With a state budget groaning under the weight of pension costs, Gov. Pat Quinn proposed raising the retirement age for public employees, requiring them to pay more toward their pensions and making school districts and colleges share in the financial burden.
Quinn said Friday that employees should not be allowed to retire with full benefits until age 67. He proposed increasing their pension contributions by 3 percentage points and capping cost-of-living increases for retirees at 3 percent.
The Chicago Democrat warned that if Illinois doesn't overhaul its pension systems, the rising costs will soak up all available money and leave nothing for vital services. Bond-rating agencies will downgrade the state, making it more expensive to borrow money, he said.
"We understand that retirement costs are part of our obligation, but we also have obligations to people in the area of education, the No. 1 priority of our state," Quinn said at a Chicago news conference. "We also have obligations with respect to public safety and definitely with taking care of human beings."
Public employee unions immediately rejected the proposal as irresponsible and unconstitutional. Key lawmakers praised much of it, but there was a sharp split over the idea of shifting some costs to schools. Republican leaders said schools don't have enough money and would have to raise property taxes.
Quinn acknowledged the roughly $83 billion pension shortfall largely grew out of state officials failing to provide their full share of retirement funds and improving benefits without worrying about the cost. Still, his solution depends almost entirely on other groups
He noted half-dozen times that he came to office long after the pension crisis began.
"I did not create the problems, but I'm here to solve the problems," he said.
The pension system's problem is essentially two-fold.
One problem is that years of limited funding have left state retirement systems -- which cover state employees, legislators, judge, non-Chicago teachers and university employees -- don't have nearly enough money for the pension checks they'll have to write in coming decades. The disparity between their current assets and long-term obligations is among the worst in the nation.
The other problem is that Illinois law sets the size of the state's annual pension contribution and it increases dramatically each year regardless of revenue growth. In 2013, it jumps by $1 billion, which is more than all the new revenue Illinois expects to collect. In 2014, it will climb even more.
The We Are One Illinois labor coalition said Quinn's solution would violate the Illinois Constitution's ban on reducing an employee's retirement benefits.
"It is crucial that the pension problem not be compounded by an unconstitutional solution that is unfair to public employees who have always paid their share," Illinois AFL-CIO President Michael Carrigan said in the coalition's statement.
Quinn says his plan complies with the constitution by keeping the current pension plan while also creating a new one with the increased costs and retirement age. Employees could choose to stay in the original pension plan, but Quinn would then cut other benefits that aren't constitutionally protected, such as health care.
One pension expert questioned whether that approach will survive a court challenge.
Robert Rich, director of the University of Illinois' Institute of Government and Public Affairs, said the courts might decide that such a punitive approach is not a choice but an improper attempt to force workers to accept pension reductions.
Rich also was also critical of Quinn, saying the state should completely eliminate the long-term pension shortfall. Rich said there is no need for retirement systems to have 100 percent of the money they'll need over a period of years.
Illinois pension systems currently have 54 percent of the funding they'll ultimately need, but 90 percent "would be really good," he said.
Quinn's proposal came just a day after he delivered a similarly ambitious and contentious plan to overhaul Medicaid. Those changes, which he described as vital to the state's future, included cutting benefits, raising cigarette taxes and reducing payments to hospitals and other providers.
Senate President John Cullerton, D-Chicago, applauded Quinn delivering a pension proposal that may avoid violating the ban on reducing retirement benefits. He also praised the idea of shifting some costs to schools and colleges.
Right now, only Chicago schools pay the retirement costs of their employees. Quinn wants all other schools, as well as universities and community colleges, to start contributing toward future pensions. He said only 22 percent of the people covered by state retirement systems are actually state employees; 78 percent work for schools and colleges.
Republican leaders object to that shift, but said Quinn is right to focus on employee contributions and benefits.
"We're glad the administration and the Democrats have finally gotten religion," said Senate Minority Leader Christine Radogno, R-Lemont.
Quinn's announcement left some key questions unanswered.
Who would be covered by the new retirement age of 67, given that it now varies widely depending on age, years on the job and type of work? Would the state's annual pension contributions stay flat, like a home mortgage, or continue to climb every year? And what would keep the state from skipping payments in tight years, which has happened in the past?
The governor defended his plan as both constitutional and absolutely necessary if Illinois is to balance its budget.
"I know I was put on earth to get this done," Quinn added.
Associated Press reporter Tammy Weber contributed to this report from Chicago.
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