Illinois Pension Reform, Why Can’t We Be Friends

I want to give you an update on my post, Illinois Pension Woes and the Start-up CommunityIn that post I talked about how the state needs to repair the pension system and put Illinois on the course for stronger financial footing so that we can begin to re-invest in business building programs and incentives. Our inability to fund programs like an SBIR/STTR matching program puts Illinois at a disadvantage to create and retain life sciences companies. The business took kit is light compared to other states who are actively investing and attracting companies. Rick Perry preyed on our financial situation while he was here for the BIO Convention, and I shared my opinion that we may currently be facing some hard financial times here in Illinois, but that will not last forever. And it seems like that will be the case with two competing Pension Reform plans currently in Springfield. In this post I am going to try to compare the two plans and let you know where the business community stands.

Last week Speaker Madigan introduce and passed his plan to repair the state’s pension system. That bill is currently sitting in the Senate. The Madigan bill requires public employees to contribute an additional 2 percent of their pay to their pension systems, includes more restrictive cost-of-living increases than the current 3 per cent a year, raises the retirement age and limits the salary pensions are based on to $110,000 a year. It also includes language mandating the state to make the required contributions to public pension systems.

Twenty-two House Republicans sided with Madigan’s push, with Democrats accounting for the rest of the “yes” votes. Among the Republicans backing the plan was House Minority Leader Tom Cross (R-Oswego), who signed on to Madigan’s legislation as a co-sponsor.

Cross said current and retired state workers, university employees and downstate and suburban teachers had every right to be “mad as hell” that the state’s pension systems are in fiscal ruin and bore no blame for the worst-in-the-nation mess.

Governor Quinn was also quick to praise the efforts to pass pension reform.

“Today the Illinois House of Representatives took the biggest step to date towards restoring fiscal stability to Illinois,” the governor said in a prepared statement. “With the passage of this comprehensive pension reform solution, Illinois is closer than ever to addressing a decades-long problem that is plaguing our economy, our bond rating and the future of our children.”

So this is all cut and dried right?  Problem solved. If you remember from my previous post and as you have probably seen in all of the coverage is the pension plan will have to stand up to a legal challenge by the unions. The concern about the Madigan plan comes down to the meaning of three words in the Illinois constitution: “diminished or impaired.” As you may remember or have heard, the challenge to pension reform is that changes are protected by the Illinois.

For the constitutional battle, the most important part of the bill is an introductory “statement and findings.” The lengthy passage is targeted at the clause in the state’s 1970 constitution that describes public employee pensions as “an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”

Madigan’s preamble argues that the state has a right to amend pension promises when other vital interests are at risk. It lists numerous fiscal woes facing Illinois as annual payments to its five pension funds top $6 billion.

The constitutional provision is not absolute, argues Tyrone Fahner, a former Illinois attorney general who is president of a business executives’ group, the Civic Committee of the Commercial Club of Chicago. “The state cannot commit suicide” in order to preserve pension benefits, Fahner said. “They have the absolute power to preserve the state and its basic functions.”

There is another option…

On the other side, Senate President John Cullerton last week said that he would consider Madigan’s plan, but would still pursue a deal with the unions and propose legislation, which he did yesterday.  He says his plan is safer because the unions wouldn’t challenge it in court.

Senate President Cullerton on union pension plan.

“This bill is not as risky as the bill the House passed because the House bill could end up saving zero dollars and not only saving zero if the Supreme Court has thrown it out but also it delays us by a year. We have to come back to Springfield and pass another bill,” said Cullerton.

The root of Cullerton’s plan offers retired and working public employees a choice between keeping their current pension benefits and sacrificing health care help or taking a less generous retirement plan and keeping health care.  Cullerton criticized the House plan, which doesn’t offer a choice but would likely save the cash-strapped state far more money. Cullerton’s could save around $46 billion over decades, he said. Madigan’s could save as much as $150 billion.

Cullerton’s proposal could get its first hearing by a Senate committee Wednesday and could get a full vote the next day. It essentially would give workers three options.

Madigan’s spokesman said yesterday that he didn’t see any real savings in the Cullerton plan.  Indeed, even if the choices work out favorably for the state, the Cullerton proposal would save less than a third of what the House plan would save, and knocks just $10 billion off the state’s $100 billion unfunded liability, compared to $30 billion with the House plan.  Cullerton, however, said it’s likely that the Madigan plan will actually save the state nothing at all because it will be found unconstitutional.

So good news, Springfield is working hard to come up with a pension solution before the May 31st deadline.  But as usual Springfield is not, currently, working together to solve this issue. Speaker Madigan and Senate President Cullerton are at odds on their proposals, and the state is also split, with the business community and republicans seeming to support the Madigan plan, and unions and Senate Democrats supporting Cullerton’s plan. Governor Quinn is kind of stuck in an interesting position after supporting the Madigan plan, only to have the unions and Cullerton release their own plan. We will see what the Governor does.

Don’t get me wrong I am not judging Governor Quinn, it is just a tough decision. If Madigan’s plan passes and stands up to legal challenges it will save the State considerably more, but at the same time it will alienate the union support. On the other hand, Cullerton’s plan saves the state less, but it will not be challenged by the unions, but how will the business community view it?

And of course there is the possibility of a third option a hybrid of both plans as a compromise. So it is going to be an interesting May in Springfield. At the end of it, the most important takeaway is that we are working on addressing the crippling pension issue, and hopefully moving on from behind this dark cloud.

What are you thoughts on the two competing plans? This is a conversation, not an editorial. Did I forget something, get it wrong or do you agree? Please Comment, Like, Re-Tweet and Share

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