Illinois Reforms Public Pensions

There’s a considerable volume of state and local news that deserves comment. Most important for Illinois, the Illinois legislature has voted to reform public pensions:

SPRINGFIELD — Illinois lawmakers narrowly approved a historic, sweeping overhaul of government worker pension systems Tuesday, overcoming years of political and philosophical differences in an attempt to address one of the state’s most pressing financial problems.

The collective exhale from the state’s political leaders may be short-lived, however. Even before Gov. Pat Quinn carries through with his promise to sign the bill, unions are prepping a lawsuit to try to overturn it. They contend the benefit cuts are unconstitutional and unfair to employees and retirees.

Supporters hailed the bill as a solution that would “ensure retirement security” for current and retired state workers, public school teachers outside Chicago, university employees and state public officials. They also said it would end the squeeze on state tax dollars that increased pension costs have placed on education and social services.

But Republican opponents who argued that the measure doesn’t do enough to decrease the state’s costs contended it will lead to the continuation of a 2011 state income tax increase that was billed as temporary.

The Democratic governor, who is seeking re-election next year, would not discuss whether an extension of the tax hike will be required. He did, however, take a victory lap, relishing a breakthrough after years of stalemate on the controversial but pressing issue.

The reform is much along the lines I described yesterday:

*Establishes a payment plan to fully erase pension shortfall by 2044.

*Allows a retirement system to sue to force state to make required pension payment.

*Reduces public employee pension contribution by 1 percentage point.

*Limits future cost-of-living pension increases to 3 percent multiplied by the number of years worked times $1,000 — or $800 for those who also get Social Security. The $1,000 and $800 figures will be adjusted yearly by the rate of inflation. For example, a state employee who worked 30 years could see a $900 pension bump in year one of the plan.

*Skips some cost-of-living increases for current workers. Those 50 and older will miss one bump. Workers 43 and under will miss five bumps spread out over the years.

*Raises retirement age by up to five years for workers younger than 46.

*Creates a 401(k)-style defined contribution plan that a worker can opt into instead of continuing with the state pension plan.

*Prohibits future members of nongovernmental organizations from participating in state pension systems and bans new hires from using sick or vacation time toward their pensionable salary or years of service.

There’s a more detailed description of the provisions of the legislation and, in particular, how it affects teachers at the web site of the Teachers Retirement System.

The bill results in a significant reduction in compensation for public employees. For teachers in particular even the one percentage point reduction in employee pension contribution, presumably a figleaf being offered to gain judicial approval, is, paradoxically, a reduction in compensation since many district pay the nominally employee contribution directly and don’t deduct it from the teachers’ paychecks. The law will unquestionably be challenged in the courts.

It hasn’t been mentioned in any of the press reports I’ve read but I’ve heard that the law exempts judges’ pensions from the reform. That may sweeten the deal for the judges who will decide on the law’s fate but it’s certainly unseemly and I might be naive but it would appear to me that would present grounds for challenging the law in federal court. As mentioned above the reduction in employee contribution sets the stage for the state arguing that the new law doesn’t violate the state’s constitution because of it. IMO it will take state justices who are very committed to legislating from the bench and, coincidentally, taking the pressure off the governor and the legislature to rule that the new law doesn’t violate Article XIII Section 5 of the state’s constitution. A reduction is a reduction.

Basically, public employees have been hornswoggled. As I suggested yesterday some of that is their own darned fault for persistently voting governors and state legislators into office who preferred extending the state’s financial commitments over paying the expenses to which the state had already committed.

I don’t honestly know what recourse Illinois’s public employees will have. At this point the reform movement in Illinois is moribund and there is no progressive populist faction waiting in the wings.

And, of course, this reform does nothing to pull Chicago’s onions out of the fire. Chicago faces a fiscal cliff of its own next year, due to a combination of pensions for city workers and the state’s insistence that the city start righting its fiscal house immediately.