As Time and Cash Run Out, Pols Must Launch Pension Rescue

By Robert Reed
This Think Tank post was also published as an OpEd on Friday, Feb. 3, 2012 in the Chicago Sun-Times. Robert is the BGA’s director of programming and investigations. Contact him at rreed@bettergov.org. Follow him on Twitter @RReedBGA.

Long after the state’s public pension alarm began to blare, Illinois’ leadership is finally roused and ready to answer the call.

Maybe.

This year, we’ll see how determined our leaders are as they launch various efforts to comprehensively fix a benefit system that’s teetering on financial ruin and may ultimately plummet the state government into insolvency.

The Better Government Association welcomes the reform effort and is also encouraged by recent crackdowns on individual pension abuses that have been uncovered in exposes by the BGA and media outlets. But this problem goes beyond such isolated repairs and it’s high time our leaders toughen up and hammer out systemic remedies.

Democratic and Republican powerhouses are ramping up for this legislative session:

• Having avoided aggressive pension reform for most of his tenure, Democratic Gov. Pat Quinn says he’s raring to go. Recently, Quinn forged a bi-partisan working group of lawmakers and others to embark on a comprehensive examination of the state pension crisis. Quinn’s goal: Prescribe remedies that the governor says can be accomplished in a “fair and constitutional manner.”’
• Meanwhile, the powerful Democratic House Speaker Michael J. Madigan is interested in the way state pensions invest retirees’ money. He’s convened a special House committee to examine the major funds’ financial strategies. Madigan’s goal: Determine how decisions are being made and how much risk these portfolios carry, especially in today’s choppy economic seas.
• Across the aisle, Republican House Minority Leader Tom Cross (who is chairing the special House panel on investments) is also again gearing up proposed legislation that would alter benefit structure for current state workers. Cross’ goal: Pass a law that protects worker benefits already accrued but reduce them going forward either by having employees pay more into a defined plan like a pension or opt for a defined contribution plan, such as a 401 (k).

It’s encouraging to see state chieftains address the larger pension issues and take a wider view.

That direction is a welcome departure from the recent past when the crisis has been ignored or when lawmakers settle for passing important but incremental reforms, usually after the BGA and media reports uncover embarrassing abuses of the current system that make taxpayers’ blood boil.

For example, lawmakers last session outlawed the egregious practice that allowed two education lobbyists, who were each substitute teachers for merely one day, to become eligible for hefty public pension payouts.

While such repairs provide momentary relief, they are not the real answer to this systemic quandary. We need solutions that match the size and scope of this enormous crisis.

Obviously, it’s a huge challenge and the BGA doesn’t profess to have all the answers.

But here are some issues the BGA would like to see addressed in the upcoming session: Suspending or limiting cost of living adjustments; capping the amount of money a retiree receives (as is done in the private sector) no matter how many public pension plans they have been in; prohibiting “back-loading” or “spiking” by ending the suspicious practice of state employees getting last-minute promotions or salary increases which translate into heftier pension payouts; and consider phasing out defined pensions for defined contribution plans, like a 401 (k).

The BGA knows there are stormy debates ahead especially whether any changes to the state pension rules for current workers is legal under the Illinois Constitution.

Moreover, organized labor can rightly argue that the state caused this massive shortfall by not keeping its word and properly funding its pension plans.

Yet despite the fiscal complexity and political reality that dogs this controversial issue, we are on the verge of disaster.

It’s time to stop stalling. The alarm bell is clanging and our state leaders must confront this emergency before it’s too late.

Gaming, ‘Smart Grid’ Bills Top Illinois Veto Session Agenda

By Emily Miller
Emily is the BGA’s Policy and Government Affairs Coordinator. Contact her at emiller@bettergov.org.

The Illinois General Assembly reconvenes every fall for a two-week “veto session.”

Technically, state lawmakers are supposed to consider bills the Governor has rejected, but it’s not unusual for other initiatives to surface and be voted upon during this legislative get-together.

So what will lawmakers be focusing on? Here’s what’s likely to be considered:

(conorwithonen/CC)

Gaming expansion
One high-profile issue legislators will address is statewide gambling expansion, a measure the General Assembly approved in the closing days of the last regular session.

Although Governor Quinn never received the actual bill, he signaled he would veto it should it arrive on his desk. As an alternative to that proposed veto, Quinn recently suggested ways the gambling expansion bill could be amended to maximize revenue and increase regulation in what he dubbed a “Framework for Gaming in Illinois.”

The BGA pressed the governor not to approve any gambling expansion bill without more public discussion and community input. The BGA is also concerned the state does not fully understand the economic impact of gaming expansion and is relying on outdated or faulty revenue projections.

A spokesman for Senate President John Cullerton, who held back the original gaming bill from Quinn, told the BGA that passing a compromise bill that works for both the gaming industry and the Governor is among Cullerton’s top veto session priorities.

President Cullerton intends to prove Quinn’s “framework” is not a workable proposal by giving lawmakers the chance to vote on a bill that closely mirrors Quinn’s proposal. Cullerton’s hope is that the failure of the bill will bring Quinn to the negotiating table.

However, the Governor has repeatedly said he is not interested in hammering out such a compromise—and strongly believes his “framework” is the smartest and best plan for Illinois, and anything less is unacceptable.

Insiders doubt a compromise bill can pass, especially one that does not include so-called “racinos,” or casinos at racetracks—a piece of the original legislation the Governor opposes.

Removing pieces of a bill that was carefully calibrated to satisfy all the specialized interests found in the gaming industry would almost certainly lead to the bill’s demise.

Will the "smart grid" bill make it out of Springfield?

ComEd and Ameren’s “smart grid”
The wheels have already started turning to override Governor Quinn’s high-profile veto of the so-called ComEd “smart grid” bill.

Under the legislation, ComEd and Ameren avoid independent regulation and lock in rate hikes over the next decade to pay for a system upgrade that, they say, will make Illinois energy delivery more reliable and competitive.

Unlikely proponents include environmental groups, who signed on in support of the measure in exchange for the inclusion of renewable energy and improved efficiency standards. The bill’s opponents, including the AARP, Attorney General Lisa Madigan, and Lieutenant Gov. Sheila Simon, argue the legislation allows ComEd and Ameren to bypass state regulation, leaving consumers vulnerable.

A so-called “trailer bill,” touted by proponents as a fix to many of the Governor’s concerns regarding consumer protection, was pushed by the industry and passed out of the Senate on Tuesday.

Expect ComEd and Ameren to keep pushing to get both the trailer bill and the veto override through the Senate this week, so they can focus on getting the measure through the House during the second week of veto session.

A BGA investigation found that in the months leading up to the Illinois General Assembly’s approval of the controversial energy bill, utility giants ComEd and Ameren, and their executives and affiliates, donated more than $1.3 million to campaign funds benefiting state lawmakers.

Chicago Board of Trade Building (puroticorico/CC)

Tax incentives for Illinois futures industry
A spokesman for Senate President John Cullerton said Monday that lowering the state’s corporate income tax rate for the Chicago Mercantile Exchange (CME), the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) to keep their business in Illinois is a top priority for the veto session.

A spokeswoman for Republican Senate Leader Christine Radogno characterized the measure as part of a larger jobs initiative—one that includes other incentives to keep companies like Sears in Illinois. She does, however, have reservations about speeding the measure through the General Assembly before its full impact is known.

But Crain’s Chicago Business political columnist Greg Hinz reports that the deal that gives the exchanges a 50 percent reduction in their tax rate would reduce state revenue by $100 million a year. As Crain’s points out, the CME, one of the slated recipients of this corporate tax break, saw more than $900 million in profits last year alone.

House Majority Leader Barbara Flynn Currie questioned whether the bill was even necessary, according to Crain’s.

But Chicago’s Mayor Emanuel strongly supports the incentive. If Senate President Cullerton can sweeten the deal enough for Senate Republicans to support the measure, Mayor Emanuel may be able to use his influence with Chicago-area lawmakers to push the measure out of the House.

Abolishing Legislative Scholarships
Though the legislative scholarships program—which allows lawmakers to hand out scholarships for state schools to anyone in their district—has been under a microscope in recent months following reports of misuse by some lawmakers, it is unlikely this program will be abolished during veto session.

Governor Quinn attempted to abolish the program by adding language to a bill he vetoed—a move House Speaker Madigan deemed an unconstitutional overreach of the executive office. Attempts by Senate Republican Leader Radogno to pass a bill abolishing the program have been quashed by Senate President Cullerton.

The Governor’s staff says the issue is a top priority for him this veto session. But if neither Speaker Madigan nor President Cullerton is interested in moving the bill, it will go nowhere.

In August, a BGA/Chicago Sun-Times investigation revealed how State Rep. Dan Burke’s ex-secretary’s daughter received a legislative scholarship, despite questions regarding her residency in his district. The FBI is looking into the grant.

Facility Closures
This summer, Governor Quinn announced that a state budget shortfall of $376 million lead to his decision to close mental health and prison facilities around the state.

He has blamed the cuts on lawmakers who failed to give him a budget sufficient to pay for a whole year of expenses, and has encouraged lawmakers to fill in the budget gap during veto session to prevent the closures.

Since his announcement, the American Federation of State and Municipal Employees (AFSCME) has been trying to shore up enough votes for appropriations to prevent closure of the facilities.

It’s not out of the question for the General Assembly to come up with the cash to fully fund the facilities for the rest of the year, which would bring the closure proceedings to a halt.

Illinois’ Unpaid Debt and Public Pension Reform—the Elephants in the Room

Two of the biggest problems facing Illinois are its backlog of unpaid bills and the need to reform public pensions. But most don’t expect either of these issues to move this fall in Springfield.

None of the legislative leaders we spoke to cited eliminating the backlog of debt as a priority for veto session. It’s not likely that any plan will emerge in the coming weeks to address the issue.

Similarly, it’s not likely that major pension reform—one of the most pressing and divisive political issues facing lawmakers—will move at all.

While House Republican Leader Tom Cross has introduced measures that would eliminate some pension loopholes, few lawmakers expect any large-scale pension reform bill to get a vote in the veto session.

Sooner or later, Illinois legislative leaders will have to address both of these issues, but it’s not likely they will do so this fall.

Will Illinois State Lawmakers Accept Brunt of Pension Reform?

Minority Leader Tom Cross with Speaker Madigan

One of the public pension reforms being proposed in Springfield this week will have its biggest economic impact on lawmakers.

As the BGA Think Tank reported last week in “Who can Fix State’s Public Pension Crisis? Try H.G. Wells”, lawmakers, led in the Republican House by Minority Leader Tom Cross, are considering a plan requiring all current public employees to choose one of three options in regard to future retirement benefits. Employees can choose to enroll in the pension plan available to new employees, which offers a lower state contribution; they can enter a 401(k) plan; or they can keep their current benefits and contribute a significantly larger percentage of their pay to the pension fund.

It’s that final option that has had lawmakers and staff scrambling to crunch numbers in Springfield to determine just how much more employees would have to contribute.

Originally, the pension reform bill called for an increase in all employees’ contributions to 20 percent—an idea that failed to garner enough support to get either Democrats or Republicans to vote for it. So lawmakers and staff have been crunching numbers to determine how much of an increase in employee contributions to pensions would actually be required for each group of employees to make the pension system financially sound.

In our recent “Sticker Shock” investigation into Illinois public pensions, the BGA reported that many of the state’s best-known politicians are receiving in large annual pensions and that more than 10 percent have already been paid more than $1 million since retiring.

Now, according to the Capitol Fax Blog, the numbers have been released, and the actual increase in the percentage of pre-tax income that goes to pensions is largest for state legislators. According to the Blog, the General Assembly Retirement System employee contribution would increase from 11.5 percent to 24.89 percent.

Other public employees would see increases in their contributions, but none as significant as those aimed at lawmakers.

The proposal is far from a slam-dunk. Unions, who oppose the plan, point to the Illinois Constitution, which states that pension benefits for current members cannot be diminished. They are working hard under the dome and on the airwaves to fight against changing benefits for its members.

Even if a bill changing pensions for current employees passes and is signed by the governor, the American Federation of State, County, and Municipal Employees, which represents 75,000 public employees in Illinois, will likely file a lawsuit challenging its constitutionality.

While the proposal itself may not pass the legal and political muster it needs to succeed, amidst all the talk about budget slashing and shared sacrifice, it is refreshing to see lawmakers take a look at ways they can help share and alleviate the fiscal burden of our state.

Who Can Fix State’s Public Pension Crisis? Try H.G. Wells

Read the BGA’s recent three-part investigation: “Sticker Shock: Illinois’ Public Pension Crisis”

The best way to fix to Illinois’ deteriorating public pension system would be to hitch a ride on a time machine that would allow lawmakers to roll back decades of mistakes and mismanagement that produced a system at least $80 billion in the hole and going under fast.

But while the Illinois General Assembly is known to take the occasional flight of fantasy worthy of sci-fi master H.G. Wells, nobody in that legislative body has invented such a device—leaving them to concoct their own solutions to the public pension crisis.

So let’s look at some of the government pension issues and repairs being proposed by lawmakers and whether any have a chance to make it out of the General Assembly and onto the governor’s desk for a bill signing into law.

New Legal Opinion Slices Into Critics’ Efforts to Cut Ill. Worker Pensions

Another voice is heard in the ongoing debate over Illinois’ ailing public pensions but it won’t be the last one to speak out on this controversial issue.

Attorney Eric Madiar, chief legal counsel to Illinois Senate President John Cullerton, today weighs in with a comprehensive analysis about whether the Legislature can chop into the pension benefits of current public employees.

Madiar’s conclusion: No way.

In his analysis, Madiar argues any attempt by the Legislature to reduce current employee benefits in the public pension system would violate the state’s Pension Clause, which was adopted when the Illinois Constitution was drafted and approved in 1970.

Madiar’s analysis concedes the pensions are in financial straits while taking direct aim at arguments made by public pension critics and Chicago law firm Sidley Austin LLP, which contend the state is acting more like Santa Claus when it comes to funding public pensions with tax dollars and that reducing current state workers’ benefits is totally legal.

The Civic Committee of the Commercial Club of Chicago often cites Sidley’s argument when discussing the public pension fund crisis. The state’s five major pension funds are projected to be underfunded $80 to $100 billion—money the taxpayers are on the hook to eventually pay.

The Chicago Tribune editorial board has also echoed Sidley’s argument, calling for reducing the benefits of current state employees.

(The state has approved a law to reduce the pension benefits of new state employees.)

It’s unlikely that Madiar’s analysis will put to rest the issue of whether it’s legal to cut into current state workers’ pension benefits. Nor will it stop opponents from advocating huge benefit reductions.

Indeed, critics could dismiss Madiar’s analysis as a partisan interpretation on behalf of the heavily Democratic and pro-labor Illinois Senate.

Nonetheless, Madiar’s report will provide additional legal cover for those politicians who don’t want to take on the labor unions or tackle such a highly contentious issue.

By the way, Madiar does not say it’s impossible for the state to cut the benefits of current state workers.

Instead, he asserts that the only way to do so is through collective bargaining—an issue that’s ignited a firestorm of controversy between public employee workers and the governor of neighboring Wisconsin.