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Will Illinois Ever Solve Its Pension Problem?

Almost four years after the first try, pension reforms seems politically realistic—and perhaps legally as well.

In the Capitol, it’s almost within reach.   Photo: Adam Wolffbrandt/Chicago Tribune

One of the Rauner administration’s most prominent and controversial demands is to find a way to reduce how much the state spends on its retired employees. For political and ideological reasons, Illinois Democrats are supported by labor, and support it in turn, so pension reform is not popular among the Democratic base.

Yet pension reform has had plenty of momentum, even pre-dating the Rauner administration. The reason, at its most basic, is that Illinois’s pension obligations are currently too huge to feasibly pay without untenable tax hikes, service cuts, or both.

If anything, the most concerted and successful attempt at pension reform was too aggressive—if not politically, than legally, which is why it (rather predictably) was ruled unconstitutional by the Illinois Supreme Court.

That bill, passed in 2013 by a Democratic House and Senate and signed by a Democratic governor, would have cut cost-of-living increases for retirees. It was expected to save $160 billion over 30 years. At the time, ABC7 did a good breakdown of what reducing cost-of-living adjustments would have done to retiree pensions. For example, a Department of Children and Family Services caseworker with 20 years of experience who started at $50,000 in retirement, could receive up to $90,000 after 20 years of retirement. The bill would have reduced the latter number to $63,000, for a total cut over those 20 years of over $260,000.

But Illinois has arguably the strongest protections against altering retiree pensions in America, a legal reality that dates back nearly 50 years to the constitutional convention of 1970. Even back then, the framers of the new state constitution knew how tightly the state would be bound to its pension agreements. 

And because it was understood then, it was pretty well understood in 2013. Senate President John Cullerton’s then-chief legal counsel, Eric Madiar, warned in a thorough analysis that unilaterally cutting benefits wouldn’t fly. So Cullerton proposed a different plan wherein retirees could choose between their cost-of-living increases and subsidized health care. (The legal theory was that by offering a choice—as crappy as it was—rather than simply cutting benefits, the choice that the retiree makes is a new contractual agreement, and therefore constitutionally acceptable.)

It still seemed like a moon shot, as I described it at the time. Either way, the unilateral approach won the day, and one and a half years later, lost in the Supreme Court. It didn’t help that the decision coincided with the income tax increase—the court pointed out that the state, far from having its hands tied in terms of pension costs, managed to raise taxes in order to start digging out of its hole.

Cullerton’s plan kept floating around; his latest pension reform effort is a revised version. Doug Finke of the SJ-R has a good explainer here; in short, an employee would have a choice between:

  • taking a three percent cost-of-living adjustment, but not be able to count raises toward his or her final pension, or
  • taking smaller cost-of-living increase, but raises would be counted towards the pension.

The key is to this proposal is that raises aren’t guaranteed income, so the amount of the pension based on those raises isn’t (theoretically) constitutionally protected. And by offering employees a choice between the two options, whatever pension they get is the result of a contractual agreement.

But, of course, it would save much less money than the SB1 bill that passed in 2013 ($700 million to $1 billion a year rather than $160 billion over thirty years). As with anything that would cut pension payments, there’s no guarantee that it would pass muster with the Supreme Court, though the latest approach seems to be the most realistic one thus far. And as Finke just reported, Cullerton’s newest approach was wrapped up into a bipartisan bill that just passed out of a House committee on May 16.

Almost four years after the first try, pension reforms seems politically realistic—and perhaps legally as well.

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