A Minute With...

Robert Rich, Director of the Institute of Government and Public Affairs

6/5/2012  8:00 am

After the General Assembly failed to pass a bill at the close of the spring legislative session, what’s next for pension reform in Illinois?

Robert F. Rich is the director of the Institute of Government and Public Affairs at the University of Illinois. Rich, who also is a professor of law, of political science and of medicine at Illinois, spoke with News Bureau business and law editor Phil Ciciora about the prospects for enacting legislation in a special summer session.

What is next for pension reform in Illinois? Do you expect the situation to be resolved by the end of the summer?

image of professor robert richThere are two major problems with the pension system for public employees: Illinois has the largest unfunded liability of any state in the United States (our system is currently 43 percent funded); and the inability to finance “normal costs” has increased the unfunded liability over time. If these issues are not addressed, then the rating agencies will further downgrade the state of Illinois, which will have a real negative impact on our overall economy. I believe the Legislature will pass legislation to address these issues by the end of the calendar year, at the latest.

Was it a good idea for Gov. Pat Quinn to push the pause button and convene a special legislative session to consider pensions instead of pushing legislation that had been public for less than 24 hours?

It was a good idea because there was insufficient support to pass meaningful legislation. Now, the four leaders can craft a solution that both political parties can agree on. It will take a three-fifths vote to pass any legislation. Then, if an agreement is reached, a special session can be called.

How will the “cost-shift” issue be addressed in any future legislation?

Cost-shifting transfers the responsibility for “normal costs” to school districts (local governments), universities and community colleges. I think this will be addressed in one of two ways: implementing the transfer over 20 years as opposed to 10 years, making it fiscally possible to achieve this goal; or shifting a portion (for example, 50 percent) away from the state.

Does the proposed bill pass the constitutionality test?

The proposed legislation would certainly have led to a court test. The non-impairment clause of the Illinois Constitution is one of the strictest in the United States. I do not believe that the provision that offers a “choice” to current employees and annuitants would survive a constitutional challenge because it does not offer a real, voluntary choice. A voluntary choice would be for alternatives of approximately equal value and where the choice is not coerced. The current language does not meet this test.

What about pension reform is critical for the University of Illinois?

The university is very concerned with attracting and retaining top faculty and staff. The current Tier 2 option, which was implemented as of Jan. 1, 2011, makes us non-competitive with many other institutions. So, from our perspective, pension reform needs to also deal with Tier 2. The “cash balance” plan, or the “hybrid plan,” put forward by the Institute of Government and Public Affairs, will do this successfully.

Would the proposed legislation have come close to solving the $83 billion unfunded liability?

Yes, it would have, because the revised Cost of Living Adjustment (COLA) would have reduced annual costs. It also would have allowed a quicker payback of the current unfunded liability.

How long does the state have to avoid a “double downgrade” from credit rating agencies?

The state made some progress with the measures it took to cut Medicaid and by passing a budget that was within revenue limits. I suspect that the credit agencies will not wait any longer than the end of the calendar year and they may even act by the end of the summer.

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