Greising: Pension Inaction Mars Legislative Session

Over the weekend, while most people in Illinois were barbecuing or watching parades, our legislators in Springfield spent a goodly amount of time making legislative sausage.

The process in recent weeks has been more productive than usual. A major school-reform bill, legislative redistricting, a budget, and even a law that will pave way for a new Chicago casino all will be headed to Gov. Pat Quinn’s desk by the time the legislature is scheduled to close shop Tuesday.

For those paying close attention, there’s a major missing piece that we cannot overlook: The lack of any substantive move forward on pension reform.

Once again, the most serious problem confronting this state–the one in which we rank behind every state even basket-case California–did not make it even to the front burner this time around.

Pensions can be easy to put off. Any major reform entails significant legal risk, given a provision in the state constitution that prohibits diminishing or impairing the pensions earned by state workers. The unions in Illinois, rather than learning lessons from the pension-related meltdowns in neighboring Wisconsin and Indiana, have chosen to dig trenches of resistance rather consider compromise that could make the ultimate reckoning more passable for everyone.

The assumption seems to be that while the pension problem gets worse every year, the time is never right to take on the pension problem and solve it for good.

House Speaker Mike Madigan pushed through a minor pension reform in early 2010 that lowered benefits for newly hired workers. That was minor progress, but noteworthy because any progress at all is historic given the lack of responsible action on pensions for the better part of a generation.

For a while in recent weeks, there seemed to be a plan that might call for current state employees to bear more of the cost of helping the state to catch up on its chronic under funding of pension obligations.

Under the plan, employees insisting they wanted to continue with their current, unaffordable pension benefits could have done so, but they would have been asked to bear more of the cost.

This didn’t sound promising from the start, and it sounded like a non-starter as soon as the General Assembly’s actuary crunched the numbers: State workers would have been required to pay anywhere from 13.5 percent to 36.5 percent of their salaries–and even more than that if the legislature decided it needed more money to help the state catch up on its woeful under funding of pension obligations.

Other options that would have been offered sounded reasonable enough to outsiders. Workers who did not wish to pay more could have elected to sign up for the new, lower level of benefits offered to the state’s new hires under the 2010 reform plan. Or they could have signed on for a defined contribution plan–the sort of plan most workers in the private sector have these days–rather than the defined benefit plan that state workers seem to believe is their birthright.

Add it all up, and it amounted to nothing. House Speaker Mike Madigan apparently counted legislative noses, and a union advertising and lobbying blitz that has been estimated to cost somewhere around $2 million seemed to have done the trick. There were nowhere near enough votes to push through pension reform, and so the plan did not even get called for a vote.

So where does this leave Illinois? Illinois has failed to set aside $85.6 billion that it owes to current and future retirees, meaning it has funded only 38 percent of its obligation to those people. The Pew Center on the States ranks Illinois dead last among the states in terms of its funding of future obligations.

Illinois, unable to marshal the political will to set aside money for workers’ pensions, keeps doing nothing, apparently hoping the pension mess will fix itself. But that never happens, of course. Instead, it just gets worse.

In recent years the state has sold bonds to help it try to catch up with pension payments. But that and other bond sales have led the major credit agencies to downgrade Illinois’ debt–raising the cost of any future bond issues.

Not that continued borrowing for pension payments would be a good idea. Already, according to an analysis by the Civic Federation, debt dedicated to pension payments by the end of the current fiscal year will reach $16.3 billion, surpassing for the first time the $13.2 billion in debt that has been used for capital projects such as roads and schools, bridges and buildings.

There are concerns that even the dismal outlook by the state’s budget experts is overly optimistic, and that the actual under funding is as much as three times worse than the official figure. Joshua Rauh, an expert on state pensions at Northwestern University, has estimated the true state under funding at $218 billion, or nearly $6,000 for every Illinois citizen.

No one yet knows what it will take for state law makers to get serious about pension reform. Apparently, it will take more than a crisis–because we’re in one now, and the legislature has yet to make a move.