It’s surely been an epic week for Illinois Gov. Pat Quinn.
“It’s Epic Week in Illinois and we’re going to have epic reforms,” Quinn said Friday. On Thursday, Quinn announced plans to deal with the state’s $2.7 billion Medicaid crisis by instituting a $1-a-pack-tax on cigarettes and reducing benefits paid to providers. Now that he has hospitals and the state’s low income Medicaid patients angry with him, why not try for school districts? And that’s exactly what the governor did by announcing a plan to help save the state’s $83 billion underfunded public pension system.
“The pension systems of Illinois have many challenges. I did not create the problems but I’m here to solve those problems,” Quinn said at a Friday afternoon press conference at the Thompson Center downtown. “Addressing this issue of pension challenge and stabilizing it is important for economy and for our budget and what we invest in. We do not want important missions such as investing in education to be squeezed out because of the demands of retirement systems.”
Illinois pension systems are billions of dollars underfunded because of inadequate funding by past lawmakers and governors, Quinn said.
To fix it the system so there’s a 100 percent funding for pensions by 2042, Quinn’s recommends:
• 3 percent increase in employee contributions;
• Reducuction of the cost of living adjustment (COLA) to less than 3 percent;
• Delay of COLA to 67 or five years after retirement;
• Limit of public sector pensions to public sector employment;
• Increase of retirement age from 55 to 67 (to be phased in over several years);
• Establishment of a 30-year ARC (actuarially required contribution) that would force the state to make its pension contribution every year by law.
Quinn said the ARC requirement is significant.
“This makes sure that we get the job done properly. We’re not going to be skipping payments. The employees will have the assurance that this will be done,” Quinn said.
But perhaps the biggest change will be transferring the cost of pension obligations for public teachers to suburban and downtown state school districts. It’s still undecided as to when the shift could take place, but it’s part of Quinn’s plan.
“I do think that employers should be accountable and have to be accountable for their retirement costs. We haven’t come to the final solution there. We’re still negotiating that. But we’re working on that and I can see a reasonable opportunity to phase that in and to get even more savings,” Quinn said.
Although some fear shifting pension costs could lead to huge tax increases for school districts, Quinn said he hopes that doesn’t happen.
“I anticipate a good conclusion that will not raise property taxes but will deal with the fundamental issue that if you have employees working for you, you should not be able to just shift their retirement bill off to somebody else,” Quinn said. “This is a principal of accountability that everyone understands-- that those who are negotiating should have skin in the game. I’m optimistic that we will come to a good conclusion but it will take some time.”
There is another major caveat for state employees: Accepting Quinn’s plan is optional, under a few conditions. If employees chose Quinn’s proposal (if it becomes law), pay raises will continue to be counted in the calculation of their pension benefits and they'd continue to receive a subsidy for their health care in retirement. Quinn said most retirees currently do not pay anything toward health care costs.
But if employees opt not to accept the plan, Quinn said they will not have their future pay increases included in their pension calculation and will not have the subsidy for health care in retirement.
Quinn believes most employees will accept the new system.
“It saves $65 to $86 billion for the people of Illinois,” Quinn said.
Quinn said he believes the proposed new system meets the state’s constitutional requirements, although it still may be challenged in court.
The bottom line, Quinn said, is that the state needs to do something about its pension system, since bond rating agencies such as Standard and Poor’s could downgrade the state’s bond rating and make borrowing more expensive, including for the state’s $43 billion transportation infrastructure project.
“They could lower our bond rating by more than one notch if we make no progress, if we do not address the significant pension obligations. This is what we need to do,” Quinn said. “We have a major capital bonding plan. We do not in any way want that to be held up. That has been a significant driver in our economy.”
The governor said most of what he outlined in his proposal came from a bipartisian group of lawmakers working on the pension issue.
But some of the state’s top Republican leaders are concerned with the pension shift to school districts.
“A shift to local school districts is a property tax increase. There’s no other way to look at it to the tune of about a billion dollars,” House Republican Leader Tom Cross said. “I’m concerned about that.”
State Senate Republican leader Christine Radogno said there are good, cost-saving elements in Quinn’s plan, but there needs to be ongoing discussions if lawmakers are to approve it.
Meanwhile, Illinois AFL-CIO president Michael Carrigan said Quinn’s proposal falls far short for unionized state employees.
“We strongly disagree with the proposals made today. Considering that the subject at hand is the ability of hundreds of thousands of Illinoisans to support themselves in retirement, we believe the proposals are insensitive and irresponsible,” Carrigan stated in a written statement for the We Are One Illinois coalition of unions that represent public employees. “By appearing to endorse these unfair and unconstitutional cuts, the governor has made the process of finding common ground much more difficult. Forcing public servants to choose between two sharply diminished pension plans is no choice at all.”
Quinn’s announcement is getting plaudits from his fellow Democrats.
“This is a strong beginning and he has outlined many good ideas regarding retirement security,” Chicago Mayor Rahm Emanuel said. “I look forward to continuing to work with Governor Quinn and legislative leaders to ensure that the hardworking public employees who contribute to these funds and their families have a secure future with a reasonable retirement.”
Cook County Board President Toni Preckwinkle said addressing the pension issue is needed.
“This urgent issue affects all of Cook County and Illinois residents, so everyone has to be involved in the process going forward if there is going to be an effective and sustainable legislative solution,” Preckwinkle said in a written statement.
Illinois lawmakers have until the end of May to approve Quinn’s proposal. That’s when the current legislative session ends.