CHICAGO (AP) Illinois lawmakers are hustling to close loopholes in government
pension plans to prevent abuses. They’ve already passed laws changing retirement
provisions for future employees. But so far this fall, they’ve been almost
silent on a much bigger challenge: reducing the state retirement systems’
massive $85 billion unfunded liability, by far the government’s largest unpaid
bill.

Warning that the problem could soon grow too big for the state to
remedy, legislative leaders introduced a proposal last spring to change future
pension benefits for current employees but then withdrew it amid intense
opposition from unions. Tax watchdog groups say it’s the only way to make sure
the state can keep its promises to retirees; state workers say it would violate
the constitution and spark political and legal battles.

Now the question
is whether lawmakers are ready to force the matter, or if they’ll delay it
again.

House Minority Leader Tom Cross says he’s lined up 30 Republican
votes and hopes to act on the bill when the legislators return to Springfield
early next month, if House Speaker Michael Madigan can get an equal number of
Democratic votes. A Madigan spokesman says the speaker can’t ask lawmakers how
they’ll vote on the bill until he sees a final version, which is still being
tweaked.

The Cross-Madigan bill gives current employees three choices
that would save the state money: stay in the current traditional pension plan
but contribute more of their pay, pay a lower amount to join a similar plan that
offers lower benefits or join a new 401(k)-style plan.

Senate President
John Cullerton, a Democrat, believes that would be unconstitutional, but would
allow a vote in his chamber.

“There is no benefit to waiting because
the problem just gets bigger the longer we wait,” said Laurence Msall,
president of The Civic Federation. “I would hope they would have political will
to get this done … it’s not going to go away by ignoring it.”

But
state employees thousands of whom rallied at the statehouse on Wednesday say
they’ve been paying their share while lawmakers dug the state’s five pension
systems into a deep hole by skipping or skimping on state payments for years
while diverting money for other purposes.

“We’ve made very clear to
leaders and rank-and-file lawmakers that we recognize the problems in the
pension funds because we’re the ones who have been sounding the alarm long and
loud,” said Anders Lindall, spokesman for the American Federation of State,
County and Municipal Employees. “(Now) public employees are under assault …
CEOs are trying to villainize them and blame them for state’s fiscal problems.”

Although Illinois’ pension crisis isn’t unique, its scope may be
unmatched.

State officials say the difference between what is promised
to retirees and current assets is $85 billion and growing. But Northwestern
University economist Joshua Rauh says a more realistic figure exceeds $200
billion $213 billion just for the three largest systems because officials almost
certainly are overstating the interest pension-fund investments will earn.

Regardless of the exact liability, it would not disappear even if all
state employees immediately converted a 401(k) or some other pension option,
said Rauh. But pension changes combined with major budget reforms might put the
state in a “reasonable position” to issue bonds and borrow money to repay the
money over a longer period of time, he said.

The state has borrowed
money and used a recent income-tax increase to make its pension payments, but
neither will generate nearly enough to meet future obligations.

“When
you have $213 billion of credit card debt that you just woke up and realized,
none of the options is going to be appealing,” Rauh said. “You’re looking at
tax increases, spending cuts or substantial increase in contributions from
employees.”

Unions are willing to work with lawmakers on a solution
preferably including an increase in taxes on the wealthy but reducing the
already-modest benefits that most state workers will get when they retire isn’t
acceptable, said Lindall. The average retirement benefit is $32,000 a year and
80 percent of workers are not eligible for Social Security.

What’s more,
he said, the Illinois Constitution bars reducing retirement benefits for current
government employees, though it doesn’t spell out whether that applies to
benefits already earned or everything an employee potentially could earn. Even
so, they’re prepared to defend it in court.

“I don’t think there’s any
question you would have a very long line at the courthouse door,” Lindall said.
“It is unwise to provoke a long and costly court battle that we feel confident
the state will lose.”

But some lawmakers and civic groups say the state
is in such a deep hole regardless of how it got there that there’s no choice but
to change pension benefits, even if it means having the courts clarify the
constitution. Cross has said if the system isn’t changed now, pension costs will
eat up most of the state’s annual revenue and the pension funds, which already
are selling assets to pay retirees, will start running out of money in less than
10 years.

“There is not enough money in the state treasury to provide
the amount of unfunded liability the state has,” and it can’t grow its way out
of the problem, said Msall. “That’s why pension reform needs to be at the
forefront of anything we do …. or it will have a horrific impact on local
government as well as service providers.”

James Farrell, chairman of
the Civic Committee of the Commercial Club of Chicago, said he understands why
state workers are upset, but says the bill would not reduce benefits for people
who are retired or the benefits that current workers already have accrued.

If the state doesn’t change the law or does and loses a constitutional
challenge, he said, “pension payments will continue to crowd out all other
important things in the state.”

But he’s still not convinced that
lawmakers are ready to tackle a challenge that they’ve put off for so long.

“I’ve never been a cynical person,” he said. “But on this, I’m
cynical.”

Lindall said he has talked with lawmakers who opposed the
plan in the spring, and sees no evidence that any of them have changed their
minds. Given the sour economy and political climate, lawmakers certainly will be
worried about how any action, or inaction, plays with voters.

In the
first week of the fall veto session, legislators’ attention was focused more on
preventing pension abuses. The House approved a measure barring labor officials
from taking public pensions based on their union salaries after media reports of
“egregious” double-dipping.

But Cross said the larger unfunded pension
crisis is prompting more soul-searching.

“I think the public has gotten
stronger and stronger in their desire to see pension reform, and I think that
has moved members as well,” Cross said.

Even so, Rep. Kevin McCarthy,
an Orland Park Democrat who chairs the House Personnel and Pensions Committee,
said backers might not want to call the bill for a vote unless they’re sure it
will pass, because “it could be more of a hindrance to get something done in
the future.”

If it is brought back during the legislature’s spring
session, he said, “I think the support would be there with the general
public.”

Copyright Associated Press