Tuesday, April 30, 2013

Rep. Nekritz: "This feels like this could be it" for pension changes

By Jamey Dunn 

A key player in the Illinois House said a new proposal from Speaker Michael Madigan could be the pension change legislation that goes the distance in the House.

“This feels like this could be it,” said Rep. Elaine Nekritz, who has sponsored several pension bills and has been at the center of the push to change public employee retirement benefits and cut costs in the system that is underfunded by about $100 billion. The newest pension proposal is presented in an amendment to Senate Bill 1, which was Senate President John Cullerton’s preferred plan. The amendment would replace Cullerton’s plan with a language that is similar to House Bill 3411, a proposal from Nekritz that has bipartisan report. Among other things, HB 3411 would have capped the amount of salary used to calculate benefits and limited the amount of pension income considered for Cost of Living Adjustments (COLAs).

Madigan plans to present the amendment in the House pension committee scheduled for 8 a.m. Wednesday. Nekritz, a Democrat from Northbrook, said Madigan’s hands-on approach is one of the reasons that she thinks this plan could pass in the House. “It’s a Speaker Madigan bill, and he is the sponsor, which I think is an important statement about his engagement in this,” she said. Nekritz said that because of procedural constraints, the bill would not come up for a floor vote Wednesday, but a committee vote is expected.

Some of the components of the new proposal are the same as the previous plan. The amendment to SB 1 would:

  •  Increase the retirement age for employees younger than age 46. Employees from age 40 to 45 would see a one-year increase, employees 35 to 39 would see a three-year increase and employees 34 and younger would see a five-year increase. 
  • Require employees to contribute 2 percent more of their salaries. The increased contribution would be phased in over two years. 
The new plan also has some tweaks:
  • Pensionable salary would be capped at $109,000, the limit that is currently used for Tier Two employees. HB 3411 called for a higher cap at $113,700. The cap would increase at the rate of one half of the Consumer Price Index that is set for urban consumers. 
  • The amount of pensionable salary that would be eligible for COLAs would be based on the amount of time employees worked. For each year of employment, $1,000 (or $800 for employees who receive Social Security benefits) of pension income would be eligible for COLA. For example, if an employee worked for 30 years, then $30,000 of their retirement benefit would see an annual COLA. 
The proposal contains a guarantee that the annual payments will be made into the pension systems. It aims to fully fund them by 2044. The bill does not contain a shift of pension costs to schools outside of Chicago, public universities and community colleges. It also does not create a Tier Three for newly hired employees. Nekritz said that she thinks Madigan opted not to address the cost shift because it is unpopular lawmakers outside of Chicago. She said it may have been removed to bring in more support for the bill, but she said that the issue should be revisited in the future.

The amendment to SB 1 also includes an eight-page preamble that lays out the case for the need to reduce retirement benefits, which are protected by the state’s Constitution. Nekritz and others have argued that the situation is so bad that the courts should give the state special powers to cut benefits and make other changes to save the systems. Those interested in predicting some of the points the state might make in a legal argument to defend unilateral pension changes could take their hints from the language, which describes the state’s budgetary turmoil and the steps that have been taken to try to reach fiscal stability. “The state's credit rating has consistently worsened in the assessment of all three major ratings agencies, the state's backlog of unpaid bills has not grown smaller, and the various non-discretionary and formula-driven expenses whose growth has created the lion's share of the problem are projected to continue unabated. Under the current payment schedule set in Public Act 88-593, the pension payment especially is expected to grow extremely rapidly until Fiscal Year 2045,” the bill says. “Consequently, the coming months and years will necessarily see much more action by the State to achieve fiscal stabilization. If these steps toward fiscal stabilization do not include pension reform to restrain the growth of the annual pension payment, the result will be devastating and dramatic cuts to education, public safety, and transportation.”

The legislation goes on to say that without such changes to pensions, the state would struggle with meeting other obligations described in the Constitution. “The impact of such actions on the Illinois economy, and on the health, safety, welfare, and educational development of the people would likely be extremely severe. This harm could include significant economic contraction, which would in turn exacerbate the underlying fiscal challenge, resulting in a downward spiral of standard of living and likely leading to an eventual inability of the state to meet its short term statutory and Constitutional responsibilities.

Unions leaders say the proposal is clearly unconstitutional. “Our coalition has said time and again that we oppose unfair, unconstitutional pension cuts. Public workers and retirees should not be punished for a problem politicians created,” said a statement from the We Are One Coalition, which includes public employee unions and teachers' unions. “While we want to work together to solve the pension problem, the amendment filed today by the House speaker represents the same illegal approach to slashing hard-earned life savings protected by the Illinois Constitution. Should it become law, we believe a successful legal challenge is all but certain, with the bill saving nothing and the state’s budget problems made worse.”

While the House is considering Madigan’s plan, Cullerton says he is still negotiating with union leaders to craft a compromise in the Senate. “We’re still negotiation with the unions to try to get the unions to be for a bill. That would be very helpful. We are prepared, I would say, [to] soon -- in the next week or so -- to move ahead with votes. ... It’s all about getting something passed,” Cullerton said. He noted that the Senate rejected a proposal from Evanston Democratic Sen. Daniel Biss, who has partnered with Nekritz on the efforts to pass pensions changes. That bill is similar to Madigan’s proposal. However, it would have sifted pension costs for future employees to schools.

Cullerton believes that lawmakers cannot change pension benefits unilaterally without offering them something in exchange. His version of SB 1 contained a proposal similar to HB 3411, but it also contained a backup plan that Cullerton said would kick in if the courts find the House proposal unconstitutional. Cullerton’s proposal would offer employees a choice, sometimes referred to as consideration, between access to retiree health care or a compounded COLA. Cullerton said that any plan resulting from negotiations with the unions would also have some sort of consideration. He noted that having union support of any plan would not necessarily make it constitutional, and individual employees would still be free to challenge it in court. “That just makes it easier to pass it. There still could be a lawsuit, sure. Anybody could sue.”

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