Wednesday, December 19, 2012

State employees would pay more
under union-backed pension plan

By Jamey Dunn 

Union officials pitched a pension reform plan today that would ask state workers to pay more for their benefits.

Under a plan proposed by the We Are One Coalition, a group of unions that represent a variety of state workers including teachers, health care professionals and university employees, workers would contribute more in exchange for legislators making an “iron-clad guarantee” to make the required pension contribution each year. “Teachers and administrators and 80 percent of all state workers do not collect Social Security [benefits]. ... The workers have made their pension payments, from the 9.4 percent paid by teachers to the 12 percent paid by the police. The reason we are in this mess today is the persistent failure of elected leaders to budget and pay the systems year after year,” Illinois Education Association President Cinda Klickna said. Employees would contribute 2 percent more of their paychecks toward their retirement benefits. The portion of their incomes that employees pay now varies across the state’s five pension systems. The group says that increase would bring $350 million more into the systems annually.

Union officials said that no proposals considered so far meet the constitutional requirements that protect public employee retirement benefits. “Any proposal which fails to deal with the pension funding and does not pass constitutional muster is not real. It’s only prolonging the state’s fiscal woes,” said Joanna Webb-Gauvin, the legislative director for the American Federation of State, County and Municipal Employees Council 31.

The coalition is calling for a “pension summit” to negotiate an agreed-upon plan that Klickna said unions want to see passed during the new legislative session, which starts in January. Gov. Pat Quinn responded to the proposal: “We always want to look at everything. I think it’s useful to look at everybody’s ideas. We’ve been doing that, really, for more than a year. If there are some good concepts there, we can incorporate them. But I think this is not a time to delay or postpone.”

“We want an end to the gridlock as well,” said Toby Trimmer, director of political activity for the Illinois Federation of Teachers. ... We want to sit down at the table, but we want a seat at the table. We don’t want to be on a platter.”

Union representatives said Quinn’s public outreach efforts, which paint the situation as an option between cutting pension benefits or cutting education and human services, are unfair because they do not consider other areas of spending, such as tax breaks. The coalition is proposing the elimination of $2 billion in tax benefits for businesses. “Today, the state of Illinois has a massive pension problem, the root cause of which can be expressed in one single word: revenue. Past governors and legislators took money the state owed the pension systems and spent it elsewhere. Fixing the problem requires that the money that was diverted must be replaced,” Klickna said. The group did not have actuarial figures on the impact their proposal would have on the system, or whether it would eventually result in a fully funded system.

The unions' overall plan is similar to one they pitched last summer that was met with little to no attention from Quinn and lawmakers. However, a recent report from Moody’s Investor Services lends come credibility to the unions’ argument about the need for revenue. “Despite a diverse economy with above-average wealth, lackluster demographic and economic characteristics indicate that even with continued U.S. economic improvement, the state's existing tax structure will not provide enough revenue to address the rising cost of pension benefits and other state expenses,” the bond-rating agency stated. It changed the state’s fiscal outlook last week from stable to negative, in part because of inaction on the pension issue.

At an event in Cicero announcing grants for early childhood education today, Quinn again pitted retirement costs against school funding. “In order to have good education, including early childhood education, we have to reform our pension systems because in a few short years our state will actually be spending more money on pensions for former government employees than we spend on education for our children and our students,” he said. “I’m optimistic we can come up with a sound plan that meets all constitutional tests, that’s fair to the workers -- they’ll have a decent retirement -- that’s is also fair to the taxpayers and most of all the children of Illinois. We can’t let them down, and we must address pension reform right away.”

Many of the tax breaks on the group’s list perennially pop up as options for new revenue. Quinn himself recently pitched some of them as a way to supplement the state’s underfunded capital construction plan. “Too often, states agree to weaken their revenue systems based on vague corporate claims of ‘job-killing taxes’ or a state’s lack of ‘business-friendliness’ without any evidence of the actual tax burdens of companies. This overemphasis on lowering taxes ignores the relatively small role impact taxes have on states’ economic development climates and neglects the very important role those taxes play in funding the services and infrastructure that actually do attract investment and jobs. Once written into law, these tax breaks are rarely if ever reviewed to see if they fulfilled their intentions,” stated a report released by the union coalition today.

“It’s unfortunate that they’re trotting out these old ideas that the General Assembly has continually turned thumbs down on,” said Mark Denzler, vice president and chief operating officer of the Illinois Manufacturers’ Association. He noted that virtually all corporate tax breaks the state offers could be eliminated, and it still would not solve the pension systems’ underfunding problem. “How much more do they have to pay? It comes down to, you can’t keep raising taxes on the few employers that are remaining here because you are going to run them out of state.” Denzler said the manufacturing sector has seen growth recently for the first time in years and that eliminating some of the tax breaks on the coalition’s list could imperil that progress. “Coming out of a recession, manufacturing has been one of the bright spots.”

He said manufacturing jobs and research-and-development jobs often pay well enough to keep a family firmly in the middle class, and many are held by members of private sector unions. “It’s interesting [this is] coming from the unions. Without good manufacturing companies, you lose a lot of union members. If you’re going to have big manufacturing companies and small manufacturing companies leave, you’re going to lose a lot of your private-sector union employees,” he said.

Denzler said business leaders are willing to discuss changes to the tax code as part of an overall conversation that would include other issues that contribute to their costs, such as the state’s worker’s compensation system. He said ideas such as expanding the state's sales tax base to some services while lowering the overall rate could be a good place to start negotiations about reworking Illinois' tax structure.

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