Wednesday, May 27, 2009

House challenges idea to skim pensions

By Bethany Jaeger and Jamey Dunn
The General Assembly should fully fund the state’s contribution into the public employee pension systems, according to a measure approved by the House today. But the move contradicts Gov. Pat Quinn’s proposal to short the pension payment to free up some money that could help fill a $7.4 billion budget deficit next fiscal year.

Today’s floor debate over SB 1186, sponsored by House Speaker Michael Madigan, pitted the need to repay long-term debt against the immediate decline in state revenues. Gov. Pat Quinn proposed skipping about $2.3 billion in payments next fiscal year. Madigan today essentially took that option off the table — for now — saying he and the governor have a “legitimate difference of opinion.”

Next fiscal year, which starts July 1, is the last year of a so-called “ramp-up” payment that is part of a statutory schedule to force the state to gradually fund its share of the long-term pension obligations. Next year’s payment is supposed to exceed $4 billion. But the deficit is projected to reach at least $7.4 billion, according to Madigan.

The speaker said the bill to force full payment reflects that there was little support for a partial payment (102 members voted in support of full payment). But it also simply reinforces existing statute. The entire House GOP supported full payment. Fourteen Democrats, on the other hand, voted “present.” Several said that making a partial payment would free up more than $2.2 billion that could help fund safety net services during the economic recession.

Madigan laid out the revenue picture with and without a full pension contribution, which could bolster his argument that the state should increase the state income tax to balance the budget and pay its bills. Here’s Madigan’s break down:
  • $16.9 billion – The amount already approved by the House to fund basic state operations and employee contracts. (It’s not yet approved by the Senate.)
  • $3.5 billion – The amount left over to dole out to state services.
  • $10 billion – The amount needed to fund the rest of Quinn’s proposed spending plan.
  • $7 billion – The amount that would have to be cut to balance the budget without an income tax increase.

But even with an income tax increase of 1.5 percentage points, as proposed by Quinn, the state would only garner about $3.7 billion. Legislators would still have to cut nearly $3 billion more to achieve a balanced budget.

Sen. Don Harmon, an Oak Park Democrat, said that the cuts that would be needed without a tax increase could be more than most lawmakers want to consider. “I don’t know if any of us have come to grips fully with what cuts of that magnitude would mean to people who live in our districts,” he said. “We’ve got pages and pages and pages of potential cuts, and they will hurt real people. And we’re trying to balance that.”

Harmon added that the Senate Democratic Caucus sees the pension payments as part of the larger budget negotiations. “Obviously, we’d all like to make the full pension payment. It’s just a question of the competing needs and the limited revenue available. It’s within the context of the overall budget development, not a stand alone issue.”

Republican Sen. Matt Murphy of Palatine disagreed that Democrats are looking at the bigger budget picture, which he said could lead to a piecemeal approach and, ultimately, mistakes. “It’s almost like they’re doing these things in a vacuum,” he said. He suggested short-term borrowing as a way to fully fund pensions and avoid an income tax increase.

The legislature could always do what it did last year: approve an unbalanced budget and force the governor to cut programs over the summer. There are many ways this scenario could play out.

Meanwhile, Quinn’s effort to enact a two-tiered system that would provide less generous benefits to newly hired teachers and state employees has stalled but is still in negotiations behind closed doors.

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