By Aaron Chambers
Source: Rockford Register Star Dems propose ‘pension holiday’
SPRINGFIELD — Democratic leaders want to balance the state’s budget by postponing payment of part of the state’s pension bill, a move that could pre-empt a politically damaging summertime budget fight but cost taxpayers billions in the long run.
“We’re not taking anything from” the state’s five pension systems, said Rep. Chuck Jefferson, D-Rockford. “We’re just taking longer to pay it back.”
Indeed, support for the plan pitched Thursday to cut the pension payment for state employees appeared to enjoy broad support among Democrats in the Legislature. The plan would eliminate much of a deficit pegged at $1.2 billion or more.
Republicans balked at the so-called pension holiday. They noted that Illinois has among the worst-funded pension systems precisely because lawmakers have long neglected them.
“Pension holiday? I think it’s a pension raid,” said House Minority Leader Tom Cross, R-Oswego.
Sen. Dave Syverson, R-Rockford, was not so kind: “It is a raping of the taxpayers.”
How it’s envisioned
The agreement reached by Gov. Rod Blagojevich, Senate President Emil Jones Jr. and House Speaker Michael Madigan involves reducing the state’s next pension payment to between $1.1 billion and $1.35 billion.
The plan involves suspending a law that mandates a payment of $2.1 billion. If successful, it could allow Democrats to end the spring legislative session by Tuesday. Once budget talks drag into June, Democrats need a three-fifths majority to adopt a budget, requiring them to get Republican votes to implement any spending plan for the fiscal year that begins July 1.
Thursday’s deal among Democrats followed weeks of negative publicity for Blagojevich, whose approval ratings have tanked in recent months. In particular, the joint effort marked a distinct change in posture for Madigan.
Although he is chairman of the Illinois Democratic Party, Madigan joined Republicans last year in a budget fight against Blagojevich and Jones. In early May, Madigan said that coalition persisted and he is prepared for another fight.
“It could well be the case that things are just so bad that (Madigan) thinks it’s going to hurt his people,” said Chris Mooney, a political scientist at the University of Illinois-Springfield. “I don’t see why he would care about Blagojevich personally unless it affects his people in the House.”
Paying more later
The pension payment reduction would cost taxpayers as much as several billion dollars. Because the dollars withheld would not be earning interest in pension funds, the state would have to pay more in the long term to make up the difference.
Lawmakers and pension analysts said every dollar withheld now costs the state $7 to $13 over the long term.
“To the extent that they owe us a dollar and they give us a dollar, that interest is compounded and that’s going to generate a very healthy long-term return,” said James Hacking, director of the State Universities Retirement System of Illinois.
“On the other hand, if they don’t pay us that dollar, then we lose that same amount of earning that we would have received over that same period of time.”
Hacking said the payment reduction would be “extremely detrimental” to the pension systems, and they might liquidate assets to cover pension benefits to state retirees.
Democrats defended the payment reduction plan, saying Republicans failed to produce constructive solutions for the state’s fiscal crisis.
“We’ve run into a brick wall really this year on the financial side,” said Rep. Gary Hannig, a Litchfield Democrat who is Madigan’s point man on budget matters. “And it seems like the only option we have is to restructure our pension payments.”
Madigan spokesman Steve Brown added that Madigan’s move did not reflect a departure from his coalition.
“The coalition still exists,” he said. “It just has some different members.”