My Suburban Life

Pension issue larger than referendum

Friday, October 15, 2010

Illinois’ finances are a mess of late bills, lagging revenue and long-term debt — not exactly the kind of issues that can be solved by a ballot proposition.
The pension reform referendum appearing this November does not aspire to fix the problem. Instead, proponents are hoping that with approval from voters, the nonbinding measure will send a message to state lawmakers as they consider reform legislation in the coming months.
But the referendum might not have even that much of an impact.
Before the first vote has even been counted, both sides have already said they anticipate a bill moving forward when the General Assembly meets again that will restructure the pension system for the state’s police and fire employees.
What’s more, there is a good chance any successful reform of public safety pension, much like the reform of municipal workers’ pension signed into law this year, will not address all the flaws in the system.
The problem with pension, simply put, is the fund is becoming too expensive to maintain.
Since 1997, the amount of money the police and firefighters and the taxpayers have had to contribute has more than doubled. On top of that, the recession hit the fund’s investment returns hard, meaning towns’ contributions were even higher in recent years.
This summer, lawmakers were close to approving a bill that would create a separate benefits system for new hires with a higher retirement age and a cap on pensions. The goal would be to cut down on the contribution payments.
But while a similar reform for other municipal employees’ pensions passed into law, the pension reform for police and firefighters hit a roadblock. Lawmakers are expected to consider another reform bill during the veto session starting two weeks after election day.
The referendum on Nov. 2 ballots asks voters if lawmakers should take steps to implement meaningful pension reform, to relieve the unsustainable burden on local taxpayers. A few towns add a flourish to the language and point out the passage of reform law for other public employees.
“We’re hoping that the positive affirmation by the voters, that their support of pension reform will demonstrate to the General Assembly that, ‘Hey, this needs to happen soon,’” said Joe McCoy, a senior legislative advocate for the Illinois Municipal League, which was at the negotiating table over the reform legislation.
It is unlikely any of the measures are going to fail, especially with how they are worded, said Ted Street, state president of the Illinois Fraternal Order of Police state lodge.
In February’s primary election, similar referenda in Barrington and Lake Forest both had about 90 percent voter support.
“I think the outcome is very obvious,” Street said. “As to what bearing that has on the members of the General Assembly is yet to be seen.”
Neither side could say for sure what the bill will look like, but it likely will be somewhat similar to the one that got held up during the summer. That legislation would have raised the police and firefighter retirement age from 50 to 55 and capped retirement pension at 72 percent of the final average salary.
Even without the referendum, there is momentum to get it passed.
“I think it’s coming,” Street said. “The train has left the station.”
A second-tier system for public safety pension would reduce the burden on taxpayers, but it might not be enough, McCoy said. There is still the issue of current employees.
“If the second tier is adopted, it’s not going to solve the problem,” McCoy said. “Unless the amendment does something to address the existing debt burden, that debt burden is going to continue to grow and become a monster.”
Even with a bill that creates a second tier for police and firefighters who are hired after Jan. 1, the fund would amass $9 billion in unfunded liability by 2020, according to the Illinois Municipal League.
The municipal employees reform bill and did not address current employees’ pension system, and any successful reform of public safety pension probably could not either.
“That was never put on the table,” Street said. “I think that clearly … would be a deal-breaker.”
There are some who even point to the Illinois Constitution, which states that once a public employee is a member of a pension plan, the benefits “shall not be diminished or impaired.”
It makes it unlikely that a deal can be brokered any time soon.
“The only way it is going to be really resolved is through litigation in the court system,” McCoy said.