Pension reform should include current workers

Wednesday, March 31, 2010

Last week in Springfield, the hole swallowed up the doughnut.

Both houses of the Legislature enacted pension reform for Illinois workers, but they created exemptions so the reforms do not apply to any sitting legislator or any current Illinois worker. The left hand giveth and the right hand taketh away. It was first-rate sleight-of-hand, but it is terrible policy.

Illinois is today bankrupt. It owes about $130 billion (that is not a typo) in retirement-related obligations: unfunded pensions, pension bonds and notes and retiree health costs.

Additional billions are owed by our cities, school districts and municipalities. It is a fiscal calamity that is not "waiting to happen."It is happening now, with mounting pressures on schools to fire teachers, on cities and towns to ramp up pension payments, on universities and community colleges to raise tuition, and on and on.

One reason is that Illinois workers can retire at 60 or even 55 with full pensions. In Chicago they can retire at 50. Illinois retirees can receive payments for life that amount to about 75 percent to 80 percent of final career pay -- with future cost-of-living adjustments even if there is no inflation.

The state pays 100 percent of the Cadillac-type health insurance premiums. After "retirement," they can go to work at another job -- and start building up another pension. Virtually nobody in the private sector gets that kind of a deal.

Why should state workers receive a level of retirement benefits that private-sector taxpayers do not have?

The Civic Committee of the Commercial Club has proposed reforms that would bring public retirement benefits into line with those available in the private sector. These reforms would reduce the $130 billion overall liability roughly by half. They would reduce the state's pension costs -- each year -- by more than $2 billion, and its retiree health costs by more than $1 billion.

Because of the exemptions, the Illinois Legislature created for themselves and for all current workers, how much of that $130 billion liability did they eliminate?

Correct answer: Zero

Because of the exemptions, how much did they reduce the state's current costs?


Our legislators in both parties suggest they have achieved a great pension reform -- and saved billions of dollars in the future. The reform is better viewed as a small step in the right direction -- but with a very long way to go.

The reform is badly flawed by the exemption for current legislators and all current employees.

Officials will almost certainly make matters worse by claiming that those future savings -- decades from now -- justify the state in reducing pension funding now. Such "holidays" and reductions, taken over the past decade, help explain why Illinois taxpayers now have the $130 billion liability hanging over their heads. That debt is mounting every day. You can hear the bomb ticking.

When our leaders in Springfield raise income taxes in Illinois, does anyone think they will exempt all current taxpayers?

R. Eden Martin is president of the Civic Committee of the Commercial Club of Chicago.