CHICAGO - Mark this point in Illinois politics. Illinois Policy Institute is in agreement with the public sector unions' "We Are One" coalition. They both oppose House Speaker Mike Madigan's agreed-upon pension reform plan that's to be voted on next Tuesday in Springfield.
While the two groups are normally diametrically opposite on fiscal policy, for totally different reasons, they both reject Madigan's current plan. The Institute's Ted Dabrowski gives from his perspective five reasons why it nothing will change with the plan on the table:
- The bill only reduces Illinois’ pension shortfall to 2011 levels. No real reform will be achieved in Illinois without a major reduction in the state’s $100 billion unfunded pension liability. And though projections have yet to be released, Madigan’s plan is said to reduce that liability by no more than $20 to $23 billion. Only 60 percent of those savings are reportedly from benefit reductions, so it’s unclear where the remainder of the cuts come from and how lawmakers have justified them as savings.
At best, Madigan’s bill reduces the state’s unfunded liability to 2011 levels – levels that had already thrown Illinois into crisis and that Democrat leadership used as justification for its 2011 tax hike. That’s hardly reform, and the remaining $80 billion pension shortfall will continue to cripple Illinois going forward.
- The bill doesn’t means-test COLAs. Reforming cost-of-living adjustments, or COLAs, is the single-largest lever for bringing down the state’s $100 billion unfunded liability. A full suspension of COLAs until the pension systems are healthy again can cut Illinois’ pension shortfall by nearly a third.
But Madigan’s bill continues to provide an automatic 3 percent COLA to all retirees, regardless of need. His bill bases COLAs on the number of years worked by a retiree, multiplied by a $1,000. A retiree who worked 25 years, for example, will receive a COLA on $25,000.
That means COLAs will continue to be paid to tens of thousands of retirees with five-figure and six-figure yearly pensions, some as high as $500,000. That’s hardly fair to a 29-year-old teacher who sees little chance of receiving a pension check in the future.
To save her retirement, COLAs should be means-tested and limited to workers who dedicated their full careers to public service and have yearly pensions below $30,000. That would protect Illinois’ most vulnerable state retirees, yet ensure the solvency of the state’s pension systems.
- The bill continues to allow state workers to retire in their late 50s with full benefits. Madigan’s bill increases the retirement age for workers who are younger than 45. For each year a worker is younger than 45, his retirement age increases by four months. No information as to the maximum age of retirement has been released.
But Madigan’s bill still allows today’s 40-year-old state workers to retire in their late 50s with full benefits. That means private sector workers, still stung by a weak job market, declining earnings and low home values, will have to work longer to support state retirees who retire early.
Illinois needs to adopt a plan like the one adopted by Rhode Island, which moves workers to the retirement age required by Social Security. Their plan protects those workers near retirement, yet aligns public sector retirements with those in the private sector.
- The bill reduces state worker contributions, putting an even larger burden on taxpayers. The previous version of the Cross/Madigan bill required workers to increase their contributions by 2 percent of their pay. Even the recent Chicago Park District pension bill increased worker contributions by 2 percent. This version of the bill, however, cuts worker contributions by 1 percent of their pay. That’s a 3 percent swing in the wrong direction.
Pension contributions are already way out of sync with benefit payouts. This will only make the situation worse and increase the burden on taxpayers.
- The bill adds a pension-funding guarantee, prioritizing government worker pensions over all core spending. If pensions weren’t already squeezing out core spending enough already, Madigan’s bill adds a pension-funding guarantee to appease the unions. With Madigan’s minimal reforms, this funding guarantee will lock in further tax increases and increase the burden on taxpayers. A vote for this bill is a vote for tax hikes.
- See more at: http://illinoispolicy.org/five-reasons-why-madigans-pension-fix-is-a-step-backward/#sthash.ee6hqkAS.dpuf
