NEW: Delay in pension payment central to state budget

Friday, May 7, 2010

SPRINGFIELD — Lawmakers could be hours away from finishing their legislative session after Democrats introduced their budget proposals for the upcoming fiscal year on Thursday.
Senate Democrats passed their version of the budget shortly before 1 a.m. on Friday, while the Illinois House has yet to debate a similar proposal backed by Democratic lawmakers.
The state's next fiscal year begins on July 1, and the state is prepared to adopt an unbalanced budget that would be billions of dollars in the red. Lawmakers have been grappling with a $13 budget deficit since the start of the legislative session in January, and have set Friday as the adjournment date.
One of the critical components of the proposed budget is a delayed payment to the state's public employee retirement systems. Democrats want to wait until at least January 31 to make a contribution of at least $3.7 billion.
David Vaught, director of Gov.Pat Quinn's Office of Management and Budget, said the state could not immediately afford to make a pension contribution. But he was insistent that the state would be able to find the money down the line.
"No cash means that (pensions) won't get paid," he said. "It's funny money. It's motley money when you don't have cash and you're trying to say you're going to pay it anyway. So let's get real here. We're out of money."
State Sen. Dave Syverson, R-Rockford, said state government would have to take billions of dollars from state programs and agencies to even consider making the pension payment.
"I don't know where they come up with that in six months. But they just said in six months they will find $3.7 billion to make a payment. Unfortunately, it's laughable because no one really believes what they're saying," he said.
Syverson noted that if state government waited to make a pension payment in January, interest would have to be added, costing the state millions of dollars more.
Lawmakers have struggled in recent years to make the state's annual contribution to its five public employee pension systems covering state workers, downstate teachers, state university faculty and staff, lawmakers and judges. Illinois' pension systems have the highest collective unfunded liability in the nation at $80 billion, according to the national think tank Pew Center for the States.
Last year, lawmakers agreed to borrow billions of dollars to make its yearly payment. This year, House lawmakers showed less support for a similar proposal.
The struggles with pension payments comes on the heels of a reform plan passed by lawmakers and approved by Quinn weeks ago that established reduced benefits for incoming employees.
At the time, Quinn said the "two-tiered" pension system would save the state billions of dollars over the course of several years.
The major cost-cutting proposal Democrats are calling for in their proposed budget is an across-the-board 5 percent reduction in the state's payroll.
But Republican lawmakers claim the measure is nowhere near sufficient to bridge the budget shortfall and are calling for much greater spending cuts.
Syverson said Democrats had ulterior motives at work.
"They're planting bombs. They're overspending intentionally because they know that, and pretty confident that, (GOP nominee) Bill Brady is going to win the governorship," he said. "So they're creating a huge budget hole and they're not funding the pension system, so in January there could be a budget hole from really $6 (billion) to $10 billion. And then they're going to give that to Brady and say that, 'You solve it, but we're not going to help you.'"
State Sen. Bill Brady, R-Bloomington, will face Quinn in November's general election for the state's highest office.
Perhaps adding to the political pressure on the governor, the Democrats' budget proposal would take the rare step of granting Quinn extraordinary budgetary powers for the upcoming fiscal year.
State Rep. Barbara Flynn Currie, D-Chicago, said emergency powers would help Quinn manage the budget during a difficult economic time for the state.
"When it comes to the agency he manages, when it comes to higher education, he's in a position under this proposal to reserve dollars we have appropriated in case he needs some flexibility," she said.
Currie added that Quinn would be able to cap participation in a state program if funding fell short.
In the state's history, the General Assembly has approved of emergency budget powers for one other governor, Republican Gov. Jim Edgar.
Friday could see Democrats introducing revisions to their budget proposals.
While the House Democrats' and Senate Democrats' budget plans are mostly similar, there are some revenue measures within the plans that differ.
State Sen. Donne Trotter, D-Chicago, the Senate Democrats' primary budget negotiator, said a number of revenue-generating provisions in the Senate proposal have yet to be considered, including a tax hike on cigarettes, a tax amnesty program and a front-loading of funds from tobacco securitization.
"None of this is guaranteed to pass because it has to go through the other chamber (the Illinois House)," Trotter said. "We don't know what is coming out of that chamber. I've not seen their bill. I don't know if they've see ours either."
The Illinois House could consider their own budget proposal or the proposal passed by Senate.