Happy birthday: The solution that never was to Illinois’ pension crisis

Illinoisans should know lawmakers in the past made big moves to fix the state's worst-in-the-nation pension crisis. It’s politically possible. They just need a little reminder of our history.

Illinois was born 200 years ago this week. But another significant birthday should provoke pause, because it points the way forward for our struggling state.

Five years ago, on Dec. 5, 2013, then-Gov. Pat Quinn signed into law a suite of pension reforms passed by Democratic supermajorities in the Illinois House and Senate.

They weren’t perfect. Lawmakers didn’t take pensions out of political hands entirely. Some thought the changes didn’t go far enough to protect taxpayers. And ultimately, reformers were either willfully blind or did not foresee the harsh treatment they would receive from the Illinois Supreme Court.

But the reforms were historic.

Barring their judicial demise, they would have brought about the most significant improvements to Illinois’ fiscal health in generations – changing the course of the state entirely.

How could something as tedious as pension reform stand among the most important legislative actions in Illinois history? Here’s how:

The state’s number crunchers estimated the pension reform bill would have saved taxpayers between $1.1 billion and $1.4 billion in each of the budget years under Gov. Bruce Rauner. Savings of that size would have made the budget impasse between Rauner and House Speaker Mike Madigan much less likely.

No social service cuts. No racking up unpaid bills. No record-breaking income tax hike. All of this, without cutting a dime from current pension benefit checks for retirees and protecting every single active employee’s earned benefits.

With Democratic supermajorities and a Democratic governor set to take office in 2019, it’s worth revisiting what made those reforms so important.

First, what did they do? And second, how can lawmakers tackle them again without running afoul of the courts?

The most important thing to know about the 2013 reforms is that they protected already-earned retirement benefits. But they changed the accrual of future benefits.

Changes to future benefits focused on three areas: The first was increasing the retirement age for current state workers younger than 45. The second was capping workers’ maximum pensionable salary, with future growth in the cap pegged to inflation. And the third was to eliminate 3 percent guaranteed post-retirement raises in favor of a true cost-of-living increase tied to inflation.

These might seem like small changes on their own. But taken together, they would be extraordinary.

Actuarial projections at the time showed the state’s entire pension debt would have been eliminated or nearly eliminated by 2045, all while increasing the funding target for the largest state pension funds to 100 percent from 90 percent, and slightly decreasing the contributions employees had to make to their own retirement.

Today, pensions consume more than a quarter of the state’s general funds budget. That, or worse, will remain the case for decades without changes.

Under the 2013 reforms, that share would have fallen to just over 1 percent by 2040.

So why did the Supreme Court stand in the way?

The majority opinion cited the pension clause of the Illinois Constitution, stating pension benefits may not be “diminished or impaired.” It controversially considered promises of future benefits as part of that clause. In other words, if you’re hired as a young worker in 1970, you have the right to an automatic 3 percent raise in your retirement check in 2020.

This extreme reading of the constitution again was upheld by the justices as the reason Illinoisans must pay 23 Chicago union leaders an estimated $56 million in inflated pension payments based not on their public salary, but on their union salary.

Lawmakers passed the perk into law, were ridiculed, and then changed the law back.

Ah, ah, ah … “diminished or impaired.” A promise is a promise. The Illinois Supreme Court ordered Nov. 29 that the state honor this outrageous benefit.

That’s why a constitutional amendment is so necessary. And it doesn’t have to eliminate the pension clause in order to allow cuts.

A solid amendment simply needs to allow for changes in future benefits, while protecting what has already been earned by public employees. Voters could approve the amendment as early as 2020, and lawmakers could pass specific reforms that trigger the morning after Election Day.

Those changes need to be a bit more substantial than in 2013, because the problem has grown tremendously since then. But the principles can remain the same.

Illinois’ worst-in-the-nation pension crisis causes despair. It’s a massive problem, constantly bemoaned, that appears unsolvable.

But Illinoisans should know lawmakers in the past made big moves to fix it. It’s politically possible. They just need a little reminder of our history.