08/27/2013 11:20 am ET Updated Oct 27, 2013

Pension Committee Compromise Sure to Displease

There is one thing I am absolutely, 100 percent sure about when it comes to the pension bill being hammered out by the Illinois General Assembly's conference committee: Whatever it is, both sides will find plenty to hate about it.

I'm not guessing here. The reactions already have started even though the committee doesn't expect to have anything official to show for two more weeks.

Over the weekend, some details about the bill-in-progress found their way into news reports, and supporters of the two pension bills from which a compromise is to be forged began blasting away at what they saw.

Both Capitol Fax and the Associated Press reported obtaining an outline of the bill late Friday afternoon.

The biggest detail is that the compromise bill will save the state $145 billion and bring the state's pension funds to 100 percent funding over 30 years. That's less than the $187 billion projected savings from the bill favored by House Speaker Michael Madigan (but rejected by the Illinois Senate) but a lot more than the $47 billion savings expected from the bill passed by the Senate and favored by Illinois public employee unions.

It also will cut $18.1 billion from the state's unfunded liability, which currently stands at roughly $100 billion.

The compromise bill will achieve some of its projected savings by putting money now paid on pension bonds back into the pension systems after the bonds are paid off in 2019.

The bill does not raise retirement ages and lowers employee contributions to pension systems, but does eliminate the automatic, 3-percent raises to all retirees in favor of increases set at half the rate of inflation.

From the AP:

"It calls for setting retirees' annual cost-of-living increases at half the rate of inflation, though it would set both floors and caps - which were not included in the outline - for what the rate could be. That formula would likely equate to smaller adjustments than the current 3 percent increases, compounded annually.

"Unlike previous proposals that would have required employees to contribute more to their own retirement, the outline calls for workers to pay in 1 percent less. It also does not increase the retirement age, as has been previously proposed."

Senate President John Cullerton, whose pension bill passed in his own chamber but never got a vote in the House, has maintained that any bill that does not offer a tradeoff of benefits to employees violates the state constitution. That's why employee contributions are reduced in the compromise bill. (Madigan has said all along that no such consideration is necessary because the scale of the pension crisis rises to an emergency.)

Sen. Kwame Raoul, D-Chicago, is chairman of the committee, and told the AP there has been no agreement by the committee on any of these details.

"The committee has not come to a consensus," Raoul tells the AP. "Our work is not done."

On Sunday, the Chicago Tribune's editorial page - which strongly supported Madigan's original bill - said it did not like what it was hearing from the pension committee.

"Led by state Sen. Kwame Raoul, the pension committee has been hyperfocused on meeting the constitutional wording that pensions cannot be diminished or impaired. But without more ambitious reform that would save the pension system more money, the benefits may not be there for retirees at all -- or taxpayers may have to pay more.

"The committee's draft plan assumes: 1) The state can and will continue to afford to make huge payments annually into the pension system. 2) The legislature will honor that "savings" commitment long after paying off old debt and not spend the money elsewhere. 3) All pension investments will meet an annual return of 8 percent ... for three decades.

"Taxpayers would be on the hook if any of those assumptions fail."

The Tribune also criticizes lack of a 401(k)-style savings plan option for public employees going forward.

A day later, the unions issued their reaction to the weekend's details. They, too, are quite unhappy with the pension committee's work thus far, but for very different reasons than is the Tribune.

Speaking as the We Are One Illinois coalition, the unions have made it clear from the start that any change to Cullerton's bill will result in a lawsuit against the state for violating the state constitution's prohibition on diminishing pension benefits.

We Are One stuck to that position on Monday with this statement:

"Published reports suggest the legislative conference committee on pension reform is ready to rehash the same unfair, unconstitutional attacks on retirement security.

"Particularly harmful is the committee's threat to delay and sharply reduce the cost-of-living adjustment that protects retirees from inflation. Research shows that a COLA cut to half the rate of inflation slashes the benefit earned by a retiree just as deeply as the drastic Senate Bill 1 that was twice rejected in the Senate.

"Teachers, police, nurses, caregivers and hundreds of thousands more working and retired public servants earned their pension, never missed a payment, and in most cases aren't eligible for Social Security. They deserve better from the conferees. So does the Illinois Constitution, which lawmakers are sworn to uphold and which provisions of the committee's outline would directly violate.

"We urge conferees and all legislators to abandon unconstitutional cuts and focus on Senate Bill 2404, a compromise pension solution that maintains basic fairness, saves nearly $140 billion and has majority support in both the Senate and House."

Like the Tribune, a majority of members of the Illinois House and the Civic Federation (the most credible source on the pure math of the pension crisis), Reboot Illinois was firmly in favor of Madigan's original bill. In a perfect world for us, the Illinois Senate would have seen the Civic Federation's analysis and recognized what's best for Illinois' future.

It would have passed the Madigan bill, which would now be winding its way toward the Illinois Supreme Court.

But that's not how it works in a representative democracy, and rarely in the General Assembly does a bill of this import remain intact from introduction to signing into law. The formation of the conference committee signaled a likely end to the pension deadlock but it also assured that neither the Madigan bill nor the Cullerton/union bill would survive in their original forms.

That said, there are a few things that should raise big concerns from this framework.

The annual compounding of the current 3 percent cost of living adjustments has been one of the main drivers of the state's ever-expanding pension costs. Even with a reformulated COLA based on the rate of inflation, the Tribune is not being alarmist or unreasonable when it notes, "If the compounding strains the system in the future as it has in the past, taxpayers would be at grave risk."

This framework also fails to recognize a fundamental, modern reality: Virtually no one outside the public sector retires at 55. There's a lot of justified resentment out there from private-sector workers who see their tax dollars subsidizing second careers of public-sector retirees. The state can no longer afford this and increases in retirement age ought to be part of this bill.

And is it reasonable for a state government to pay 20 percent of its revenue to the pension systems for its employees, as the proposed plan would have Illinois doing from 2020 to 2038?

A union lawsuit over this is certain.

Let's hope that the members of this committee recognize that. As they cross the T's and dot the I's of the bill they're finishing up, they need to make final decisions based on what's best for the future of this state, not just what might or might not pass the highly subjective test it will face in court.

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