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Gov. Quinn’s proposed budget fix doesn’t include pension reform

Written By: Emma Jackson on February 25, 2010 No Comment

Gov. Quinn announced Wednesday that he would fix the budget through a proposed tax increase and a $2.2 billion cut in spending. However, immediate pension reform was not mentioned.

“In my estimation Quinn believes that pension reform is ‘too hot a potato’ to handle at this time,” said David Mirza, economics professor at Loyola University. “But the financial impact of state pension expenses will not go away.”

Illinois’ retirement system has total unfunded liabilities of $62.4 billion as of June 30, 2009 and the state has continually neglected to pay its pension liabilities.

In a recent report on how to fix the Illinois budget crisis, the Civic Federation said without pension reform and spending cuts, the fiscal watchdog group opposes any new tax increases. The organization would support a proposed increase in the state income tax rate from 3% to 5% for individuals and 4.8% to 6.4% for corporations, if the state implements $2.5 billion in budget cuts and pension reform.

Kelly Kraft, a spokesperson for Gov. Quinn, said the office would continue to review the Civic Federation’s recommendations and work with the group during the upcoming budget debate.

The Civic Federation has three suggestions for pension reform and one of them includes changing the benefit structure for new hires through a second tier of pensions benefits.

However, David Merriman, head of the economics department at the University of Illinois at Chicago, said modifying benefits for new hires would not make a huge dent in the state’s current pension liabilities.

“Even if we take new state workers and give them a less generous pension program, that won’t have a significant impact on the pension finances for a number of years because young workers aren’t going to retire for a long time.”

The Illinois Policy Institute has come up with a six-step plan called the Pension Funding & Fairness Act. The act would enable Illinois to meet its annual pension payments as required by law while protecting taxpayers from a tax increase, the report stated. One step of the plan also calls for a two-tiered system.

AFSCME Council 31, the state government’s largest union, doesn’t have interest in a two-tiered pension system. State employees make up about 20 percent of the total Illinois retirement program.

“For many years, the press has been writing about the pension time bomb,” said Louis Cain, an economics professor at Northwestern University. ”It’s hard for someone who needs the union vote to address this issue.”