Thursday, May 9, 2013
So after years of needing to pass pension reforms, the Illinois Legislature now has two competing versions of reforms. One -- SB-1, passed the House of Representatives and is sponsored by Speaker Michael Madigan. It would make extensive changes and is generally agreed that it would provide greater savings to the state IF it becomes law and is ruled constitutional.
Today, the Illinois Senate voted to approve SB-2404, the Reform measure sponsored by Senate President John Cullerton, that would trade continued healthcare benefits for retirees, in exchange of a lessening of the 3% annual Cost of Living Adjustment [ COLA]. It's this COLA that's been a financial killer for the state as even in low inflation periods -- as we are now in -- the state is forced to pay ever increasingly large benefits, that compound year over year.
But for now -- neither of the reform measures have passed both houses of the legislature. Gov Quinn seems to be prepared to sign off on either measure. But the big question is: Will the Supreme Court rule that these changes are constitutional ? Everyone agrees that whatever reforms are passed, someone will sue over the changes, and base their lawsuit on the Constitutional protection of pensions that was included in the 1970 Constitution, which remains the governing law today.
In the Senate Executive Committee hearing on Weds, Sen President Cullerton argued again that his approach is far more likely to pass a suit that would go to the Illinois Supreme Court, as -- he argues -- his bill brings about reforms that are agreed to by the workers, given that they are guaranteed a choice of option A or B. That the workers pick which way they wish to go -- is therefore [according to Cullerton] an agreed to labor agreement and therefore not a mandated DIMINISHMENT of pensions benefits.
The House version, sponsored by Speaker Madigan, would force change on pension recipients, and lower the cost to the state. As to the Constitution's saying it is unlawful to diminish state pensions, Madigan is relying on the principal referred to as the Police Powers argument. In essence, that would be that it is the obligation of the state to continue to be an on-going enterprise that can deliver essential services to citizens. That the fact that the year over year growth of the pension costs is threatening the delivery of the state's essential services -- means [ according to the backers of SB-1] that the state has not just a right, but an obligation to ensure that it can afford to keep functioning. And therefore the Supreme Court would rule SB-1's cuts of pensions, IS constitutional -- or so the thinking goes.
After all -- this is the State of Illinois, not a mom and pop business that is threatened with bankruptcy. [ as some have pointed out -- it's also in the constitution that the state is supposed to have a balanced budget, but hasn't followed that constitutional provision for years ! So why start worrying now about what is or isn't constitutional ! ]
So the legislature now has 2 1/2 weeks to pick its poison, and cut the future cost of pensions by each house passing either SB-1 [ the Madigan plan that cuts costs more, but may be harder to pass constitutional review] or SB-2404, the Cullerton bill that cuts costs less, may force the state to continue to provide free healthcare [ that could be MORE expensive in the future than the pension benefits], but is seen as being more likely to be approved by the Supreme Court.
Or there's option three: Having had each house pass a version, both could not fail to pass the other's bill, and the pensions go on for now has they have... underfunded, with growing liabilities.
That means the state's pension costs will continue to rise every year, and the gap between what the state has to pay on the pensions, and what it can afford to pay -- will mean other areas of government from education, to transportation and law enforcement --- will see their department's spending cut, as lawmakers and future governors struggle to fill the insatiable black hole of the publicly funded pensions.
Still to come before the end of May -- is Speaker Madigan's attempt to shift the future cost of paying the pensions of [non-chicago] teachers to local school districts. This represents about 56% of the pension obligations to the state. Pushing those off to the local districts WOULD greatly reduce the future unfunded liabilities to the state. But it could then shift those unfunded liabilities to local property taxpayer, depending on how the deal is structured.
As some have said it's like sweeping the dirt under your neighbor's rug !