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Nonprofits urge state lawmakers to pass crucial pension reform

Ryan Griffin-Stegink/Metropolitan Planning Council

Civic Federation, Metropolitan Planning Council, Better Government Assn. seek immediate action 

CHICAGO—A group of civic organizations dedicated to improving government and making it more responsive to the public is calling on the Illinois General Assembly to take immediate action toward solving the State’s massive public pension crisis. The Civic Federation, Metropolitan Planning Council and the Better Government Association are supporting this effort and welcome the backing of other nonprofit organizations. 

The group is rallying around the recently introduced House Bill 6258, a bipartisan measure that focuses on reducing the main drivers of pension costs while also being sensitive to lower-paid employees and those close to retirement. The group contends HB 6258 offers a viable framework for comprehensive pension reform. 

“We strongly urge the General Assembly to take up this bill now. Illinois lawmakers owe it to state employees, retirees and taxpayers to embrace this opportunity for reform and start securing a stronger financial future for our State,” said Laurence Msall, president of the Civic Federation. 

House Bill 6258 was recently introduced by State Representative Elaine Nekritz, (D-Northbrook), and its chief co-sponsors are State Representatives Daniel Biss, (D-Evanston); David Harris, (R-Mt. Prospect); and Chris Nybo, (R-Lombard). 

The proposed legislation would address the State’s pension funding crisis by: 

  • Reducing the State’s unfunded pension liability by an estimated $28 billion, or 29%, from $95 billion to $67 billion;
  • Reducing the State’s required General Funds pension contributions in FY2014 by approximately $1.8 billion, or 29%, from $6.2 billion under the current funding plan to $4.4 billion. (This does not include $1.6 billion of required debt service payments on pension bonds.);
  • Achieving 100% funding by 2043 and would create a legally enforceable right to compel the State and other employers to make required contributions. 

Additionally, the legislation gradually shifts the normal cost of pension benefits to employers, giving school districts, community colleges and universities time to build these new costs into their budget plans. The reforms would also allow local and State contributions to be enforced through the court system. 

(Other major features of the bill are included in the attached open letter to lawmakers)

The pension funding crisis continues to jeopardize the State’s financial stability. Illinois already has elevated borrowing costs and the lowest credit rating of any state from Moody’s Investors Service. Due to the State’s pension funding pressures, Moody’s warned two weeks ago that the rating could be further downgraded. 

"Getting Illinois on sound financial footing is critically important not only to run state government day-to-day, but also for a strong economy that attracts businesses and supports healthy communities," said MarySue Barrett, president of the Metropolitan Planning Council. "Without a long-term solution to the state's pension funding crisis, we cannot make future plans for essential services or address capital needs for transportation, housing, and other infrastructure. Illinois’ economic future is dependent on our leaders forging a workable solution -- not a workaround -- to the pension funding crisis." 

Andy Shaw, president and CEO of the BGA, stressed the need to address the issue immediately, “Nothing tops pension reform because we can’t have good government if pension costs keep gobbling up more and more state budget dollars that now pay for education, health care, social services, public safety and economic development,” says Shaw. 

The Illinois General Assembly reconvened its lame duck session in late December and it runs through early January 2013.


Joint Statement from Chicago Civic Groups to Illinois General Assembly

January 3, 2012 

As organizations dedicated to improving government policies, we are deeply concerned about the Illinois General Assembly’s failure to take up comprehensive pension reform. We strongly urge legislators to embrace the bipartisan pension reform framework established by House Bill 6258. 

The pension funding crisis continues to jeopardize the State’s financial stability and economic outlook. Illinois already has elevated borrowing costs and the lowest credit rating of any state from Moody’s Investors Service. Due to the State’s pension funding pressures, Moody’s warned two weeks ago that the rating could be further downgraded. 

HB6258 is the only comprehensive bill with bipartisan support and detailed actuarial analysis that has been introduced. The proposal focuses on reducing the main drivers of pension costs while being sensitive to lower-paid employees and those close to retirement. While not a panacea for the State’s financial problems, we believe HB6258 is a significant step forward for the following reasons: 

  • HB6258 would reduce the State’s unfunded pension liability by an estimated $28 billion, or 29%, from $95 billion to $67 billion;
  • HB6258 would reduce the State’s required General Funds pension contributions in FY2014 by approximately $1.8 billion, or 29%, from $6.2 billion under the current funding plan to $4.4 billion. (This does not include $1.6 billion of required debt service payments on pension bonds.);
  • Under HB6258, the State’s General Funds pension contributions in FY2014 would represent an estimated 14% of State-source General Funds revenues, down from 20% under current law;
  • Under HB6258, the State’s General Funds pension contributions would peak at approximately $10.8 billion in FY2043, down from roughly $15.5 billion under current law. The share of State-source General Funds revenue consumed by pension contributions would be approximately 23%, down from 33% under current law;
  • HB6258 would gradually shift normal pension costs for the Teachers’ and Universities Retirement Systems at a rate of 0.5% of payroll per year to the employers that are responsible for salary decisions: school districts, public universities and community colleges; and
  • HB6258 would achieve 100% funding by 2043 and would create a legally enforceable right to compel the State and other employers to make required contributions. 

It should be noted that any comprehensive pension reform is likely to face legal challenges that might delay implementation. Although this bill could have made more sweeping changes in some areas, we believe that HB6258 is worthy of support and urge the General Assembly to move forward on comprehensive pension reform without delay. Illinois lawmakers owe it to State employees, retirees and taxpayers to embrace this opportunity for fiscal reform and start securing a stronger economic future for our State. 

Sincerely, 

MarySue Barrett, President, Metropolitan Planning Council

Laurence Msall, President, The Civic Federation

Gerald J. Roper, President and CEO, Chicagoland Chamber of Commerce

Andy Shaw, President, Better Government Association

Doug Whitley, President and CEO, Illinois Chamber of Commerce

Andrea Zopp, President and CEO, Chicago Urban League       

 

Major Features of HB6258

  • Automatic annual increase limited to $750 a year for employees hired before January 1, 2011 (3% of the first $25,000 in pension benefits). Retirees receive no annual increase until they reach age 67 or five years after they retire.
  • Phased-in increase in retirement age for employees younger than 45 for those hired before January 1, 2011.
  • Two percentage point increase in contribution rate, phased in over two years, for employees hired before January 1, 2011.
  • Pensionable salary capped at the higher of Social Security wage base or the employee’s existing salary, for employees hired before January 1, 2011.
  • School districts, community colleges and universities would take over the State’s normal pension cost at a rate of 0.5% of payroll per year for normal costs incurred after July 1, 2013, until costs are fully shifted.
  • New Teachers’ and Universities Retirement Systems employees join a cash balance plan, with contributions made by actual employers. This plan would also be offered to employees of those systems hired on or after January 1, 2011 but before the effective date of the bill.
  • Although HB6258 applies to four of the five State retirement systems, an actuarial analysis was not available for the smallest of the four affected systems.
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Comments

  1. 1. Franco from VXJQXNuUh on March 15, 2013

    You write so hneostly about this. Thanks for sharing!

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