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Miller: Pension reform a boost for Quinn in two ways

Updated: January 7, 2014 6:09AM



The Legislature’s long-awaited and much-anticipated approval of a pension reform bill this week, narrowly passing despite the support of the four legislative leaders, is designed to do away with the state’s roughly $100 billion pension debt over 30 years — mainly by raising the retirement age for many state employees and teachers outside Chicago and trimming cost-of-living raises for retirees

Other than the obvious fact that pension payments are diverting billions of dollars from other state programs such as education and human services, Gov. Pat Quinn really wanted the bill passed before the end of the year for a couple of reasons, both political.

Illinois law requires the governor to propose a new budget based on existing statutes. In the past, governors almost always would say they would balance the budget if a new tax or fee was passed or funds were transferred or programs were legislatively changed. That’s no longer permitted.

Quinn’s fiscal year 2015 budget address is scheduled for Feb. 19. The pension reform law won’t take effect until June 1, presuming a lawsuit soon to be filed contesting its constitutionality is resolved by then. But June 1 is after the budget address and before the July 1 start of the new fiscal year. So Quinn still could use the proposal’s expected savings when he introduces his budget.

That’s important because most of the temporary state income tax increase expires smack dab in the middle of the 2014-15 fiscal year, which will blow more than a
$3 billion hole in Quinn’s budget. The governor certainly didn’t want to have to introduce a budget that made huge cuts if pension reform didn’t pass.

The projected savings from pension reform could be as high as $1.8 billion in the first year and could legally be used to “balance” Quinn’s proposed budget. With a strong revenue forecast, it’s possible that the coming year’s revenue could almost cover the remaining hole from the expiration of the tax increase.

That doesn’t mean, however, that Illinois’ finances would be in the clear. A judge will either set aside the new pension law while its constitutionality is adjudicated or (perhaps more likely) require that any savings produced by the law be placed into an escrow account. If that happens, then legislators and Quinn will have to deal with a new hole.

The responsible thing to do, of course, would be to not include the pension reform savings in a new budget. But that would mean proposing an election year budget that slashes education and human services to the bone, and what governor wants to do that ever, let alone in an election year?

And that brings us to the second reason why Quinn was so eager to get a reform bill approved.

The state pension systems are in dire straits largely because the state never has made enough contributions to them. For proof, just look at municipalities outside Chicago, which are required to make full pension payments. The Illinois Municipal Retirement Fund is very close to being fully funded. No crisis at all.

Quinn and the legislative leaders pushed for a funding guarantee in the new legislation to make sure that the state doesn’t skip its pension fund payments again. But Republican gubernatorial candidate Bruce Rauner, who now leads the GOP primary field in two recent polls, is dead set against that.

Does Rauner really want the state to have the flexibility to skip pension payments again, which could lead to even more problems down the road? Well, there’s something else going on here.

Rauner wants a complete revamp of the pension system. He would immediately put employees into a 401(k) plan instead. The irony is a bit rich here. Rauner’s investment firm made a fortune off of investing state pension fund money.

He’s now semi-retired and reported making $53 million from his investments last year. A retired teacher making $53,000 a year would have to live another thousand years to equal one year’s income for Rauner.

Anyway, the issue over the funding guarantee mainly was just an excuse to try to derail the pension deal. Now that pension reform has passed, it’s doubtful that legislators will want to revisit the guarantee issue unless the courts strike down the reform law as unconstitutional.

And because the pension reform bill had support from the most powerful Republicans in the General Assembly, it would be uncomfortable for Rauner to continue his harangues against the compromise over the next year.

Because Quinn could end up facing Rauner in the November general election, defeating the wealthy Republican on the legislative battlefield this week might take some air out of Rauner’s well-funded campaign down the road.

Passing this pension bill, in other words, was a must-have “twofer” for Quinn.

Rich Miller also publishes Capitol Fax, a daily political newsletter, and CapitolFax.com.



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