Friday, March 04, 2011

Report says pensions underfunded by $76 billion

By Jamey Dunn

While lawmakers and civic organizations continue to debate the fate of pension benefits for current state employees, Auditor General Bill Holland reported that the state’s unfunded pension liability increased in the last year.

Eric Madiar, chief legal counsel for Senate President John Cullerton, penned an analysis released this week that says changing benefits for those already working for the state would go against Illinois’ Constitution. Madiar reviewed the origins of the pension clause in the Illinois Constitution, including correspondence of delegates to the 1970 constitutional convention and media coverage of the time, to try to determine the intent of the provisions’ drafters, as well as voters’ understanding of what they were voting on when they approved the Constitution.

According to Madiar, it's nothing new for the state to fail to do its part in funding pensions. He writes that the framers of the Constitution were “inundated” by requests from public employees, especially university employees and police and firefighters, for some form of constitutional protection for their pensions. They were concerned that insufficient funding from the state would put their retirement plans in jeopardy. Edward Gibala, then executive director of State Universities Retirement System, also wrote a letter to a delegate advocating constitutional protection.

Madiar concludes in his opinion that while it might be convenient to target ever-growing pension costs in the current economic downturn and state budget crisis, it would be unconstitutional. He argues that the point of the pension clause is to protect against just such a scenario and notes that courts upheld the earlier Illinois Constitution even during the Depression. Madiar writes that “the rule of law in Illinois and keeping promises” is at stake when considering trimming benefits for current workers.

The Civic Committee of the Commercial Club of Chicago has been one of the most vocal advocates for changing retirement benefits for current employees. It commissioned its own legal opinions that say such changes would be constitutional. The group advocates giving employees all the benefits they have earned up to the date of a change and then giving them the option of three different plans with reduced benefits. House Rep. Tom Cross is sponsoring the plan. “We will continue to work with the other members of the General Assembly, including Senate President Cullerton, Speaker [Michael] Madigan and Leader [Christine] Radogno, to find the best solution to stabilize our pension system. … It is our understanding that there will be a working group meeting soon to discuss pension reforms,” Cross said in a written statement. Madigan has said he agrees that such a change could be an option for the legislature.

Tyrone Fahner, president of the Commercial Club, said that this issue, just like any other legal issue, has arguments on both sides. “It’s a very substantial effort, but the conclusion is simply wrong,” he said of Madiar’s analysis. He added that some of the statements in the analysis lack context or have been given the wrong context. “ I don’t believe you can take what people write in a legislative history [and correspondences] versus what they say on the record,s what they do on the record.”

Commentators on all sides agree that part of the reason the pension system is not properly funded is because state politicians have skipped payments to defer unpopular decisions such as cuts to programs or increased taxes. “The legislature and various governors chose for decades to use the pension system as a credit card to fund public services and stave off the need for tax increases or service cuts,” Madiar wrote.

Holland released a report this week stating that the state is now $76 billion short on fully funding the pension system. He said next fiscal year’s required contribution from the state will be more than $5 billion, which is roughly $1 billion more than the payment for the current fiscal year. Lawmakers voted to borrow to make that payment.

Fahner said his organization is working to find legislative language that would put Cullerton’s fears of unconstitutionality to rest. However, Cullerton has stated multiple times that he believes the concept is unconstitutional, so the group may be hard-pressed to find language he would approve. “We’re trying to find a way to convince them that what must be done can be done,” Fahner said. He added that he hopes to put the legal issue to rest so lawmakers can address what he says is the real issue at hand — the possible implosion of the state’s underfunded pension system. “Many of the people working right now that are expecting a pension aren’t going to get one.”


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