The St. Louis Post Dispatch reports that Illinois may be the next state to adopt major pension reform. This does come as a surprise. In recent research Benjamin Van Metre and I find that the state's pension liability stands at $255 billion. Then factor in another $49 billion for Other Post Employment Benefits (OPEB), and Chicago's unfunded pension liability of $48.8 billion.
Our analysis relies largely on the state's budget and previous
policy actions. Last year, Illinois adopted very minor reforms to its
pension system which would only modify benefits for new hires and thus
not have an impact on the liability. According to the FY 2012 budget,
Governor Quinn, while acknowledging the problem presented by rising
benefits mentions asking the federal government to guarantee the debt.
But, the numbers may have finally caught up with Illinois' policymakers. Legislators are working on a bill to be considered this fall that would introduce a defined contribution plan - as one of three options to new hires.
Governor Quinn, who has received political support from the unions, is now earning their ire by not honoring pay raises for 30,000 employees. (Unions protested his presence at the State Fair last week.) He says to do so ensures the state won't be able to get through this fiscal year. An arbitration judge ruled against the Governor and he is appealing the decision.
But, the real obstacle to reducing the massive liability facing the state is the live debate over Illinois' 1970 Constitution which is interpreted, by at least one (retired) Appellate Judge, as guaranteeing a pension plan as specified in formula on the day a worker is hired. That is, once hired under those terms there is no changing the benefit formula. If this interpretation is correct, then that leads to a politically difficult but ultimately necessary rule-change. In Illinois pension reform is a matter of constitutional clarification or modification. Absent that, in a few short years we will discover how these benefit promises will be settled; thus, the Governor's hint at a federal guarantee.
But, the numbers may have finally caught up with Illinois' policymakers. Legislators are working on a bill to be considered this fall that would introduce a defined contribution plan - as one of three options to new hires.
Governor Quinn, who has received political support from the unions, is now earning their ire by not honoring pay raises for 30,000 employees. (Unions protested his presence at the State Fair last week.) He says to do so ensures the state won't be able to get through this fiscal year. An arbitration judge ruled against the Governor and he is appealing the decision.
But, the real obstacle to reducing the massive liability facing the state is the live debate over Illinois' 1970 Constitution which is interpreted, by at least one (retired) Appellate Judge, as guaranteeing a pension plan as specified in formula on the day a worker is hired. That is, once hired under those terms there is no changing the benefit formula. If this interpretation is correct, then that leads to a politically difficult but ultimately necessary rule-change. In Illinois pension reform is a matter of constitutional clarification or modification. Absent that, in a few short years we will discover how these benefit promises will be settled; thus, the Governor's hint at a federal guarantee.
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