It just doesn't meet the constitutional standards for consideration that I believe it must have in order to hold up in court."

Labor unions oppose the measure and say they plan to file a lawsuit arguing that it is unconstitutional. Up to the last moment, many worked behind the scenes tried to get lawmakers to vote “no.” 

"This is no victory for Illinois, but a dark day for its citizens and public servants," according to a statement from the 'We Are One Illinois' coalition of unions representing public employees and retirees.

A union representing building and food service workers at the University of Illinois expects to be part of a legal challenge to the pension proposal. Ricky Baldwin with SEIU Local 73 described the proposed cuts in the COLA, or Cost of Living Increase, as ‘diet cola’:

“This formula they’ve come up with, what it’s going to do – is impact people who have worked for 20 years or so, paid into their pensions, expecting – because they were promised – that money would be there when they retired, and that it would keep up in inflation," Baldwin said. "Now if inflation goes through the roof, those people are going to be in trouble.”

Because of those constitutional questions, unions say they will be challenging this in court. The labor unions found common cause with unlikely allies: conservatives, whocomplain the plan doesn't go far enough in wringing savings from pensioners.

Gov. Quinn said he thinks the bill will survive a court challenge. 

Categories: Economics, Government