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Illinois Pension Reform Stalls; What's the Next Step for Lawmakers?

This week, my colleague Stephen Sawchuk and I have both written about the pension issue for states and school districts, and the challenges facing people charged with protecting the long-term viability of these various plans. In my story, I spent a good chunk of time focusing on last-minute efforts in Illinois, where pension reform has been a top priority for Gov. Pat Quinn, a Democrat, and other lawmakers.

The Illinois Legislature's final day was May 31. What did they do to reform pensions? Nothing. As Monique Garcia and Ray Long at the Chicago Tribune reported June 4, credit-ratings agencies downgraded the state's debt after state lawmakers failed to pass any reform to the state's pension system. One plan from Speaker of the House Michael Madigan, a Democrat, would have shaved $150 billion off projected unfunded liabilities in state pensions, but unions said the plan was unconstitutional and planned to sue. The other plan from Sen. John Cullerton, also a Democrat, had various savings estimates significantly lower than Madigan's plan but also had union support. The result was gridlock until the end, and Quinn is getting lambasted for not shepherding a solution until it reached his desk.

The state now has roughly $100 billion in unfunded pension obligations (including teacher and other public-employee pensions), and the National Association of State Retirement Administrators reported last month that pension contributions took up a greater share of state and local budgets in Illinois state and local governments than in any other state—the figure was 4.75 percent, using 2010 figures. Compare that to 3.58 percent for California, and 2.16 percent for Texas. Those two states, like Illinois, have more than half of their public-employee payrolls outside of the Social Security system.

There are some calls for Quinn to order a special session of the legislature so that they can try once again to craft a solution that the governor will sign. What happens if pension reform heads to court, and the state ultimately argues successfully that it simply doesn't have the money to fund the pension system and must therefore change the benefits? Other states might use the example as leverage when crafting any of their own changes to pension systems to make them less generous or to eliminate unfunded liabilities, Michael Griffith, a school finance consultant with the Education Commission of the States, told me.

"How much authority does the court have to force the states to pay money [they don't'] currently have?" he asked, noting that courts can't impose additional taxes to pay for pension costs.

Before lawmakers whiffed on sending Quinn a proposal, Cinda Klickna, the president of the Illinois Education Association, said her union and others deserve credit for actually stepping forward with a plan (Cullerton's bill) instead of just complaining about the problem. The senator's bill, for example, would have required the pension system to sue the state for funds it should have received but did not.

"[Madigan's plan] might save more money, maybe. But you have people who are not going to be able to make it in retirement," said Klickna, who noted that about 700,000 people in the state rely on state pensions, both for teachers and other public employees.

Garcia and Long note that Quinn is up for re-election in 2014 and the pressure on him to do something will likely only increase. It will be interesting to see if Illinois, generally considered the poster-child for pension woes, can find a solution that doesn't involve resorting to the courts.

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