Illinois Policy Institute CEO John Tillman released the following statement regarding Illinois’ proposed pension “deal” and why it is bad for Illinois:
“Illinois lawmakers are returning to Springfield Tuesday to vote on a proposed pension ‘deal.’ This deal was made by Speaker Madigan and other politicians behind closed doors. No legislation has been released. No financial analyses have been released. But of the details that have been shared, it is clear this “deal” will not solve Illinois’ $100 billion pension crisis. In fact, it will make it worse.
Here are five reasons why this “deal” is bad policy that should not be enacted and will make Illinois’ pension crisis worse:
- Savings from proposed “deal” are not enough.
Bill language and financial analyses for the bill have yet to be released, so the public and lawmakers do not have an opportunity to review cost savings projections. However, it’s being reported that this bill would cut as little as $12 billion off Illinois’ unfunded pension liability to as much as $23 billion.
In 2011, Illinois had approximately $83 billion in unfunded pension liabilities. Today, that number is over $100 billion.
The best case scenario – saving roughly $23 billion – would barely bring the crisis to 2011 levels. The same politicians said the pension system was in crisis back in 2011, but now having $83 billion in pension debt is reform? It’s not.
- Cost-of-living-adjustments still too generous.
Today, pensioners receive 3 percent, compounding, annual cost-of-living-adjustments to their pensions. These generous COLAs are provided to people with meager pensions as well as those with pensions topping $350,000 annually and above. While bill language and specifics have not been released, it’s being reported that this bill would continue to give COLAs to the highest earners in the pension system.
Illinois should consider completely freezing COLAs until the pension systems are in better financial shape. Doing this would cut the unfunded liability of $100 billion by roughly one-third. Or at minimum, Illinois should means-test cost-of-living-adjustments so that they are provided to workers who dedicated their full careers to public service and have annual pensions below $30,000 – not the millionaire pensioners making six-figures every year. Means-testing COLAs would protect Illinois’ most vulnerable state retirees while achieving necessary cost savings.
- Proposed “deal” allows government workers to retire in their 50s, while private sector works until 67 to pay for these pensions.
The proposed “deal” continues to allow state workers to retire in their late 50s with full benefits. The retirement age would only be increased for workers who are younger than age 45 – a limited percentage of workers.
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 more than a decade early than the rest of us. Government workers should have the same retirement age as Social Security requires of the private sector.
- Reducing worker contributions will drive up pension debt.
Pension contributions are already way out of sync with benefit payouts. This will only make the situation worse and increase the burden on taxpayers.
- Proposed “deal” makes funding pensions more important than funding public safety or education.
The proposed “deal” adds a pension funding guarantee, which says that before the state of Illinois funds roads, public safety or education it must pay for retired worker pensions. Already, pension costs are eating up money that is meant to be spend on schools and public safety. Today, pensions consume more than 20 percent of state spending and this amount is considered “not enough.” How much will be enough to meet the requirements of this guarantee?
In typical Illinois fashion, the public, media and legislators have been given little information on one of the most critical reforms this state faces. No summary has been provided. Bill language is likely to be provided just hours before the legislature will be called to vote on the bill. But what we do know is this is not the reform Illinois so badly needs. Illinois lawmakers should go back to the table and craft legislation that really addresses the problem, instead of pretending to address the problem just to alleviate political pressure before an election year.”
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