SPRINGFIELD – Illinois’ public-employee pensions system is so far in debt that it is “unfixable,” an influential business group said Wednesday.
The Civic Committee of the Commercial Club of Chicago told its members in a memo that even current retirees’ benefits must be cut and other drastic action taken to prevent pension-program bankruptcy, the memo said.
“The pension crisis has grown so severe that it is now unfixable,” former state Attorney General Tyrone Fahner, the committee’s president, wrote. “We do not make that statement lightly. It is an honest statement that no one – not our legislators, nor our governor, nor labor leaders – is willing to say publicly.”
The memo said workers putting money into the retirement accounts will never see the payback they were promised.
“It’s not melodrama, it’s fraud,” Fahner said in an interview with The Associated Press. “They’re paying under false pretenses.”
Fahner acknowledged that even with a pension debt estimated at $96 billion, the problem is mathematically solvable. But to continue trying to catch up, Illinois must pay $6.7 billion next year – about a fifth of the state’s general revenue – and that amount will top 40 percent by the beginning of the next decade.
Reaction to the memo was swift. A spokesman said Gov. Pat Quinn is grateful for help to “sound the alarm.” A House leader on the issue said current legislative proposals balance savings and viable, acceptable policy. The state’s largest employee union criticized “millionaire CEOs” harping about state retirees who make an average $32,000 pension while politicians created the staggering debt by skipping state-obligated payments.
A spokesman for the Teachers Retirement System, the largest of the state’s five accounts, said the committee’s conclusion is simply incorrect.
The General Assembly meets in its fall veto session later this month – a key to the timing of the committee’s memo – but legislators don’t expect to take up the pension issue again until early next year.
The Civic Committee says the state must eliminate all pensioners’ cost-of-living increases. Currently, they’re 3 percent compounded annually. It wants to cap the final salary on which pensions may be based (for those receiving Social Security, it is $106,800). It says the retirement age should be increased to 67 and that local school districts must assume the employers’ share of teacher pension contributions, phased in over 12 years.
The committee, a group of senior executives from top Chicago-area businesses that has studied the pension crisis for six years, wants to set a “baseline” for action legislators must take to extend the system’s solvency into the middle of the century, Fahner said. Along with the memo to committee members, Fahner wrote Gov. Pat Quinn and legislative leaders that “from now forward, we will support proposals that cut to the core of the problem.”
Fahner said the plan Quinn and legislative Democrats support doesn’t reach the core. It would give employees a choice: either accept reduced cost-of-living increases or forego state-subsidized health insurance after retirement. It would also shift employer pension contributions for teachers from the state to local school boards, a provision that has held up approval of a package because Republicans oppose it.
Rep. Elaine Nekritz, a Northbrook Democrat who has led House pension talks, said there’s no crystal ball to show whether it would solve the problem.
“Do we think it would save significant money? Yes,” Nekritz said. “Is that adequate? Ask me in 2025. It’s all a balancing act.”
Others noted that two years ago Quinn signed a law creating a two-tiered system. New employees are subject to the salary cap, retirement at 67 and cost-of-living adjustments tied to inflation, not compounded.
Those changes have reduced state pension costs going forward and in the long term, policymakers can erase the shortfall, said Dave Urbanek, spokesman for the Teachers Retirement System.
“To say that the problem cannot be solved is just fundamentally incorrect,” Urbanek said.
Anders Lindall, spokesman for the American Federation of State, County and Municipal Employees, criticized the committee’s memo. He noted there’s “no mention that the pension debt was mostly caused by politicians who skipped required payments even as public employees always paid their share,” nor demands that the state be required to in the future, a provision that’s part of the proposed fix AFSCME and like-minded groups combined to write.
GOP lawmakers believe a cost shift would force school boards to increase property taxes. Fahner argues school boards won’t need to increase property taxes because after they’re responsible for pension contributions, they’ll negotiate with teachers’ and other unions for lower salaries on which those pensions would be based.
Contrarily, a cost shift would mean lawmakers in Springfield could set unaffordable benefits and pass the cost to property taxpayers, said Patty Schuh, spokeswoman for Senate Republican Leader Christine Radogno of Lemont.
Reform, Schuh said, “should not be piecemeal – or allow shifting decades of the state’s mismanagement onto downstate and property taxpayers.”