Legislators, join Quinn to save the state
Monday, April 23, 2012
Through years of recession, overspending and tax collections that couldn't keep pace, the pols who run Illinois assumed that fairy dust would be their salvation: Either the Revenue Fairy would reward them with new money from a rapid economic rebound, or the Stimulus Fairy would keep sprinkling federal money on Springfield. In the past, one fairy or the other always had flown to the rescue.
This time, the fairy tales didn't come true. Gov. Pat Quinn first admitted as much on Feb. 22 when he proposed a budget for the fiscal year that begins 10 weeks from Sunday. "Too many governors and members of the General Assembly have clung to budget fantasies rather than confronting hard realities, especially with respect to pension and Medicaid investments," he told a mostly silent if not entirely chastened chamber of legislators. He then explained why they no longer could wait for fairy dust: "We must stabilize and strengthen our pension systems to prevent them from swallowing up our core programs in education, health care and public safety, and to ensure that we can pay all our bills."
On Thursday the governor kept his February pledge to suggest how lawmakers should reduce Medicaid's pressure on the budget by $2.7 billion. (The headline atop our Friday editorial on that plan: "Quinn delivers.") On Friday Quinn concluded what he called "Epic Week" with a similarly bold pension proposal that he said would save Illinois $65 billion to $85 billion — and eliminate the system's $83 billion in unfunded obligations.
Three forces pushing Springfield to act:
• Many legislators, too, see Medicaid and pension costs elbowing their own priorities out of the budget. Democrats who took terrible political risks last year by voting to spike the income tax certainly didn't expect pension expenses to devour virtually all of that new revenue.
• News that the underfunded Teachers' Retirement System of Illinois may be forced to reduce pension payments to teachers who are already retired is a shock to Springfield's culture of delay and denial.
• A recent warning from ratings agency Standard & Poor's that it could downgrade Illinois' creditworthiness "by more than one notch" if the state doesn't fix its problems adds still more urgency: A multiple downgrade would attest that Illinois, its leaders AWOL, is in free fall.
Quinn's Medicaid and pension plans now go to legislators. By their yelps of protest, ye shall know them.
The best feature of the pension proposal is its frontal assault on that immense unfunded obligation. The governor's budget director, Jerry Stermer, says that under rules now in place, the state must pay about $310 billion into the pension system by 2045. That would improve today's dismal funding ratio of 43 percent to 90 percent — still leaving a $32 billion shortfall. Quinn instead would invest $245 billion and reach 100 percent funding by 2042 — three years earlier.
How so? By reducing the cost of benefits. Quinn wants employees to raise their payroll contributions to their pensions, accept a lower cost-of-living scheme and phase in a retirement age of 67. Workers who accept that package would get three things in return: future pay increases still factored into their pension calculations, a state subsidy for health care in retirement, and — drum roll — a legal requirement, now nonexistent, that lawmakers fully fund the pension system.
Expect public employee unions to say Quinn's plan unconstitutionally diminishes benefits promised to public workers. The governor says that's wrong, in part because, in return, employees would get those three paybacks.
He also will get pushbacks for proposing that:
• School districts, community colleges and public universities phase in the acceptance of some responsibility for paying pension costs the state now covers.
• Retired state workers and teachers pay, on a means-tested scale, some portion of their health insurance premiums.
• Excluding the private-sector officials and staffs of unions and some state associations from receiving state pensions. (Quinn's plan doesn't address pension abuses by union officials drawing city of Chicago pensions.)
That said, we expect many public employees to see Quinn's plan as a way to preserve defined-benefit pensions that still would be more generous than retirement benefits most Illinois taxpayers can expect. But many of those workers will expect their union leadership to first put up a hellacious fight.
Quinn needs to keep explaining that, in the fiscal year that starts July 1, pension costs alone will consume $1 of every $5 Illinois spends. Three-fourths of that will cover the state's annual payment into the pension system; the rest covers repayment of money borrowed to make pension payments in prior years.
That drain on all Illinois taxpayers can't continue. We hope Democrats, including those beholden to unions, will build on Quinn's plan. Just as we hope Republicans will do the same — and drop their opposition to including a cigarette tax hike in any Medicaid rescue.
For Illinois to escape its downward spiral, its politicians of both parties will need to abandon some of their customary talking points ("No benefit reduction," "No tax hike").
We take it as a real measure of leadership that Gov. Quinn — accepting his "rendezvous with reality" — is pressing the case for major Medicaid and pension reforms. Friday afternoon, meeting with our editorial board, he said that legislative agreement to rescue Medicaid and pensions "will make Illinois a whole lot better state."