Union coalition challenges pension law

By Jamey Dunn

A coalition of public employee and teachers' unions has filed a lawsuit challenging the new law that makes changes to the state’s pension systems.

The We Are One Coalition today filed a class action lawsuit in the Circuit Court for the Seventh Judicial Circuit, which is in Sangamon County. The suit has 25 named plaintiffs, who have worked in the public sector in a variety of jobs, from all over the state. “Our suit makes clear that pension theft is not only unfair, it’s clearly unconstitutional,” Illinois AFL-CIO President Michael Carrigan said in a prepared statement. “Teachers, nurses, emergency responders and other workers and retirees will not stand by while politicians try to take away their life savings illegally. The legislature and governor shirked their responsibility to uphold the Constitution, so we are seeking justice in court to right their wrongs. Promises must be kept, and the rule of law must prevail over politics.”

 The suit claims that the new law violates the pension clause in the state’s Constitution. That clause says, “Membership in any pension or retirement system of the state, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”

Union officials have been vowing to sue since Senate Bill 1 was approved my lawmakers and signed by Gov. Pat Quinn in December. The measure is projected to save $160 billion over 30 years and fully fund the pension systems, which are currently underfunded by an estimated $100 billion, by 2043. The plan will cut annual cost of living adjustments (COLAs) for current and future retirees. The law also increases the retirement age for employees under 46. For each year an employee is younger than 46, an additional four months would be tacked onto the time he or she would have to work to receive full benefits. The proposal will also cap pensionable salary at $109,971, but that number would increase annually based on inflation.

The law will reduce the employee contribution toward retirement benefits by one percentage point and allow the systems to sue the state if it does not make its required payment. However, lawmakers could vote to change the payment schedule and reduce the annual payment. Some who support the measure argue that the reduction in employee contribution and the guaranteed payment from the state make the legislation constitutional because employees are getting a form of consideration for the reduction in their benefits. Supporters of the plan have also made the case that the state should be granted special powers to contain pension costs because Illinois is enduring a fiscal crisis. “These lawsuits come as no surprise. We believe it’s constitutional, and we’ll defend the interests of taxpayers,” Quinn spokeswoman Brooke Anderson said in a written statement. “This landmark law was urgently needed to resolve the state’s $100 billion pension crisis, which was created over 70 years of financial mismanagement. We expect it to be upheld as constitutional. This law squarely addresses the most pressing fiscal crisis of our time by eliminating the state's unfunded pension debt, a standard set by Gov. Quinn two years ago. It had to be done to ensure retirement security for those who have faithfully contributed to the pension systems and support economic growth.”

The employees and retirees who filed suit today do not agree. Their complaint says the state failed to meet its obligation to fund the system and that the new law violates the pension protection written into the state’s Constitution. “The state chose to forgo funding its pension systems in amounts the state now claims were needed to fully meet the state’s annuity obligations. Now, the state expects the members of those systems to carry on their backs the burden of curing the state’s longstanding misconduct. Specifically, [the law] unlawfully strips from public servants pension amounts to which they otherwise are entitled as a matter of law, let alone fundamental fairness,” the complaint said. “That is the very threat against which the pension clause [in the Illinois Constitution] protects.”

The group says it reserves the right to seek an injunction to prevent the law from going into effect while the unions and the state fight it out in court.

Little change for state's bond ratings so far

By Jamey Dunn

The major bond rating agencies are having mixed reactions to changes to Illinois' public employee pension systems that were approved and signed into law last week.

Standard & Poor’s rating services upgraded its outlook on the state’s borrowing from “negative” to “developing.” However, the state retains its A- rating from the agency. According to S&P, the new outlook means that the agency could raise or lower the state’s rating in the next two years. “The change reflects the consensus reached on pension reform, which we believe could contribute to a sustainable path to fiscal stability,” S&P credit analyst Robin Prunty said in a prepared statement. “Although we view the consensus achieved by Illinois on this difficult issue as positive from a credit standpoint, the developing outlook reflects the implementation risk — legal and budgetary — associated with various provisions of the pension reform, as well as the overall structural budget challenges facing the state.” The new outlook comes as Illinois is planning to sell $350 million in general obligation bonds later this week.

Gov. Pat Quinn highlighted the change as a positive byproduct of the pension cuts that lawmakers approved and he signed into law. “I am pleased the ratings agencies are recognizing that Illinois is moving in the right direction,” Gov. Quinn said in a prepared statement. “As I’ve always made clear, one of the many reasons to resolve Illinois’ pension crisis was the negative impact it had on our bond rating, which cost taxpayers more money to finance critical repairs and improvements to roads, bridges and schools. This improved outlook will be the first of many positive developments towards a revitalized and stronger Illinois.”

But a change in outlook does not constitute much positive forward motion for the state, especially given how much of a beating Illinois’ credit has taken in recent years. The two other major rating agencies, Moody’s and Fitch Ratings, both issued positive statements about the new law. But neither has opted to adjust the state’s rating or outlook. Both said they would analyze the law to determine the extent of its fiscal impact. Supporters say it will save $160 billion and fully fund the pension systems by 2043.

Public employee unions are expected to bring a lawsuit against the state because they say the pension cuts violate the state’s Constitution, which contains an explicit protection for retirement benefits. “[Senate Bill 1] won’t save a penny. The bill is unconstitutional, so it’s savings are an illusion. It’s only going to cost the state time and money and kick the can down the road all over again,” said a statement from the We Are One Union coalition. Moody’s said in a brief analysis issued after the bill passed last week, that it would be able to factor the changes in the new law into the state’s credit rating if and when they are upheld by the courts.

All three rating agencies acknowledge that the state is facing other budget issues besides pension reform, including the loss of billions of dollars of revenue when the temporary income tax increase sunsets. The tax rate begins stepping down in 2015. Fitch’s said that the state must address some of its budget challenges to hang on to its current rating, which is the lowest in the country. “In addition to action on pensions, maintenance of the rating will require timely action on a more permanent budget solution to the structural mismatch between spending and revenues in advance of the expiration of temporary tax increases.”

Quinn quietly signs pension legislation

By Jamey Dunn

Gov. Pat Quinn today signed sweeping public pension changes passed by lawmakers earlier this week. 

Hard-fought bipartisan compromises of this nature are usually signed with fanfare and speeches from lawmakers who helped make it happen. That was not the case today with Senate Bill 1. Quinn signed the legislation during a private ceremony in Chicago this afternoon.

SB 1 will reduce annual cost-of-living adjustments for retirees and base them on a formula that is tied to inflation. It will also require workers younger than 46 to work longer for full benefits. Some annual COLAs would be deferred for current employees upon retirement. The number of years an employee must skip the COLA is contingent on years of service. The plan caps pensionable salary at $109,971, but that number would increase annually based on inflation. The provision would not apply to employees who already earn more than the cap. Workers will contribute one percentage point less of their salaries toward retirement benefits. The law also allows pension systems to sue if lawmakers opt to skip out on the annual payment. (For a more detailed rundown on what the law does, see this post.) The proposal is projected to save $160 billion and fully fund the systems by 2043.

Quinn, who once said he was put on Earth to address the woefully underfunded pensions systems, issued a short statement thanking the legislative leaders, all the members of the pension conference committee and other legislative supporters of the bill. “Illinois is moving forward,” Quinn said in a written statement. “This is a serious solution to address the most dire fiscal challenge of our time.” 

While there were no public speeches, some legislative leaders took their victory laps in their statements, which were included in the governor’s news release. “The bill would not have passed without me. I was convinced that standing fast for substantial savings, clear intent and an end to unaffordable annual raises would result in a sound plan that will meet all constitutional challenges," House Speaker Michael Madigan said. “With today’s bill signing we have staved off a greater crisis,” Minority Leader Jim Durkin said. “I am proud many of the significant components are Republican ideas generated by the conference committee, and my predecessor through Senate Bill 1.” Former House Minority Leader Tom Cross had been a key player in pension negotiations over the years. However, he voted against SB 1. Cross left his leadership role in the legislature to run for state treasurer.

Senate Minority Leader Christine Radogno applauded the bipartisan efforts that produced the final compromise. “This is a major step forward in putting Illinois on the path to financial recovery,” Radogno said. “It is the result of bipartisan, bicameral negotiations, after a great deal of debate and discussions. It will demonstrate to the credit rating agencies and job creators that we are serious about turning Illinois around.

Senate President John Cullerton gave some credit to Quinn. “I applaud the governor for prioritizing this issue,” he said. “I look forward to working with him and all legislative leaders to ensure that we continue on this path of fiscal leadership and bipartisan cooperation.”

The measure will go into effect in June of 2014, but the next stop for the law will likely be the state’s court system. Pension benefits are protected by Illinois’ Constitution, and union leaders say the law violates that protection.

 “Gov. Pat Quinn has given hundreds of thousands of working and retired teachers, nurses, police, caregivers, first responders and others no alternative but to seek justice for retirement security through the judicial system. Contrary to his belief, every Illinois citizen loses today,” said a statement from the We Are One union coalition. “Senate Bill 1 is attempted pension theft, and it’s illegal. Once overturned, its purported savings will evaporate, and the state’s finances and pension systems will be left in worse shape. Our coalition has been consistently in contact with our attorneys, and today we directed them to prepare to file suit. We will challenge SB 1 as violating the Constitution and ask for a stay of the legislation's implementation pending a ruling on its constitutionality.”

Legislators approve changes to state's public pension systems

By Jamey Dunn

After years of debate and several failed attempts, the Illinois General Assembly passed changes today to the state’s pension systems for public employees.

After holding simultaneous floor debates, the Illinois House and Senate voted within minutes of each other to approve a new version of Senate Bill 1. The plan is the product of a special conference committee on pensions and negotiations among legislative leaders. Gov. Pat Quinn said he plans to sign the bill, which he called a “bipartisan victory for the people of Illinois.” Quinn, who voluntarily stopped taking pay until the bill was passed, said that after he signs it, he will look into picking up his back checks. “Today, this day, will always go down in history as the day that the people of Illinois through their elected representatives and senators took action for the future. The people have won. We have all won.”

The proposal is projected to save $160 billion over 30 years and fully fund the pension systems, which are currently underfunded by an estimated $100 billion, by 2043. It would reduce annual cost of living adjustments (COLAs) for current and future retirees. The bill would apply differently to employees and retirees, depending on how long they worked and which retirement system they belong to. The current COLAs are 3 percent compounding interest. Under the new SB1, the COLA would be determined by 3 percent of pension benefits or 3 percent of the product of years served multiplied by $800 for state employees or $1,000 for teachers and university employees. The COLA would be based on whichever number result is smaller. The numbers used in the formula, $800 and $1,000, would increase along with the Consumer Price Index. Some annual COLAs would be deferred for current employees upon retirement. The number of years an employee must skip the COLA is contingent of years of service.

Employees younger than 46 also would have to retire later. For each year an employee is younger than 46, an additional four months would be tacked onto the time he or she would have to work to receive full benefits. The proposal would also cap pensionable salary at $109,971, but that number would increase annually based on inflation.

The bill would reduce the employee contribution toward retirement benefits by one percentage point and allow the systems to sue the state if it does not make its required payment. However, lawmakers could vote to change the payment schedule and reduce the annual payment. The state would contribute 10 percent of the savings from the plan toward the unfunded liability starting in 2015. The state would also contribute an additional $1 billion after borrowing that was used to make pension payments in the past is paid off.

House Speaker Michael Madigan made his goals for pension changes clear during floor debate today. “We’re here today discussing the issue because of the cost, and what we want to do is get cost savings as a result of this bill.” Madigan said he did not call a union-backed proposal, Senate Bill 2404, for a floor vote in the House because it would not have produced enough savings. He said that the House had set the “high bar of achievement” when it passed an earlier version of SB 1 last spring. That proposal would have saved an estimated $163 billion. The plan failed to gain the needed votes to pass in the Senate. Madigan said that he was “severely criticized” for not allowing the SB 2404 to to be called in the House after it passed in the Senate. But he said today that he did not call it because he wanted to “shape the issue” and give people time to understand the difference in cost savings between the bills. He also wanted lawmakers “to understand that our goal is to achieve the most cost savings feasible as a result of the legislation.”

Madigan said that pensions had become “too rich” to be sustained, and that he and Republican leaders hoped to keep the savings from any new proposal near to those that would have been achieved by the previous SB 1. Madigan also said today that he believes COLAs, the biggest cost driver among the pension benefits, are not protected by the state’s Constitution. The speaker said that a smaller portion of the savings in the new version of SB 1 would be derived from benefit cuts. Under the old bill, almost two thirds of the savings were reductions, but under the new plan, the unfunded liability reduction would be split about half and half between cuts and additional funding.

Opponents argued that the issue is about more than the bottom line. “If this were only about picking the bill that saves the most money, we’d all pick the bill that saves the most money,” said Sen. Toi Hutchinson, an Olympia Fields Democrat. “It’s about taking people’s retirement benefits right when they need them the most, after they’ve worked hard and earned those benefits.”

Aurora Democratic Sen. Linda Holmes, the only member of the conference committee who did not support the bill, said that the plan was akin to theft. “I don’t know how there’s one person here with any understanding of business, with any understanding of contracts, who can sit there and say what we’re doing is right. This is wrong.” Homes and Hutchinson both said that the bill violates the state’s constitutional protection of pension benefits. That provision says: “Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”

Hutchinson said of the constitutionality of SB 1: “I’m not a constitutional lawyer. I’m really not. But I can read, and it’s in the Constitution.”

Supporters of the bill say that the reduction in employee contributions and the funding guarantee offer a consideration in exchange for the benefits that would be reduced. The idea behind their argument is that under contract law, a benefit could be reduced if something else of value is offered as a consideration for the reduction. However many argue — including Senate President John Cullerton at one time — that employees would have to agree to the swap for it to pass muster. Cullerton’s SB 2404 would have offered employees choices between COLA reductions or state-subsidized health care in retirement.

Not all who voted in favor of the law today say they are certain that the bill is constitutional. However, they say that the crisis is too big to ignore. “The legislative process involves compromise. When it comes to pension reform, a compromise was found at the intersection of policy and political feasibility. The General Assembly stumbled at this intersection for years. Now, it’s time to move forward and allow the courts to rule on the constitutionality of our approach,” Cullerton said in a prepared statement. 

Chicago Democratic Sen. Kwame Raoul, who was chair of the conference committee, said that if the Illinois Supreme Court did strike down the bill, the justices would likely give some indication in their opinion of what steps they think lawmakers could take on pension changes. “We have the worst unfunded liability in the United States of America, and we can’t continue to be cemented into a stalemate,” he said. “We cannot continue to be the embarrassment of the nation. We must act to steer our ship in the right direction.”

Madigan said he thinks the courts will uphold the bill. “Something’s got to be done. Something’s got to be done. We can’t go on dedicating so much of our resources to this one sector of pensions,” he said. The changes will apply to four of the five state pension systems: teachers, university employees, legislators and state government employees. Judges' pensions will not be affected under SB 1. 

Union officials say SB 1 goes too far and is unconstitutional. They maintain that SB 2404 was the best choice. “There’s no victory in a bill that will get tied up in court, no victory in harming the lives of teachers and firefighters and nurses to a far greater degree than is just and necessary,” said Dan Montgomery, president of the Illinois Federation of Teachers. “We feel it's blatantly unconstitutional, and so claiming it saves $160 billion is a disturbing illusion. It will save no money at all.” There is some debate about whether opponents will have to wait until the law goes into effect in June before they can file suit. But at least one union leader indicated today that a suit could come sooner than June. “We would have to wait until the governor signs it, and then we can file a suit at any time. And then we’ll do it when we’re ready and when it’s most appropriate,” Montgomery said.

Other opponents said that the state should completely scrap its defined benefits system and move employees to a 401(k)-type plan for future benefits. Advocates for such plans argue that only employee benefits earned to date are protected by the Constitution. Rep. Thomas Morrison, a Palatine Republican, said that because the state has the worst-funded pension system in the nation, lawmakers have go to “go big” on reforms to solve the problem.

Senate Minority Leader Christine Radogno said she is aware of the human toll that cutting pensions would take. “We're very cognizant of the fact that this is not just a numbers issue, but it’s a people issue as well.” During negotiations, she pushed for a provision that would allow low-income retirees to keep their current COLAs until their pensions reached $30,000. But she said that that the changes must be made to address the state’s fiscal problems. She said that if the pension issue is addressed, other concerns such as the state’s overdue bills, will be easier to tackle. She also said that making the systems solvent should provide employees and retirees some piece of mind, even if they are upset that their pensions will be reduced. “They will be able to count on the benefits once we pass this bill,” she said on the Senate floor.

Several opponents on the Republican side argued only that lawmakers should slow down the process. They said there was not enough time for them to fully understand the more-than-300-page bill or for the public to grasp what was at stake. Republican gubernatorial candidate Sen. Kirk Dillard of Hinsdale was among them.

The proposal has the support of all four legislative leaders and Gov. Pat Quinn. Nonetheless. speculation that it might not pass was still floating around earlier today. (Those assessments may have been caution from supporters and wishful thinking from opponents.) Two other Republican candidates for governor, Illinois Treasurer Dan Rutherford and venture capitalist Bruce Rauner, both opposed the measure in the lead-up to the vote. Republican U.S. Sen. Mark Kirk also panned the bill, dismissing it as gimmicks that would not solve the problem.

Republican legislative leaders acknowledged that the political hubbub made their attempts to get votes for SB 1 more difficult. Radogno said she was glad that 10 members of her 18-member caucus voted in favor of the bill. “That’s more than half. I’m very pleased with it. It was a contentious vote,” Radogno said. “The caucus was a microcosm of the opposition that we heard outside. You had the folks that were very much from the union districts and were not going to be for the pension reform no matter what. And then you had people that were very ideological, saying that this isn’t good enough; we ought to just not do anything and let chaos reign and then we can come in and do something better.” New House Minority Leader Jim Durkin said that his vote count changed throughout the day. He said that the influence from people such as Rauner, as well as lobbying from union members, probably played a role. But he said that getting the vote done now was likely key to its passage. “I quite frankly believed that if we did not pass a bill today, that we would not see one next year because then it would get caught up in the governor’s election and all the drama that goes into it every four years.”

Madigan, who is known for delivering votes at crunch time, said it wasn’t easy. “Well, this was difficult because of the strength of the opposition and the intensity of the calls and contacts generated by organized labor among the Democrats. On the Republican side, their problem apparently was some of the gubernatorial candidates thinking about the campaign rather than the seriousness of the issue.” 

Northbrook Democratic Rep. Elaine Nekritz, who has been working on the pension issue for more than two years, said that today’s vote might be the first in a series of bills to address underfunded pension systems. “I think that this will free up a lot of energy and capacity in the General Assembly to start focusing on the needs of the city [of Chicago] and they are significant and in may ways more immediate than the state’s need in terms of addressing the shortfalls in their pensions systems.”

Chicago Mayor Rahm Emanuel came to Springfield in 2012 and appealed to lawmakers for changes to the city’s pension systems. Many other municipalities are also struggling with underfunded pension systems. “There are police and fire pension systems around this state that are funded in the 10 [percent] to 20[percent] to 25 percent range that are very much at risk of being insolvent. Our work on pensions is by no means done. But this [vote] will let a lot of air back in the room to start addressing the other systems,” Nekritz said. Cullerton agreed. “Pension reform isn’t done. I am committed to building on our momentum and providing relief for our local communities facing similar problems. Specifically, it is critical that we turn our focus to the financial crisis facing the Chicago Public Schools’ pension system. I look forward to working with all leaders on this critical issue.”

Pension lobbying efforts go down to the wire

By Jamey Dunn

Supporters and opponents of proposed changes to the state’s public pension systems are expecting close votes on legislation today.

A special conference committee, aided by some final negotiations among legislative leaders, produced a pension bill that has bipartisan support. However, those counting noses today say that the margin to get the bill passed is tight, especially in the Senate. Senate President John Cullerton did not attend a Senate hearing on the bill this morning. According to conference committee chair Chicago Democratic Sen. Kwame Raoul, Cullerton was working to round up votes for the new version of Senate Bill 1. Raoul said he would be doing the same after the committee adjourned. “It’s very close. It’s very close,” he said. Raoul said that lawmakers should ignore the opposition coming from high profile candidates and politicians such as Republican gubernatorial candidate Bruce Rauner and Republican U.S. Sen. Mark Kirk. “I think there’s a time when the politics of self preservation need to be set aside, and I think this is one of those times,” he said. “So I think some people need to visit the wizard and get some courage and vote the best interest of the state of Illinois.”

The proposal is projected to save $160 billion over 30 years and fully fund the pension system by 2043. It would reduce annual cost of living adjustments (COLAs) for current and future retirees. While previous plans have cut COLAs in a more straightforward way, this bill would apply differently to employees and retirees, depending on how long they worked and which retirement system they belong to. The current COLAs are 3 percent compounding interest. Under the new SB1, the COLA would be determined by 3 percent of salary or 3 percent of the product of years served multiplied by $800 for state employees or $1,000 for teachers and university employees. The COLA would be based on whichever number is smaller. The number for teachers and university employees is larger because workers in both systems generally do not get Social Security benefits. Some annual COLAs would be deferred for current employees upon retirement. The number is contingent of years of service. Employees younger than 46 would also have to retire later. For each year an employee is younger than 46, an additional four months would be tacked onto the time he or she would have to work to receive full benefits.

The proposal would also cap pensionable salary at $109,971, but that number would increase annually based on inflation. The plan would reduce the employee contribution toward retirement benefits by one percentage point and allow the systems to sue the state if it does not make its required payment. However, lawmakers could vote to change the payment schedule and reduce the annual payment. 

Raoul said that this new version of SB 1 is similar to a previous version, which passed in the House but twice failed to gain the votes needed in the Senate. “This is very close to the same level of savings of Senate Bill 1, it’s just put together in a different way.” Raoul did not support that legislation when it came up for a vote in the Senate, but he said his work on the conference committee has made him realize that he cannot get his way on every aspect of the issue. “We were in a stalemate, and we had to compromise. And this is where we are. This is our best chance to get this thing done to get it moving forward,” Raoul said. He added: “This is a tough vote, I will not deny that. ... We will have probably a very spirited discussion in our caucus.”

Union officials say that the new version of the proposal’s resemblance to the old SB 1 is part of the problem. “I am having flashbacks to the House’s SB 1. After months of conference committee meetings, the so called compromise bill that you consider today is nearly identical to where you started — a bill twice rejected by the Senate,” said Dan Montgomery, president of the Illinois Federation of Teachers. “There is only one way to describe that kind of blatant taking of ones life savings. We call it theft.” They called upon lawmakers to instead approve a union-backed plan that passed in the Senate last spring but was never called for a House vote. “We believe very firmly that there are problems that need to be solved and it in all of our interests as a state to solve them,” Montgomery said. Lawyers representing labor say that the bill is unconstitutional because it does not offer workers something of value in exchange for their benefits “There is no consideration. There is no offer and acceptance. There is no indication that anyone affected by this agrees to these changes. Therefore we’re left with the matter of unconstitutional changes [to benefits],” said John Stevens, a lawyer for the We Are One unions' coalition

Supporters of SB 1 say that the bill does offer workers and retirees consideration in the form of a funding guarantee and a reduction by 1 percentage point of employees' contributions to their benefits. Raoul said that no matter what was in the proposal, it would likely face a constitutional challenge. But he said hat the issue has reached the point where lawmakers must take action and see what the courts decide. “I think this bill will be challenged, and I think that there will be strong arguments that can be made on both sides of it, but we’ve got to get to that point. Let’s say that this bill was found unconstitutional. I think it’s very likely that the court would give us guidance as to what we can do. And if it’s found constitutional, then we’ve taken a major step towards securing our state. But we’ve got to get to that point. We can’t continue to just play this ping pong game and say that we can’t vote on anything because of a constitutional debate.”

Montgomery said that if the bill is approved and signed into law, his organization plans to file a lawsuit “a soon as we can.” But in the meantime, those on both sides of the issue are lobbying lawmakers hard. “I think they’re really faced with a choice. ... So they’re really coming to the brink of the abyss here, and some lawmakers have some real tough choices,” Montgomery said. “It’s very close. ... Very close in the Senate. I think there’s trouble finding the requisite votes on both sides of the aisle, but we will see.”

Politics swirl around pension vote

By Jamey Dunn

The political fallout has begun over a deal reached by legislative leaders to make changes to the state’s public employee pension systems.

The proposal, which is yet another version of Senate Bill 1, is projected to save $160 billion over 30 years and fully fund the pension system by 2043.

The legislation would reduce annual cost of living adjustments (COLAs) for current and future retirees. While previous plans have cut COLAs in a more straightforward way, this bill would apply differently to employees and retirees, depending on how long they worked and which retirement system they are a member. The current COLAs are 3 percent compounding interest. Under the new SB1, the COLA would be determined by 3 percent of salary or 3 percent of the product of years served multiplied by $800 for state employees or $1,000 for teachers and university employees. The COLA would be based on whichever number is smaller. The number for teachers and university employees is larger because workers in both systems generally do not get Social Security benefits. Some annual COLAs would be deferred for current employees upon retirement. The number is contingent of years of service.

Employees younger than 46 would also have to retire later. For each year an employee is younger than 46, an additional four months would be tacked onto the time he or she would have to work to receive full benefits. The proposal would also cap pensionable salary at $109,971, but that number would increase annually based on inflation. The plan would reduce the employee contribution toward retirement benefits by one percentage point and allow the systems to sue the state if it does not make its required payment. However, lawmakers could vote to change the payment schedule and reduce the annual payment. Since the details of the plan were released last week, candidates running in the 2014 elections have been weighing in.

Only one Republican gubernatorial candidate, Bloomington Sen. Bill Brady, came out strongly in favor of the proposal. “I will be voting in support of this legislation, which has been crafted through months of discussion, exhaustive analysis and legislative debate. It will not be an easy vote by any means; in fact it will be one of the most difficult votes I have ever cast,” Brady said in a written statement. Brady served on the conference committee that helped to craft the legislation. “It’s not fair to ask state employees and teachers who have paid every dime they owed to the system to make a sacrifice. It’s necessary, however, because governors and legislators who voted for budgets over the last decade did nothing more than delay the resolution we now have before us.”

Illinois Treasurer Dan Rutherford, who is running for the Republican nomination for governor, said the plan goes too far by not offering employees legitimate consideration for the benefits they would lose. “I have taken due consideration over the long Thanksgiving weekend to evaluate the proposal for State Public Pension Reform. Having examined the information available, I do not support the current legislation. I do not believe it will withstand judicial review should it pass the Illinois General Assembly,” Rutherford said in a written statement. “Strong beliefs are held in this debate, but fundamental to our rule of law is our Constitution. Our government’s obligation can be changed through a process involving adequate consideration to the employees. In my opinion, the legislation before us fails to address this relationship and offer adequate consideration in exchange for altering the pension benefits.”

Union leaders agree with Rutherford that the plan is unconstitutional. “It’s an unfair, unconstitutional scheme that undermines retirement security,” said a statement issued by the We are One Coalition last week.

University of Illinois leaders also oppose the bill. Previous versions of pension reform were based on proposals from the U of I’s Institute of Government and Public Affairs. “The University of Illinois called for a pension system that would be reasonable, responsible, sustainable and competitive with those offered by our peer institutions,” said an email to employees from U of I President Robert Easter; Phyllis Wise, chancellor of the U of I at Urbana-Champaign; Paula Allen-Meares, chancellor of U of I at Chicago; and Susan Koch, chancellor of the U of I at Springfield. “In our view, the legislation under consideration fails to meet those basic principles. The likely changes arguably lessen the retirement commitments made to employees and retirees, and their net effect also will harm the public higher education sector in Illinois.”

Hinsdale Republican Sen. Kirk Dillard, who also is running for governor, has yet to take a stance on the bill. He has instead called for multiple hearings and time before a vote to ensure that lawmakers understand the legislation. “Addressing pension reform is an essential first step in working our way out of a deep fiscal hole,” Dillard said. “But we must know what's in the bill and not rush a vote merely because we've been assured by the leaders and Gov. [Pat] Quinn that this is the best deal for the people of Illinois.” Dillard is not alone. Other Republican lawmakers have complained that they are being pushed to vote too quickly on the more-than-300-page bill.

 Supporters of the plan say the changes in the bill are nothing new to lawmakers who have been debating the issue for years. “We’ve been working on this issue for two years. There’s [been] plenty of time to take a look at every single aspect. It’s been debated, discussed, looked over, analyzed scrutinized — you name it,” Quinn said in Chicago today. “The time for review is fast eclipsing. It’s time now to vote. That’s what the people want. They want their legislators to take this bill that’s been discussed in many different ways and vote on it, and I think a vote ‘yes’ is the best way for our state to go.” Quinn said that the vote would be the “most important” fiscal vote taken by lawmakers during their legislative careers. But he said that anytime there is an important vote, opponents look for ways to block it. “There’s always going to be a do-nothing caucus, and they will say anything in order to continue to do nothing.” The governor added: “I think everyone who is interested in the future of Illinois, the common good, what’s good for taxpayers, should join us in urging a ‘yes’ vote tomorrow for the pension reform.”

Quinn’s own Lt. Gov. Sheila Simon issued a statement today opposing the plan. She says it should do more to protect low-income employees and retirees. “While I congratulate the legislative leaders who came together in a bipartisan way to produce a pension compromise, the proposed legislation puts too much of the burden on lower income workers and retirees,” she said. Simon is also in candidate mode. She is challenging Comptroller Judy Baar Topinka, and the statement was issued by her campaign staff.

Meanwhile, Republican venture capitalist and gubernatorial hopeful Bruce Rauner slammed the proposal, saying it would “guarantee a future of higher taxes.” He said the cuts to benefits do not go far enough and proposes moving workers into a 401(k)-style plan. Rauner and others argue that employee benefits earned to date are protected by the Constitution, but future benefits are not. “Government workers and retirees deserve to be treated fairly. But let’s not forget who pays for this — it’s the hard working taxpayers of our state, who themselves are struggling to make ends meet in an economy that is weighed down by the fiscal blunders in Springfield,” he said in a prepared statement. “We can have a pension system that is fair to both sides of this transaction, the government workers and the taxpayers who pay for it. True reform would cap the current system and fully put in place a 401(k)-style program that is similar to the retirement plans of most Illinoisans. That’s fair to workers and taxpayers, and it ensures we will never face a pension crisis again.”

While Rauner dismissed SB 1, many other business leaders in the state have voiced their support. “The pension crisis is by far the most pressing economic issue facing the state of Illinois today. Despite rapidly escalating pension contributions that are consuming the state’s budget and crowding out funding for critical state services, the fiscal health of the pension funds themselves continues to deteriorate. The bill is a good bill and deserves your support. It incorporates a number of benefit reforms that have been widely discussed and that we have supported in the past,” said a letter sent to lawmakers and signed by several prominent representatives of Illinois business. Those signed on include Tyrone Fahner, president of the Civic Committee of the Commercial Club of Chicago, a group that led the charge for pension reform in the state; Gregory Baise, president of the Illinois Manufacturers' Association; David Vite, president of the Illinois Retail Merchants Association; and Doug Whitley, president of the Illinois Chamber of Commerce. “While not a solution to all of the state’s fiscal problems, this bill is a significant step forward. It will stabilize the pension systems and help put Illinois on the path to fiscal stability.”

Northbrook Democratic Rep. Elaine Nekritz, who served on the pension conference committee, said of the letter: “I think that that will be very significant in giving people the security that they need that the business interests in the state line up in support.” Nekritz said that while others might have different ideas about how to tackle the problem, they don’t have the votes needed to pass their plans. “We’ve always been trying to achieve a balance with this legislation, and I think that this is a balanced approach, a moderate approach, a compromise approach that actually can pass. It’s one thing to talk about all the things that you’d like to see, but if you can’t put votes on it, then it isn’t any good.”

Those who would rather not see the bill pass tomorrow say that the opposition coming at the issue from two different sides — some arguing that it does not cut benefits enough and others that it cuts too much — could manage to kill the bill through their combined lobbying efforts. “What happens tomorrow, I don’t know?” said Rep. Raymond Poe, a Springfield Republican. Poe represents many state workers and says he does not support the bill. “If both of those forces get together, we may be back to start over again. So who knows where we’re at for sure. ... It’s going to be funny tomorrow to see how that all shakes out.”

Evanston Democratic Sen. Daniel Biss, who also served on the conference committee, said that the opposition on both sides of the spectrum is to be expected. “It’s a compromise. There are those on the right who oppose compromise, who are hard-line dead-enders and don’t want to see us accomplish something. And so we have those opposing it. And of course there are those in [organized] labor who are very concerned that it gives too much, and I understand where they are coming from. But the bottom line is, this is a reasonable sound compromise that saves a lot of money, shelters the people in greatest need and puts us on a path to sustainability.”

Both the House and Senate plan to hold session tomorrow. A hearing on SB 1 is scheduled for 8:30 a.m.  It's difficult to deny the politics of the issue when they may have even had a hand in the timing of a potential vote. The deadline for candidates — including potential challengers to legislators — to file paperwork to appear on the spring primary election ballot passed at 5 p.m. on Monday.

Union leaders blast new pension framework

By Jamey Dunn

Union leaders today publicly rejected a public pension reform outline that a special legislative committee is considering.

On Friday, the Capitol Fax blog and the Associated Press released details of a framework the bipartisan conference committee has been working on. The plan would toss out the 3 percent annual compounded cost-of-living adjustment retirees currently receive. Instead, cost-of-living adjustments would be half the rate of inflation. The rates would have a base level and cap set, but the outline obtained by the two outlets did not include those limits. The change would likely result in smaller COLAs for retirees.

Proposals in the past have called for retirees to contribute a larger portion of their paychecks to their retirement, but this concept would reduce the amount employees chip in by 1 percentage point. The retirement age would not change under the framework, but the way that retirement benefits are calculated might be changed to consider pay over several years of employment instead of the final typically higher-paid years. The changes in the outline are estimated to reduce the almost $100 billion unfunded pension liability by $18.1 billion and save the state $145 billion over 30 years.

The decreased contribution from employees would likely be used as consideration for reductions in benefits elsewhere. Several lawmakers believe that the state Constitution requires any cut in retiree benefits to come as part of a trade for something of value. However, there has been broad disagreement in the past on how consideration would be achieved and whether it is even necessary to cut future benefits that employees have not yet earned.

Union officials do not believe that the new plan would meet constitutional requirements. “Published reports suggest the legislative conference committee on pension reform is ready to rehash the same unfair, unconstitutional attacks on retirement security,” said a statement from the We Are Once Coalition. “Teachers, police, nurses, caregivers and hundreds of thousands more working and retired public servants earned their pension, never missed a payment, and in most cases aren’t eligible for Social Security. They deserve better from the conferees. So does the Illinois Constitution, which lawmakers are sworn to uphold and which provisions of the committee’s outline would directly violate.” The statement calls for lawmakers to reconsider the union-backed Senate Bill 2404. Senate President John Cullerton sponsored that bill, which was approved in by the Senate. But House Speaker Michael Madigan refused to call the bill for a vote because he said it did not save enough money. Supporters of SB 2404 said it could have easily passed in the House if called for a vote. The union support of the bill definitely helped to bolster its popularity among lawmakers.

Committee members have been saying for weeks that they are making progress toward a proposal for changes to the public employees' pension systems. However, they say the outline obtained by members of the press is not necessarily their final proposal. “The committee has not come to a consensus,” Committee chair Sen. Kwame Raoul, a Chicago Democrat, told the AP. “Our work is not done.”

Senate passes rival plan for pension changes

By Jamey Dunn with Meredith Colias contributing 

The Illinois Senate approved a union-backed overhaul of the state’s pension systems today, a week after the House passed its own pension plan. 

Senate Bill 2404 would cut worker and retiree benefits but would offer members of the pension system a say in what they give up and what they get in return for the reduction. Current employees would have three options:

Option 1 Employees would give up the current 3 percent compounded cost of living adjustment (COLA) for a flat 3 percent COLA that would be delayed for three years after retirement. In exchange, the employees would receive access to retiree health care plans, and future raises would count toward their pensions. They would also have the option of enrolling in 401(k)-like plan to supplement their pensions.

Option 2 Under this option, employees would keep their compounded COLAs but would lose access to retiree health care, which is currently subsidized by the state. Their future raises would not count toward pension benefits

Option 3 Employees would keep their COLAs and access to retiree health care, but they would pay 2 percent more of their salaries to their retirement benefits. Their COLAs would be delayed for three years after retirement.

Employees who are retired or who had given notice of their retirement by Jan. 1, 2013, would have two options:

Option 1 Keep the 3 percent compounded COLA but give up access to retiree health care.

Option 2 They could still have access to retiree health care and a 3 percent compounded COLA, but the COLA would be frozen for two years.

Senate President John Cullerton says that employees must be offered choices such as these to make any reductions in their benefits, which are protected by the state’s Constitution. “The contractual approach, I believe, is necessary to satisfy the pension clause of the Illinois Constitution,” which he says prohibits “unilateral reductions” of benefits. 

The proposal is backed by a group of public employee unions and teachers' unions. “Our coalition is encouraged by this powerful show of support for a solution developed with unions representing public employees and retirees,” said a statement from the We Are One coalition. “Today's strong, bipartisan vote in the Senate sends a clear message to the House: SB 2404 is constitutional, reasonable and responsible. The House should pass the bill without change or delay.” However, the Illinois Retired Teacher's Association opposes the bill and has threatened a legal challenge if it becomes law.

SB 1, the House plan sponsored by Speaker Michael Madigan, does not offer employees anything in exchange for benefit cuts. The bill would cap pensionable salary at $109,000, increase retirement ages for employers younger than 36 and increase employee contributions by 2 percent of their salaries over two years. Compounded cost of living adjustments would be capped based on the amount of time worked. For each year on the job, the cap would increase by $1,000. For example, if an employee worked for 30 years but received less than $30,000 of annual pension benefits, he or she would receive a compounded COLA until the pension benefit caught up with that cap. Then the COLA would be a flat amount going forward.

Madigan’s plan would shave more off the nearly $100 billion unfunded liability and save the state more in overall pension costs. SB 1 is expected to reduce the unfunded liability by $30 billion of the unfunded liability and save the state $140 billion in future pension costs. Cullerton said that depending on what options employees choose, his plan could reduce the liability by $8.5 billion to $15.7 billion and cut overall future pension costs by $45 billion to $52 billion.

Opponents of Cullerton’s plan said that it just wouldn’t save enough. “The big problem with this bill is that it doesn’t solve the problem,” Sen. Matt Murphy, a Palatine Republican, said during the floor debate. He told senators not to get “too hung up” about what bill might be constitutional. “There isn’t anybody in this room who has an opinion that matters even a little about the issue of constitutionality. Period. There are seven people on the Illinois Supreme Court whose opinions are the only ones that matter. You will find lawyers who will tell you this bill is constitutional. You will find lawyers who will tell you this bill is not. You’ll find lawyers who will tell you that the Senate Bill 1 that passed the House is constitutional. You’ll find some that will tell you it’s not.”

But supporters of Cullerton’s plan argue that the House proposal will not result in any savings if the court rejects it. “You can’t just say: ‘Oh, screw the Constitution. Let’s just proceed without it,’” said Kwame Raoul, a Chicago Democrat. Raoul said of SB 1: “It’s not constitutional just because you declare it's constitutional. You’ve got to make an argument based on the law.”

Gov. Pat Quinn this morning called upon Cullerton to put SB 1 up for a vote in his chamber. “I think it’s important for them – members of the Senate – to take a look at everything, but ultimately, it’s important for Senate Bill 1 to get a vote.” Murphy echoed that call on the Senate floor. “It’s May. This issue has dragged on for too long. We have a bill that is in all likelihood constitutional, that has passed the House, a bill that in all likelihood would have broad support in the Senate Republican caucus and a bill that the governor has indicated he would sign,” he said. “You’re on an island right now, given what I’ve just described. Please, please take yourself off the island. Focus on Senate Bill 1. And let’s finally get the meaningful pension reform that seems to be so close to our grasp if only you would be willing to take it.”

Cullerton pointed out that SB 35, which is similar to SB 1, did not gain the needed support to pass in the Senate. “That bill would have passed ... if every Republican would have voted for it,” he said. A spokesperson for Cullerton said that if Republicans can put up enough additional votes for SB 1 to pass, he would call it for a floor vote. “The bill that the House has passed, I believe, is risky if we pass that bill by itself because there would be a lawsuit. I think it [would have] a very difficult time being upheld. And we would delay by at least a year passing a reform. And we would then have to run back here [to] pass another law. There would be another lawsuit. We would lose at least a billion dollars of additional money we have to put in the pension system.”

Madigan said today that he does not know if he will call SB 2404 for a vote in the House. “I think the bill that passed out of the House is a good solid bill, well-thought-out, it has a broad base of support and it ought to be passed by the Senate. And I think they will pass it.” Madigan denied that the differing opinions between himself and Cullerton on how best to address the pension problem had become some kind of grudge match. “You can take that battle about personalities and throw it in the ashcan. This is all about correcting the serious fiscal problems in the state of Illinois.” When asked what he thought might cause the Senate to embrace his plan, he said, “I don’t have the answer to that question, but I have faith.”

Cullerton to move union-backed pension bill this week

By Jamey Dunn

Senate Democrats have reached a deal with unions on pension changes after the House passed its own plan last week.

“Whenever you can get unions to agree on a major pension bill, you should codify it,” Senate President John Cullerton said today after presenting the bill to Democrats in a caucus meeting. Cullerton said he is optimistic that many Democrats in his chamber will vote in favor of the bill. The proposal will be amended onto Senate Bill 2404. According to an overview from Senate Democrats, the legislation would give workers a choice about which benefits they want to sacrifice. Current employees would have three options:

Option 1 
Employees would give up the current 3 percent compounded cost of living adjustment (COLA) for a flat 3 percent COLA that would be delayed for three years after retirement. In exchange, the employees would receive access to retiree health care plans, and future raises would count toward their pensions. They would also have the option of enrolling in 401(k)-like plan to supplement their pensions.

Option 2 
Under this option, employees would keep their compounded COLAs but would lose access to retiree health care, which is currently subsidized by the state. Their future raises would not count toward pension benefits

Option 3 
Employees would keep their COLAs and access to retiree health care, but they would pay 2 percent more of their salaries to their retirement benefits. Their COLAs would be delayed for three years after retirement.

Employees who are retired or who have given notice of their retirement by Jan. 1, 2013, would have two options:

Option 1 
Workers could keep the 3 percent compounded COLA but give up access to retiree health care.

Option 2 
They could still have access to retiree health care and a 3 percent compounded COLA, but the COLA would be frozen for two years.  “The first year, they would have their COLA frozen; year two, the COLA would be back in there; year three, the COLA would be frozen; and then the COLA would go on as it should from then on,” said Aurora Democratic Sen. Linda Holmes, who sponsors the bill with Cullerton.

Holmes said the bill would not increase retirement ages for workers and would not include new revenue from closing tax loopholes.

The proposal would save less than the House plan, SB 1, which would cut pension benefits unilaterally instead of offering options to employees. Cullerton believes that employees must be given a choice for a proposal to be accepted by the courts. “We believe it’s the strongest argument for a bill to be constitutional.” He said that since the unions agreed on the bill, they do not plan to go to court over it. “When this bill is passed, the unions are not going to sue.” However, individual workers would be free to mount a legal challenge if it becomes law.

The We Are One union coalition released a statement today encouraging lawmakers to support the new plan. “The union coalition has made a great effort to ensure fairness for the public employees and retirees who did not cause this problem, to ensure the stability of the pension systems for future generations, and to offer a credible way forward. This agreement is our coalition's bottom line,” Michael Carrigan, president of the Illinois AFL-CIO, said in a written statement. “We continue to strongly oppose Speaker [Michael] Madigan's mega-bill, SB 1, which threatens to rob the retirement savings of teachers, police officers and others in public service, by 20-40 percent. His proposal is not only drastically unfair, but it is blatantly unconstitutional, rendering any advertised savings fictional. We urge lawmakers from both parties in both chambers to embrace the agreed bill and oppose SB 1.”

Madigan took a firm stance on the House floor last week, vowing to do all he could to get SB 1 through the process. He said of the union negotiations: “I don’t expect that they’ll be able to come to an agreement such that people will be prepared to back away from this bill. There’s two chambers here, and both chambers have to pass the same bill. The House has passed a bill, and so whatever the Senate does, I don’t think it would achieve the cost savings that the House bill does.”

Cullerton said it is difficult to calculate how much his plan would save because it would vary depending on which options employees and retirees choose. He said he expects it would be about $46 billion over the next 30 years, and $850 million in Fiscal Year 2015. That compares to SB 1, which is expected to save about $1.8 billion in the first fiscal year it goes into effect. However, Cullerton noted, “If that bill is declared unconstitutional, there’s zero savings.”

While he believes SB1 is unconstitutional, Cullerton said its passage in the House did help to move his negotiations with unions forward. “It has been much aided by the fact that the House and the speaker have pushed a bill over here, which has I think forced the unions to compromise. And I appreciate the fact that they have done it. It’s not easy because this is voluntarily agreeing to take away money from their members.” However, he denied that the deal was the result of some grand scheme between Madigan and him. “I wasn’t part of his negotiations with his caucus. I didn’t know what we were going to be able to accomplish with the unions, so I didn’t involve him in this negotiation. But now we have this agreement, and so now it’s time to see if we can reach an agreement between the two houses,” he said. “I’m optimistic. I think the unions have to go out now and explain this approach to their members [and] to the members of the House and the Senate [of] both parties.” Cullerton said he expects bipartisan support of the bill. A spokesperson for Senate Republicans declined to comment, saying they had yet to see the proposal.

When asked if he planned to call SB 1 for a vote, Cullerton said. “Let’s first see what happens with this and see what the reaction is to this.” He said he plans to hold a hearing on SB 2404 in the Executive Committee, which is scheduled for 3 p.m. Wednesday, and bring the bill up for a floor vote on Thursday.

Cullerton to Madigan: Consider union plan

Senate President John Cullerton said today that his negotiations with union leaders have produced a pension proposal that lawmakers in both chambers should consider.

Giving no details of the plan, Cullerton released a statement announcing a deal this afternoon.

UPDATE: Cullerton said this afternoon that he has not yet reached a final agreement with union leaders. But he says they have presented him a “substantial proposal” that his caucus will consider along with House Speaker Michael Madigan's plan, if it passes Thursday.

“We're not finished talking to them. We might want to make some proposed changes to their proposal. We just got it today,” Cullerton told reporters. “What's significant is that they're supportive of a major bill that saves billions of dollars, which I would say they've never been before. So that's a major move. There's still some details to work out.” Cullerton said the union's plan is based on the concept that workers must be offered something in exchange for pension cuts. He has maintained that without such a trade, any bill that reduces retirement benefits would be unconstitutional. “Since it's not unilateral cuts, it doesn't save as much money, but it's billions of dollars,” he said of the union proposal. 

When asked if he would call Madigan's bill, Cullerton said he would consult his members. “We’re going to hopefully see what the caucus wants to do, whether they want to support that bill, or the bill that the unions are supportive [of] or a combination thereof.” He noted that the Senate has already rejected a bill similar to the one the House plans to vote on Thursday. “We’ll see if this has any differences that get more people to be supportive, but you know, it’s not like we haven’t voted on this already," Cullerton said. 

“Since the beginning of session, I have made it clear that enacting constitutional pension reform is my top priority. Illinois faces a crisis; we owe it to our children and grandchildren to take action,” Cullerton said in a written statement about the union proposal. “I have worked to build consensus for reform within my caucus and across the diverse factions on both sides of the aisle. In these pension discussions, I have expressed a preference for the framework that, in my view, has the best chance of holding up in court. I have also worked to include labor in these conversations. Today, I concluded a series of meetings with representatives of teachers, nurses, police officers and other public employees. This coalition of labor leaders offered a credible and constitutional plan for consideration.”

The House is expected to vote on a pension plan tomorrow. Cullerton believes that proposal is unconstitutional. Both Madigan and the bill’s other sponsor, House Minority Leader Tom Cross, were optimistic about the possibility of the bill passing in the House tomorrow.

However, Cullerton urged lawmakers in both chambers to consider the plan he says he has worked out with the unions. “Because inaction is not an option, I believe that it is appropriate to begin discussing this plan with the members of my caucus and with the speaker of the House. It’s important that we advance a credible solution to our pension problems.”

House leaders hopeful about pension vote

By Jamey Dunn

An Illinois House vote on changes to the state’s pension systems is planned for Thursday, and legislative leaders from both parties are optimistic that the newest iteration of pension reform can pass.

A House committee this morning approved an amendment to Senate Bill 1 presented by House Speaker Michael Madigan. “This amendment would offer a comprehensive reform of the Illinois pension systems. It would bring solvency and stability to the four systems,” Madigan told the committee. The measure contains several provisions pulled from other bills, including ideas that have already been approved by the House.

The new version of SB 1 would:

• Increase the retirement age for employees younger than 46. Employees from 40 to 45 would see a one-year increase, employees 35 to 39 would see a three-year increase and employees 34 and younger would see a five-year increase. 
• Require employees to contribute 2 percent more of their salaries. The increased contribution would be phased in over two years. 
• Cap pensionable salary at $109,000, the limit that is currently used for Tier Two employees. The cap would increase at the rate of one half of the Consumer Price Index that is set for urban consumers. 
• Base the amount of pension benefits that would be eligible for cost-of-living adjustments (COLAs) on the amount of time employees worked. For each year of employment, $1,000 (or $800 for employees who receive Social Security benefits) of pension income would be eligible for a COLA. For example, if an employee worked for 30 years, then $30,000 of his or her retirement benefit would see an annual COLA. Before employees reached their cap, they would receive a compounding COLA. After they reached the cap, they would get a flat annual increase. 

The measure does not contain any shift of future pension costs to schools outside of Chicago, public universities and community colleges. Such a provision helped sink an effort to pass pension changes in the final days of the legislative session last spring.

Chicago pays most of the employer cost for its teachers’ pensions, and Chicago Democrats have argued that it is unfair that the state chips in for benefits for teachers outside of the city. Madigan said he plans to move some kind of cost shift separately from SB 1. “I plan to do that on a different bill,” he said. “We haven’t begun that process.” However, he said he wants to pass it this session. Republicans, who oppose the cost shift, argue that Chicago makes out better than the rest of the state when it comes to overall education funding.

SB 1 aims to fully fund pension benefits by 2044. However, Madigan said there has not been an actuarial analysis of this new plan. “The only thing we can do today is to work off of the numbers that were generated from the other bills. So there’s a certain amount of speculation.” He said that if the bill were approved and signed into law, legislators should not count on any savings until the Illinois Supreme Court weighs in. “I just think that it would be prudent not to spend the anticipated savings in the next budget.” Madigan said he is confident that at least four members of the court would find the bill constitutional. However, he said that he had not talked with any of the justices about the legislation and did not plan to in the future. “It’s just my judgment,” he said. “I’ve had no conversations with any member of the court.”

The changes in SB 1 would apply to teachers outside of Chicago, state employees, legislators and university and community college employees. The state’s judges are not included in the plan. “That’s a practical judgment,” Madigan said about leaving out the judges. When pressed on the issue, he said he had “no further comment.”

Union leaders panned the bill, calling it blatantly unconstitutional and unfair to workers who made their required contributions while the state skipped payments. “The problem with this amendment is there is no shared sacrifice. While we ... have been willing to work collaboratively toward a fair and constitutional solution, this amendment represents a diminishment of benefits clearly prohibited by the Illinois Constitution,” said Michael Carrigan, president of the Illinois AFL-CIO. “Fixing a funding issue on the backs of public-sector workers, hard-working Illinois workers, by slashing their retirement benefits is not good public policy and will result in a legal challenge [that is] certain to be successful.”

Cinda Klickna, president of the Illinois Education Association, said the benefit cuts in the bill would make it difficult for some retirees on fixed incomes to make ends meet. She said that cuts to their incomes, which would likely result in them spending less, could hurt local economies. “Every public employee will be hurt. Every community will feel the impact, and it is about people,” Klickna said. “We can talk about numbers, we can talk about the state budget. We can talk about what something saves, but I think it’s a sad state of affairs when the state ignores its people.” Klickna added that increasing the retirement age means teachers would stay in their positions longer, making it more difficult for aspiring young teachers to find jobs.

But the unions’ complaints did little to dampen the optimism of those who see this bill as the culmination of work on the issue in the House. “My guess is this thing will pass out of the House. The question is what’s going to happen in the Senate,” said House Minority Leader Tom Cross, who has signed on as a cosponsor of the bill with Madigan. He said about the two partnering on the bill, “I think it puts a lot of pressure on the Senate and creates some momentum, where you’ve got a bipartisan effort coming out of the House.” Senate President John Cullerton said yesterday that he is still trying to work with union leaders to reach a compromise. Cullerton has said that he believes proposals such as the new SB 1 that unilaterally reduce benefits are unconstitutional.

Gov. Pat Quinn urged lawmakers to approve the legislation. “Illinois' economy will not fully recover until the General Assembly passes this comprehensive pension reform and sends the bill to my desk. Now is the time to take this major step to restore fiscal stability to Illinois,” he said in a written statement.

Cross said lawmakers should pass legislation that would reduce pension costs and stabilize the system instead of trying to predict what the courts will do with the final product. “No one knows. And we can all opine and give our theories on it. There are a number of folks in the legal community who have said this is constitutional,” Cross said. “But at the end of the day, whatever we pass is going to end up in the courts, and we will need to wait for the courts to give us their opinion. And we can all speculate, but until that happens, nobody’s going to know.”

House passes bill to cut COLAs on public pensions

By Jamey Dunn

Supporters of efforts to cut spending on public-employee pensions say they reached a turning point today, as the House approved reductions to cost-of-living increases for current and future retirees.

“The meat and potatoes of pension reform happened today,” House Minority Leader Tom Cross said after today’s vote. “And I think this was the toughest vote people are going to face.” Lawmakers approved House Bill 1165 on a vote of 66 to 50. The measure would cap the amount of salary on which retirees could earn the compounded 3 percent cost of living adjustment [COLA] at $25,000. Anyone earning more pension income would receive a flat COLA of $750 annually. Under the bill, retirees would not be eligible for a COLA until they have been retired for five years or they reach age 67, whichever comes first. The bill also would apply to current retirees who are now receiving COLAs.

“I know that this is a very difficult thing to do to retirees ... but unfortunately, we have let the problem get so big that that has to be the nature of the solution that we’re looking to,” said sponsor Rep. Elaine Nekritz, a Northbrook Democrat. The current COLAs are by far the costliest component of the pension plans. Nekrtiz and Cross said that they must be targeted to make a real dent in the $96 billion unfunded liability.

House Speaker Michael Madigan said today’s vote signals that the House is very close to a vote on a final comprehensive pension reform bill. “I think we’re in a position to finalize the preparation of the bill and then move a bill from the House to the Senate that treats all aspects of the problem.”

Opponents to HB 1165 say it is an unconstitutional reduction in employee benefits and unfair to retirees who planned their finances around the benefits they were promised when they left their jobs. “What’s not fair to do is to go to them and say, 'You have to make up the entire liability,' when over half the liability is because the state of Illinois never made its payments,” said Rep. David Reis, a Willow Hill Republican. He said lawmakers should instead accept a union coalition offer for employees to pay a larger percentage of their wages toward their pensions. “There are other avenues out there that have been negotiated with the various unions that may prevent a lawsuit, that I think would help us accomplish what we’re trying to do.”

Earlier this month, the House approved House Bill 1154, which would cap pensionable salary at the Social Security wage base, which is $113,700 in 2013, or the employee's current salary, whichever is greater. The same day, the chamber voted in favor of HB 1166, which would increase the retirement age for employees younger than 46. Employees from 40 to 45 would see a one-year increase, employees 35 to 39 would see a three-year increase and employees 34 and younger would see a five-year increase. All three bills are key pieces of HB 3411, the “comprehensive plan” pushed by Cross and Nekrtiz, and are now in the Senate. “We all recognize the enormity of this problem. The significance of the problem is not the issue. The issue is, how do we react to the problem? How do we move legislation that will solve the problem and do it in such a way that we have a reasonable chance of approval from the Illinois court system?” Madigan said on the House floor today. “We’ve taken three significant steps in a process to solve the problem.”

Cross and Nekritz both agree that a final package could contain tweaks and additional provisions. Their bill has a provision meant to ensure that the state would make its annual required payment and calls for money now going to pay off pension bonds to be used to pay down the unfunded liability after the bonds have matured. It would also require employees to pay 2 percent more of their salaries toward their retirement benefits. Both lawmakers agree that any of those proposals may end up in a final bill. “We’ve now passed the most challenging parts of the bill, in many ways, so putting together a comprehensive package from here, when you are talking about the funding guarantee and additional money going into the pension systems, those are things that are hardly controversial.” Cross said he is still not thrilled with the approach that the House took, voting on each part separately. And he said he does not know how he stands on any potential final bill until he sees what is in it. He said he would like it to be as close to complete as possible. “I’m not happy with the process. I’d like to see something in a more comprehensive package.”

While leaders of both parties in the House say the chamber made significant progress today, the Senate rejected a comprehensive proposal on Wednesday. Senate Bill 34, which is similar to HB 3411, fell seven votes shy of the majority needed to pass. The chamber instead approved a much narrower bill that would only apply to teachers. Senate President John Cullerton said that the measure was just part of an overall reform package he plans to present in the Senate. “The work of building a coalition of 30 votes is going to require more heavy lifting. I'm committed to this goal and look forward to passing a full reform plan this session,” he said in a prepared statement.

 Cross said the House vote today may shake things up in the other chamber. “I think any time that one chamber passes something of this significance, it changes the dynamic,” he said. “I would like to think that the Senate would take another shot. They can certainly do just this bill.”

 Gov. Pat Quinn said he plans to work with both chambers to try to get a bill to his desk. “I’m encouraged by the positive steps recently taken by the Illinois General Assembly toward comprehensive pension reform. In the past few weeks, the Illinois House has passed three pension reform bills, culminating with today’s major cost-saving measure, which reforms the cost-of-living-adjustment factor,” Quinn said in a prepared statement. “In addition, yesterday’s votes in the Illinois Senate indicate that there is support for pension reform. There's much more work to do, but I’m pleased to see progress being made. I will continue working with the leaders and members of both houses and both parties to get comprehensive pension reform legislation on my desk so that I can sign it into law.”

Union leaders said they would continue to fight against the changes, which they say violate the state's Constitution.“We remain opposed to measures passed by the House and Senate this week. We will continue to advocate for coalition-supported solutions that have been negotiated with the unions who represent those affected by pension changes," said a statement from the We Are One Coalition.  

Court tosses out lawsuit over public retirees' health care

 Jamey Dunn

A judge today sided with the state in a disputed over the cost of public retiree health insurance.

Last year, lawmakers approved and Gov. Pat Quinn signed a measure to allow the state to begin charging retired workers premiums for their health care. Many retired state workers and university employees do not pay premiums if they worked for more than 20 years. Those retirees are required to pay for coverage for family members, along with co-pays and other out-of-pocket costs.

State workers sued, arguing that their retiree health benefits were protected, much like pension benefits, by the Illinois Constitution. But Sangamon County Circuit Court Associate Judge Steven Nardulli dismissed their complaints today. “The Pension Code and the [The State Employee Group Insurance Act] are structurally separate and substantially different. They are separately administered and separately funded. They provide benefits that are fundamentally different,” said the ruling. (link via Capitol Fax) “The cost of health insurance premiums are not fixed at the time of retirement and are paid from the General Revenue Fund, as opposed to fixed benefits paid from a protected fund. The fact that there is an indirect or incidental impact on pensions because of the enactment and amendment of the SEIGA does not make the benefits under the SEIGA pensions in nature.”

Gov. Pat Quinn’s administration said retirees should expect to start paying premiums after July 1. “I am pleased with the court’s action today to uphold this important law. This is good news for the taxpayers and another step forward in our effort to restore fiscal stability to Illinois,” Quinn said in a prepared statement.

Senate President John Cullerton said the ruling makes his proposal to change the state’s pension systems seem like a legal possibility. Cullerton supports a proposal that would force employees to choose between their compounded-interest cost-of-living adjustments (COLAs) or access to a retiree health care plan. Employees who opted to keep their COLAs would have their pensionable salaries frozen, so no future raises could be considered for benefits. He argues that employees must be given something in exchange for a reduction in pension benefits, and access to the health care plan would be the trade. “The real impact of this ruling is that it reinforces my position that a guarantee of health care access can be negotiated as part of a contractual change to protected pension benefits. Only the benefits found in the Illinois Pension Code are protected by the Pension Clause,” Cullerton said in a prepared statement. “Pension reform is my top priority. While I acknowledge that there are a number of ways to structure a bill, I believe that a reform based on contractual principles of offer, consideration and acceptance is the best way to ensure that the legislation is upheld in court. I will continue to advocate that giving state employees and retirees a choice between cost-of-living allowances and access to health care is the best way forward.”

Union officials say Cullerton’s plan presents a coercive choice and does not offer employees something of value in exchange for benefit cuts.

The American Federation of State, County and Municipal Employees Council 31 backed a class action suit in Randolph County that was rolled into today's ruling. “We are greatly disappointed by today’s decision,” AFSCME Executive Director Henry Bayer said in a prepared statement. “We continue to believe this law impairs the rights of men and women who retired after careers with state government or state universities to obtain health insurance coverage according to the terms in place when they retired. It also violates the constitutional clause that prevents the diminishment of retirement benefits earned by public employees. We intend to consult with the plaintiffs and our union partners about our options going forward.”

AFSCME also announced today that its members ratified a new three-year contract with the state. A tentative agreement was reached last month, after more than a year of negotiations. Under the deal, employees will receive back pay from raises that Quinn previously froze. They will take a pay freeze for the current fiscal year but would see 2 percent increases in the last two years of the contract. Workers also agreed to pay higher premiums, co-pays and deductibles for their health care. Quinn estimates that the move will save the state about $900 million in employee health care costs over the life of the contract. “This new contract takes into account the state’s fiscal challenges, while also recognizing the vitally important work state employees do,” Bayer said.

Supporters hopeful about new bipartisan pension bill

By Jamey Dunn

Lawmakers who have been spearheading recent pension reform efforts have introduced yet another plan they say could garner strong support from Republicans and Democrats.

The changes to benefits for current employees in House Bill 3411 are identical to a bill Northbrook Democratic Rep. Elaine Nekrtiz and Sen. Daniel Biss introduced in December. Biss, an Evanston Democrat, was serving in the House at the time. “Everyone was working in good faith. Everyone was pulling in the same direction, but fundamentally, we were never able to get a bill that a critical mass of both Democrats and Republicans could support,” Biss said at a news conference to unveil the legislation today. “We had a bill that had a lot of Democrats and a few brave, or maybe foolhardy, Republicans, and then we had a bill that had a lot of Republicans and a few brave, or maybe foolhardy, Democrats. And we all knew that there was a way of meeting in the middle that could put together both coalitions at once, and I think today we’ve found it.” Biss introduced identical language to HB 3411 in his chamber as Senate Bill 35. The legislation would:

• Increase employee contributions by 2 percent of their salaries. The increase would phase in over two years. 
• Allow cost of living adjustments [COLAs] on only the first $25,000 of a retiree’s pension, or on only $20,000 for those who receive Social Security benefits. COLAs would not kick in until a retiree turns 67 or five years after retirement, whichever comes first. 
• Increase the retirement age for employees younger than age 46. Employees from age 40 to 45 would see a one-year increase, employees 35 to 39 would see a three-year increase and employees 34 and younger would see a five-year increase. 
• Limit the amount of pensionable income to the Social Security wage base, which will be $113,700 in 2013, or the employee's current salary, whichever is greater. 
• Guarantee that the state make required annual payments to the pension systems. 

Biss estimated that if the measure were approved and upheld by the courts to go into effect by July, it could shave $2 billion off the state’s pension payment for the next fiscal year. It would reduce the unfunded liability by an estimated $28 billion and fully fund the systems by 2043.

A new component of the proposal would place all employees of schools outside of Chicago, university and community college employees hired after January 1, 2014, into a so-called hybrid plan that has a defined benefits component and a defined contribution component. Schools, colleges and universities would be responsible for the cost of these plans and could offer an optional employer match of 3 percent to 10 percent of an employee’s pay for the 401(k)-like component of the hybrid plan. It is the hybrid plan for new workers that proponents point to as the compromise that will help them build support. Schools and colleges will take over the cost of retirement benefits for future employees, but the measure does not contain the cost shift of future benefits for all employees, which was strongly opposed by many Republicans. “So at the end of the day, the state, for these two systems, is out of the pensions business,” said House Minority Leader Tom Cross. “We think that is the wave of the future. It’s the way that many other states have gone and obviously the private sector. And it’s the only way we think as a state we can sustain a pension system and take care of our employees at the same time.”

A statement from union leaders called the plan “a step backwards” in the debate over pension reform. “Like the previous approach, HB 3411 continues to focus on unfair, unconstitutional benefit cuts that erode the value of retirees’ pensions. Now, it also creates a hybrid 401(k) plan that would harm retirement security for a new generation, even though this feature does not substantially address the state’s unfunded liability. Employees like teachers, state university personnel, and police officers already do not receive Social Security, and more than half of their retirement would be at market risk under a hybrid proposal like HB 3411,” The We Are One Coalition said in a news release. “Traditional defined-benefit pensions simply work better than defined-contribution plans — even hybrid plans. Defined-benefit plans are more efficient at providing retirement income. They generate better returns, and they diversify holdings and spread risk more effectively. Moreover, ongoing costs for defined-contribution plans exceed those of defined-benefit plans.”

The bill comes the day before the House is expected to consider several pension amendments from House Speaker Michael Madigan. Amendments filed by Madigan would:

• Eliminate COLAs.
• Freeze COLAs until the system is 80 percent funded.
• Require employees to contribute an additional 5 percent of their pay toward retirement benefits.
• Increase the retirement age for full benefits to 67.

However, the House is not expected to take a final vote on any of these proposals. Tomorrow’s session will likely be similar to Tuesday’s session that focused on concealed carry, when House members voted on several amendments but did not pass a bill.

House panel approves new spending for current fiscal year

Jamey Dunn

Layoffs at the Department of Children and Family Services and cuts to mental health providers would be avoided if a measure approved by a House committee today makes it to the governor’s desk.

House Bill 190 would spend about $53 million in general revenue funds during the current fiscal year. The money would come from Gov. Pat Quinn’s budget vetoes and revenues that exceeded estimates used to plan the budget lawmakers passed in the spring. “There may be as much as $58 million [in additional funds],” said Chicago Democratic Rep. Barbara Flynn Currie, who sponsors the bill.

The proposal contains $25 million for the Department of Children and Family Services. The money would help take the sting out of a $90 million cut that lawmakers approved in the spring and would allow DCFS to avoid laying off thousands of workers. When Gov. Pat Quinn vetoed money for correctional facilities that his administration has since closed or is in the process of closing, he called on lawmakers to redirect the money into DCFS. Quinn supports HB 190. The measure also contains $12 million for mental health care providers. Legislators who worked on the human services budget in the spring say they intended for providers to get the money, but the funds were not available because of a budgeting error. “We’re strongly committed to this appropriation amount,” said Rep. Sara Feigenholtz, the former chair of the human services budgeting committee in the House.

HB 190 also includes $675 million for capital construction projects. Illinois Department of Transportation Secretary Ann Schneider said the state got more federal money than expected, and revenues were higher than IDOT projected when planning its budget. “We normally put that financial plan for our highway program together about 18 months in advance, and so revenues in Fiscal Year '12 came in higher than what we programmed on.” Rep. Louis Arroyo, chairman of the public safety budgeting committee in the House, said he was unhappy that money would be pulled from the road fund. “When we sit down in my committee, nobody wants to touch the road fund, nobody wants to talk about the road fund. It’s like a sacred cow. ... So now you’re saying there’s extra money there. I didn’t know there was extra money there. There a lot of avenues that I would like to spend that road fund money on or move it over to different avenues rather than take it for this project.” He said he was uncertain about the “last minute ... funding resources that are popping up somewhere” to support the supplemental appropriation.

The measure also contains $620 million for the group health program for state employees. Currie said that in the spring, lawmakers had only appropriated for half of the cost of the program because they hoped Quinn’s administration could achieve savings through negotiations with union leaders over a new contract for state workers. But an agreement has not been reached on a contract, and Currie said it is time to put the rest of the money into health care coverage so payments to providers are not further delayed. She said that health care providers are currently waiting up to a year to be paid for treating state workers. “That really is about half of what we expected to spend. We held it back because we were hopeful that there might be savings in the group health program. They haven’t materialized. We think it’s important to go ahead and pay the bill.”

 

Time running out on pension reform

By Jamey Dunn

As the clock ticks on the final days of the two-year legislative session, sponsors of a pension reform bill work to try and line up votes before the new General Assembly is seated on Wednesday.

A House Committee approved Senate Bill 1673 today.The legislation would:

• Freeze cost-of-living adjustments for six years. 
• Increase employee contributions by 2 percent of salary. 
• Phase in contribution increases over two years. 
• Cap pensionable salary at the salary employees are earning when the bill goes onto effect or the Social Security wage base, whichever is more. 
• Include a guarantee that the state makes its annual required contribution to the pension systems. 

Once the cost of living increase returns, it would only apply to the first $25,000 of retirement incomes and would not be awarded until employees turn 67. “The choice is clear. The time is now to end the excuses and say yes to reform for our pension systems,” said Rep. Elaine Nekritz as she presented the bill in a committee today. But that choice has been delayed for at least another day. The House adjourned this afternoon without taking up the bill. Nekritz and other supporters, including Gov. Pat Quinn, continue to lobby House members to try to find support needed to get the measure through the chamber.

 House Minority Leader Tom Cross supports the legislation and emphasized the need to approve pension changes to avoid another downgrade of the state’s bond rating. “If we do nothing in the next couple days, it is inevitable that we will be downgraded.” Cross said if lawmakers fail to act before the current session ends, “our reputation continues to diminish.”

Supporters of the plan say that it must be approved to address the state’s billions of dollars in unfunded pension liability and bring down pensions costs, which are starting to crowd out other areas of spending. “It’s clear that the state cannot devote exclusively to pensions such a large portion of its budget and still maintain the functions of state government,” said Lawrence Msall, president of the Civic Federation, a Chicago-based organization that has been a major advocate for pension changes.

However, union officials argue that measure does not represent a shared sacrifice but instead seeks to solve the problem entirely at the expense of employees and retirees. “This $95 billion liability is money that has been earned and is owed to active and retired employees. It’s not something they are going to earn in the future. It is something that is already earned and is already owed,” said Henry Bayer, president of the American Federation of State, County and Municipal Employees Council 31. The Senate is not in session but a spokesperson for Senate President John Cullerton said members have been put on “standby” to return to take up any legislation that the House might pass tomorrow. But the measure may not fare well in the Senate because it lacks Cullerton’s support. He wants the House to pass a version of pension reform that the Senate approved during the legislature's fall veto session or to  incorporate provisions from that proposal into whatever legislation representatives approve. 

The House is scheduled to return at 11 a.m. tomorrow.