Wednesday, May 01, 2013

House leaders hopeful about vote to alter public employee pensions

By Jamey Dunn

An Illinois House vote on changes to the state’s pension systems is planned for Thursday, and legislative leaders from both parties are optimistic that the newest iteration of pension reform can pass.

A House committee this morning approved an amendment to Senate Bill 1 presented by House Speaker Michael Madigan. “This amendment would offer a comprehensive reform of the Illinois pension systems. It would bring solvency and stability to the four systems,” Madigan told the committee. The measure contains several provisions pulled from other bills, including ideas that have already been approved by the House.

The new version of SB 1 would:

  • Increase the retirement age for employees younger than 46. Employees from 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. 
  • Cap pensionable salary at $109,000, the limit that is currently used for Tier Two employees. The cap would increase at the rate of one half of the Consumer Price Index that is set for urban consumers. 
  • Base the amount of pension benefits that would be eligible for cost-of-living adjustments (COLAs) 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 a COLA. For example, if an employee worked for 30 years, then $30,000 of his or her retirement benefit would see an annual COLA. Before employees reached their cap, they would receive a compounding COLA. After they reached the cap, they would get a flat annual increase. 
The measure does not contain any shift of future pension costs to schools outside of Chicago, public universities and community colleges. Such a provision helped sink an effort to pass pension changes in the final days of the legislative session last spring.

Chicago pays most of the employer cost for its teachers’ pensions, and Chicago Democrats have argued that it is unfair that the state chips in for benefits for teachers outside of the city. Madigan said he plans to move some kind of cost shift separately from SB 1. “I plan to do that on a different bill,” he said. “We haven’t begun that process.” However, he said he wants to pass it this session. Republicans, who oppose the cost shift, argue that Chicago makes out better than the rest of the state when it comes to overall education funding.

SB 1 aims to fully fund pension benefits by 2044. However, Madigan said there has not been an actuarial analysis of this new plan. “The only thing we can do today is to work off of the numbers that were generated from the other bills. So there’s a certain amount of speculation.” He said that if the bill were approved and signed into law, legislators should not count on any savings until the Illinois Supreme Court weighs in. “I just think that it would be prudent not to spend the anticipated savings in the next budget.” Madigan said he is confident that at least four members of the court would find the bill constitutional. However, he said that he had not talked with any of the justices about the legislation and did not plan to in the future. “It’s just my judgment,” he said. “I’ve had no conversations with any member of the court.”

The changes in SB 1 would apply to teachers outside of Chicago, state employees, legislators and university and community college employees. The state’s judges are not included in the plan. “That’s a practical judgment,” Madigan said about leaving out the judges. When pressed on the issue, he said he had “no further comment.”

Union leaders panned the bill, calling it blatantly unconstitutional and unfair to workers who made their required contributions while the state skipped payments. “The problem with this amendment is there is no shared sacrifice. While we ... have been willing to work collaboratively toward a fair and constitutional solution, this amendment represents a diminishment of benefits clearly prohibited by the Illinois Constitution,” said Michael Carrigan, president of the Illinois AFL-CIO. “Fixing a funding issue on the backs of public-sector workers, hard-working Illinois workers, by slashing their retirement benefits is not good public policy and will result in a legal challenge [that is] certain to be successful.”

Cinda Klickna, president of the Illinois Education Association, said the benefit cuts in the bill would make it difficult for some retirees on fixed incomes to make ends meet. She said that cuts to their incomes, which would likely result in them spending less, could hurt local economies. “Every public employee will be hurt. Every community will feel the impact, and it is about people,” Klickna said. “We can talk about numbers, we can talk about the state budget. We can talk about what something saves, but I think it’s a sad state of affairs when the state ignores its people.” Klickna added that increasing the retirement age means teachers would stay in their positions longer, making it more difficult for aspiring young teachers to find jobs.

But the unions’ complaints did little to dampen the optimism of those who see this bill as the culmination of work on the issue in the House. “My guess is this thing will pass out of the House. The question is what’s going to happen in the Senate,” said House Minority Leader Tom Cross, who has signed on as a cosponsor of the bill with Madigan. He said about the two partnering on the bill, “I think it puts a lot of pressure on the Senate and creates some momentum, where you’ve got a bipartisan effort coming out of the House.” Senate President John Cullerton said yesterday that he is still trying to work with union leaders to reach a compromise. Cullerton has said that he believes proposals such as the new SB 1 that unilaterally reduce benefits are unconstitutional.

Gov. Pat Quinn urged lawmakers to approve the legislation. “Illinois' economy will not fully recover until the General Assembly passes this comprehensive pension reform and sends the bill to my desk. Now is the time to take this major step to restore fiscal stability to Illinois,” he said in a written statement.

Cross said lawmakers should pass legislation that would reduce pension costs and stabilize the system instead of trying to predict what the courts will do with the final product. “No one knows. And we can all opine and give our theories on it. There are a number of folks in the legal community who have said this is constitutional,” Cross said. “But at the end of the day, whatever we pass is going to end up in the courts, and we will need to wait for the courts to give us their opinion. And we can all speculate, but until that happens, nobody’s going to know.”

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