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Illinois business leaders: Reject pension reform bill SB1
Some Illinois business leaders sent a letter this morning to members of the General Assembly. They don’t like SB1, the pension bill in the Senate, because it won’t yield great enough savings. The letter follows an earlier one by Illinois Chamber of Commerce President and CEO Douglas Whitley posted Feb. 28 here on the blog.
Gov. Pat Quinn has asked the Legislature to send him a pension reform bill, which he will sign if it provides needed savings.
Here’s what the business leaders wrote:
We are writing you today as a coalition of Illinois’ leading business groups to ask you to oppose Senate Bill 1 (SB1). While we appreciate Senate President John Cullerton’s efforts to reform the state’s pension systems and restore some stability to Illinois’ finances, we believe that SB1 will not achieve those goals, but rather worsen the state’s fiscal condition.
As you know, the current aggregate funding level of the five state plans is only 39% – worst in the nation – with an unfunded liability of $97 billion. Required state pension contributions consume an ever-increasing part of the state’s operating budget, leading to cuts in funding for essential state services and an estimated $9 billion in unpaid bills at the end of FY2012. Because of concerns about the funding of the pension plans and the increasing pressure on the state’s budget, the state’s credit rating has dropped to unprecedented levels, which has increased the cost of borrowing. Illinois now has the lowest rating in the nation according to Moody’s and Standard & Poor’s, and all three rating agencies have the state on Negative Watch for possible future downgrades.
Given Illinois’ current fiscal condition, reform of the pension systems must be the highest priority of each of our state’s leaders. Such reform must be substantial, comprehensive and lasting. Senate Bill 1 does not meet that standard.
Of greatest concern is the notion of “consideration” and its implementation in SB1, particularly the trade of access to retiree health care for pension reforms. There have been many discussions about the need to offer pension participants some form of “consideration” in return for changes to pension benefits. We do not believe that any consideration beyond the continued survival of the pension systems – which are on the verge of insolvency – is necessary. However, even if such consideration is deemed necessary, it should not include the trade that forms the basis of SB1. Senate Bill 1 offers guaranteed access to retiree health care as consideration for minimal changes to pension benefits. A revised estimate of the value of these retiree health care benefits reflecting the state’s recent contract negotiations has not yet been released – but it will likely be in the tens of billions of dollars.
In addition, the exchange has the potential to create a constitutional protection for retiree health care benefits that does not currently exist – thereby tying the state’s hands even further when managing its budget. While we appreciate all that President Cullerton has done to try to make the bill constitutionally palatable, we believe that such an exchange could put the state in an even more tenuous financial situation in the future.
Finally, we find the estimated savings from SB1 to be insufficient. As you know, all of the rating agencies have indicated that a key provision of pension reform includes the significant reduction of the unfunded liability. The reduction in the unfunded liability from SB1 is currently estimated in the range of $11-18 billion – the value of the retiree health care benefits that would be locked-in as an exchange has not yet been disclosed. Other reform proposals that are currently under consideration by the General Assembly estimate reductions in the unfunded liability that are double those from SB1, and do not lock-in billions of dollars in retiree health care liabilities.
House Bill 3411 (HB3411), sponsored by Republican Leader Tom Cross and Representative Elaine Nekritz, and Senate Bill 35 (substantially the equivalent of HB3411), sponsored by Senator Daniel Biss, lay a strong groundwork for significant and lasting pension reform. The proposals include reasonable reforms to pension benefits, such as limitations on cost-of-living adjustments, increases in retirement ages, caps on pensionable salaries, increases in employee contributions and a gradual shift in the annual cost of pensions to local employers. It is estimated that these proposals would reduce the unfunded pension liability by about $30 billion without locking-in access to retiree health care. These pension reforms would be an important first step in addressing the state’s larger fiscal issues.
While no reform proposal is perfect, we would encourage you to support proposals that generate significant savings, such as HB3411. It would be a shame to see all of your efforts and those of your colleagues in trying to address the state’s retiree obligations fail to result in a sustainable plan. The stakes are too high and the personal and political investment of all involved should not be wasted. Unfortunately, the structure of SB1 dilutes the positive financial impact of pension reforms, and exposes the state to additional obligations that it cannot afford. We urge you to oppose SB1.
We would welcome the opportunity to discuss these matters further. Sincere thanks for your consideration.
Gregory W. Baise,
Illinois Manufacturers’ Association
John A. Carpenter,
Chicagoland Chamber of Commerce
Kim Clarke Maisch,
National Federation of Independent Business
David E. Miller,
Douglas L. Whitley,
Illinois Chamber of Commerce
Metropolitan Planning Council
Tyrone C. Fahner
of The Commercial Club of Chicago
Jeffrey D. Mays
Illinois Business Roundtable
Carol S. Portman
Taxpayers’ Federation of Illinois
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