Watchdog group says state must address pensions

Gov. Pat Quinn's proposed state budget is a baby step in the right direction, a watchdog group's analysis said Monday, but the governor may be overstating savings from a recent union contract negotiation and not putting enough toward roughly $9 billion unpaid bills.

All told, The Civic Federation said, it mostly illustrates how Illinois lawmakers must come up with a solution for a worst-in-the-nation pension crisis.

“It's the state treading water until it addresses comprehensive pension reform,” said Civic Federation President Laurence Msall. “The governor's budget makes the best of a very horrible financial situation.”

The Chicago-based nonpartisan research group is the latest to put pressure on state lawmakers, who are set to consider two pension overhauls and Quinn's budget before adjourning this month. According to its 105-page report, the Civic Federation is “gravely concerned” with Illinois' shaky finances and wants a long-term solution, particularly with the $100 billion pension problem straining other spending.

For years, Illinois has either shorted or skipped payments to its five public retirement systems, leaving it far short of what's needed in the future. Over the years, the figure has grown, which the Federation says eats away money for essential services. For the 2014 fiscal year, Illinois' employer contribution to pensions of $6.8 billion will represent nearly one-fifth of Quinn's proposed $35.6 billion spending plan, which includes money for education and public safety.

After years of inaction and debate, lawmakers will consider two plans to address the pension crisis, including one from House Speaker Michael Madigan requiring public employees to pay more, reduce annual cost-of-living increases and increase the retirement age for some workers. Another plan, sponsored by Senate President John Cullerton, has support from some unions and gives workers and retirees a choice of benefit packages.

Cullerton, a Chicago Democrat, says his plan is more likely to survive a court challenge over constitutionality because it gives employees a choice in benefits. In its report, The Civic Federation says it supports Democrat Madigan's plan because it offers a long-term plan and calls for fully funding pensions in 30 years; Cullerton's would fund about 90 percent in the same time frame.

Msall said the group would also like to see a proposal to move retirement costs to suburban and downstate schools, an idea lawmakers have argued over for some time. Shifting costs to schools isn't included in either plan but Madigan plans to hold hearings to finalize a plan.

Quinn outlined his plan earlier this year, which slashes roughly $400 million in education and $241 million from funds that are set in state statute. It also includes temporarily ending three tax breaks that would bring in $454 million for paying down bills.

The state's overall budget is $62.4 billion, which includes federal grants and other money generally limited to specific purposes other than day-to-day operations.

Quinn, a Chicago Democrat, billed the budget as a “corrective” proposal that addresses some past issues, including the unpaid bills. He also said that a contract agreement earlier this year with Illinois' largest union, the American Federation of State, County and Municipal Employees Council 31, will result in about $900 million in health care savings. The three-year deal requires state workers to pay more toward health care and retirees to pay health insurance premiums for the first time.

However, the Civic Federation said it's hard to know if the $900 million number is accurate and few details have been released from Quinn's office.

“It seems like a very generous estimation,” Msall said.

He added that the group also doesn't like temporarily ending the tax breaks if they aren't a part of a larger rewrite or overhaul of Illinois' tax code.

The Civic Federation supports a Medicaid expansion citing the boost of federal funding for the state, an issue lawmakers are expected to consider in the coming weeks. The Illinois Senate has approved a measure authorizing expansion and the House could take it up soon; Quinn is in favor.

The watchdog group also calls for improvements to how budget proposal information is released to the public, a better process allowing lawmakers and Quinn to work from previously agreed-upon revenue projections when it comes to the budget and a more transparent process when it comes to capital spending.

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