Illinois Pension Fix Fading as Governor Warns of Failure

The prospects of Illinois lawmakers resolving a $97 billion unfunded pension liability dimmed as the House adjourned yesterday without any clear indication that a majority would support a bill making state employees and teachers pay more for their retirement benefits.

With the current legislative session set to end tomorrow, the obstacles facing a pension overhaul mounted as the Senate gave no sign that it would return to act on any retirement legislation, if it were to pass the House of Representatives.

“We cannot allow the Illinois economy to be held hostage by political timidity,” Democratic Governor Pat Quinn said today at a news conference in Springfield, the state capital.

“It’s the time to do it,” Quinn added. “If we don’t do it today, when do we do it?”

The answer, as has often been the case in Illinois, appears to be later. The House adjourned yesterday after one of its committees approved a measure over the objections of unions and other critics who said forcing state workers to pay more would violate the Illinois constitution.

“I think the clock is ticking, and it’s going to be challenging,” said Representative Elaine Nekritz, a Northbrook Democrat and co-sponsor of the bill.

More Work

Nekritz said she and the bill’s supporters “still had quite a bit of work to do” to round up the votes to get the measure through the House.

“Everyone gets that something has to change,” she added. “It’s just a question of coming to consensus on what that change is.”

Illinois has the weakest pension system in the U.S., with 39 percent funding for five major groups of public employees, according to the Civic Federation, a Chicago-based nonprofit research group. Lawmakers have repeatedly failed to overcome political obstacles to fixing the system.

The measure before the House would require employees to pay an additional 2 percent of their salaries. It also would delay annual cost-of-living increases by six years, until age 67, for retirees. A coalition of Illinois unions has pledged to challenge the bill in court if it’s signed into law.

Unions representing teachers and state employees said their members are suffering from the legislature’s failure to fund the systems adequately.

Tea Party

“They’re taking the Tea Party approach -- let’s just cut, cut, cut,” said Henry Bayer, executive director of the American Federation of State, County and Municipal Employees Council 31, a union representing public employees.

State pension requirements are consuming an increasing portion of annual spending. Illinois devoted $5.7 billion to retirement funding this year and is scheduled to pay $6.7 billion in the next budget year, squeezing other services and programs.

The state Senate approved a more limited pension restructuring last year that doesn’t mandate higher contributions. Senate President John Cullerton has said the House approach “most likely violates” the constitution, Rikeesha Phelon, a Cullerton spokeswoman, said yesterday.

During a hearing on her bill, Nekritz said the Illinois Supreme Court “will be the final arbiter on that decision” and said the “time is now to end the excuses and say ‘yes’ to reform of our pension systems.”

Quinn Support

Quinn has said he would sign the bill if it reached his desk. Quinn, 63, said on Dec. 10 that the battle to control employee pension costs “is our fiscal cliff and we need to deal with it” or analysts will lower the state’s credit rating again.

The governor told reporters during a breakfast meeting at Bloomberg’s Chicago bureau that there’s “a clear and present danger” of another downgrade if state lawmakers don’t restructure the pension system.

Four months ago, Standard & Poor’s cut the state’s credit one level to A, sixth highest, citing retiree costs, and gave it a negative outlook, an indication that another downgrade may occur. Only California, ranked A-, has a weaker rating among U.S. states.

The Civic Federation showed the combined funded ratio of the state’s five pensions fell to 39 percent as of June 30, from 43 percent at the end of fiscal 2011. No other state’s ratio was below 50 percent in that year, according to data compiled by Bloomberg.

To contact the reporter on this story: Tim Jones in Chicago at tjones58@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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Jan. 8 (Bloomberg) -- Harry Wilson, founder and chief executive officer of Maeva Group and a former adviser to President Barack Obama’s Auto Task Force, talks about the outlook for overhaul of the state and municipal pension system. He also discusses a New York Times report that American International Group may join a lawsuit against the U.S., originally filed by former chief executive officer Maurice “Hank” Greenberg in 2011. Wilson speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)