Gov. Pat Quinn used today’s state of the state address to call for immediate action on Illinois’ $97 billion unfunded pension liability.
“This problem cannot be delayed, deferred, or delegated to the next session to the next generation,” Quinn said. He referred to the pension debt as “the toughest of issues” facing the state.
Quinn said Illinois’ pension liabilities are draining money from critical needs, such as funding for elementary education programs and public safety by some $17 million per day.
Doubts concerning the state’s fiscal stability prompted ratings agency Standard and Poor’s to downgrade Illinois bonds to A-minus from A on Jan. 25, leaving the state with the lowest debt rating in the country and forcing the delay of a $500 million general obligation bond offering last week.
“He’s reinforced his commitment to solving the problem,” said Richard Ciccarone, managing director for Oak Brook-based asset management firm McDonnell Investments, in reaction to Quinn’s remarks. But, he added the speech “doesn’t bring up anything new to us.”
Quinn did not offer any new legislative solutions, but he applauded State Senate President John Cullerton (D-6) for supporting Senate Bill 1, which would raise retirement ages for state employees and increase employee contributions to pension plans. The Illinois House failed to act on the bill before the end of the last legislative session.
Ted Dabrowski, vice-president of policy for the free market-oriented Illinois Policy Institute, said the speech failed to address the core drivers of the pension debt.
“If pension reform is the big problem, then I think what he needs to be doing is convincing the people and legislators on real reforms,” Dabrowki said. “And what we have on the table today in terms of bills are not real reforms. They don’t fix Illinois’ pension problem. They actually perpetuate it.”
The Institute has called for cuts to future pension payouts, increased employee contributions or a shift toward defined contribution accounts, such as 401ks.
“The bills on the table keep government employee retirements in the hands of the politicians, the same ones that have bankrupted the system,” Dabrowksi said.
“We do want to preserve the benefits that have already been earned. But going forward, the best model will be a 401k structure that gives employees and retirees control over their own retirements.”
We Are One Illinois, a union-backed group, also criticized the speech, releasing a statement accusing the governor of “offering a false choice…between funding pensions or funding vital services, like education and public safety.”
The group has called for changes to Illinois’ tax code that would raise revenue to pay for pension liabilities. It opposes cuts to benefit plans or cost-of-living alterations.
“Our plan would generate billions in revenue, share in the sacrifice, and should not be overlooked,” the statement read. “Public workers and retirees alone cannot solve decades of the state’s pension under-funding.”
“As investors and analysts, we do monitor what seems to be the ability to provide for a political resolution,” Ciccarone said. “And we know that the legislature has been at odds with themselves on a solution. So that has been discouraging to the market and discouraging to the rating agencies in suggesting that a solution is a long way off.”
He noted that any proposed solution would have to pass through the state’s judiciary before becoming law, a function of the state’s constitution, which prohibits cuts to government pension plans.
“We’re not looking for a quick fix here,” Ciccarone said. “But I think that everyone in the state stands to benefit from meaningful progress on the issue of pension reform.”