Improve the pension bill
Quinn's plan would lock in more savings — more reform, really — than Madigan's would
Wednesday, May 30, 2012
Tuesday morning, Illinois House Speaker Michael Madigan introduced his plan for salvaging the nation's worst-funded state pension system. Madigan's ninth-inning, take-it-or-leave-it approach creates some measure of momentum for his proposal in a General Assembly that's scheduled to adjourn for the summer on Thursday.
To which we respond: Not so fast. Madigan's plan doesn't lock in enough cost savings for the state pension system. It doesn't apply to all public employees. And it would force school districts, their teachers or their taxpayers to exact much of the intended savings that legislators themselves then wouldn't have to demand. How convenient for the legislators, most of whom are up for re-election!
There are things we like about Madigan's plan, including its determination to begin shifting to school districts some real responsibility for funding their employees' pensions. Nor are the shortcomings of his plan fatal: Lawmakers have ample time to repair and pass it by Thursday.
But if for any reason they don't, we hope Gov. Pat Quinn will keep them in Springfield until they do. Pension reform is too crucial a priority to let slide until autumn.
And if you'll permit us another aside to Quinn: Governor, the pension reform plan you proposed is better than the plan Madigan filed Tuesday. We hope you believe in your plan as much as we did when you offered it, and still do today. Here's why:
The more we study the fine print in Madigan's plan, the more we understand what a relative victory it would be for the public employees unions that do so much to elect the members of Madigan's Democratic caucus. And the more we understand what a relative risk his plan holds for taxpayers statewide. Follow along with us:
•On April 20, Quinn offered a pension reform plan built on three pillars: Employees would contribute more of their salaries to their pensions, their retirement age would move back to 67, and in retirement their annual cost-of-living adjustments would be reduced. Quinn's plan was calibrated to save taxpayers $65 billion to $85 billion over the next 30 years, and would eliminate the state's unfunded pension obligation, now estimated at $83 billion.
•Madigan's plan, which incorporates some but not enough of Quinn's plan, keeps the reduced COLA. But it doesn't ask employees to contribute more or raise the retirement age. Those are huge pluses for the unions, which on Tuesday were opposing Madigan's plan through what struck us as crocodile tears. More crucial to this discussion, eliminating those demands depresses the state's predictable savings: Quinn's proposal to exact higher contributions from workers and reduce the number of years they will collect pensions creates definite, knowable savings for the pension system.
•Proponents of Madigan's plan say other provisions in it, particularly a reduction in retirees' COLAs, would offset those squandered savings. But that's tough to document: What few numbers have been attached to Madigan's plan are so squishy that we can't take them seriously. The squishiest is the most important: Madigan's plan supposedly will save state taxpayers $65 billion to $115 billion over 30 years, depending on such variables as how many employees choose various retirement plan trade-offs. That $65 billion to $115 billion isn't a window, it's a double-wide garage door. But it's one more reason to put more faith in the savings Quinn projected: Those higher employee contributions and raised retirement age give Quinn's plan more precise ranges of revenues, if we can wrench that term into this discussion. Even if we liked all the motivations that underlie Madigan's plan, we can't nail down enough of its costs and alleged benefits to endorse it.
•Madigan's plan also creates a big risk for property taxpayers statewide. We share his belief that school boards irresponsibly have sweetened educators' pensions and blithely passed along those huge costs to Springfield. But the gradual shift of all educator pension costs from state government to school districts is more central to Madigan's plan than it is to Quinn's original proposal. As a result, the districts essentially would have three options: They could slash expenditures (not likely), they could force teachers to forgo raises or otherwise chip in (more likely), or they could do what school districts historically have done in tight times, namely, raise property taxes (most likely by far).
Whatever choice school boards make, Madigan's plan in effect would force school districts and their taxpayers to shore up the state pension system. In a better world, courageous state lawmakers would adopt rigorous reforms that lower the costs of that system. Quinn's plan, by asking more of employees, comes closer to that. If asking more of employees risks a court fight, fine. Some aggrieved parties will sue regardless of how wimpy or how strong any new pension law is.
This much is certain: Standard & Poor's and other rating agencies are watching the General Assembly's every move. If lawmakers don't pass dramatic pension reform, they risk multiple credit downgrades that would further escalate the state's already gigantic debt costs.
Democrats, Republicans, be careful here: Don't confuse the policy decision you face with its political impacts in the Nov. 6 general election.
Use these final session days to shift more of the responsibility for pension reform in the directions Quinn has proposed. That would lock in more savings — more reform, really. That would show taxpayers (and those rating agencies) that you haven't merely dumped your problem into the laps of school boards across Illinois.