There was much celebration in Springfield two weeks ago after legislators passed a pension consolidation bill that its backers say will help put downstate fire and police municipal pensions on a firmer financial footing.
Gov. J.B. Pritzker called the legislation a “huge bipartisan step” toward “alleviating the enormous property tax burden in downstate and suburban communities.” Pritzker is at least two-thirds right — the vote was bipartisan and it was a step.
But huge? The facts don’t support that claim.
At the same time, Ralph Martire, executive director of the liberal Center for Tax and Budget Accountability, also praised the legislation as a money-saver and a “breath of fresh air.”
“The legislation recognizes the need to incur short-term costs to generate long-term gains. How refreshingly unpolitical is that?” he wrote.
But what are the short-term costs to individual municipalities? It’s not clear.
Further, what are the long-term gains for municipalities? There are estimates, but they are markedly different?
Indeed, just what is the impact of the pension consolidation legislation other than consolidation? And, even assuming it works out exactly as its backers say, what impact will the fire and police consolidation have in the context of the state’s overwhelming pension debts?
Adam Schuster, director of budget and tax research at the conservative Illinois Policy Institute, estimates the consolidation bill leaves “94.5 percent of the state’s total pension burden untouched.”
The legislation was the creation of a task force made up of members appointed by Pritzker and led by Deputy Gov. Dan Hynes.
Task force members came up with the plan a few months ago and urged the legislature to pass it. The General Assembly did so in the recent fall veto session.
Amanda Kass, the associate director of the Government Finance Research Center at the University of Illinois-Springfield, cautiously embraced consolidation when it was first disclosed. But she suggested proponents produce a “thorough analysis of the estimated costs and savings and their respective time horizons.” She also noted that different municipalities will have different “transition” costs and pressed for specifics.
Was any of that forthcoming?
Kass said “the only analysis” came in the task force report that “was not the most sophisticated analysis.”
Kass said, in her opinion, public pension legislation in Illinois “has had a history” of receiving only cursory reviews by members of the General Assembly.
“That has led to some unintended consequences,” she said.
Kass is not the only financial analyst to express dismay over the legislature’s blitzkrieg review of the consolidation legislation.
Wirepoints financial analysts Ted Dabrowski and John Klingner complained that “politicians are once again doing pension reform on the cheap — stuffing piecemeal changes in an unrelated bill with no numbers and no debate.”
Specifically, they said, legislators’ decision to increase pension benefits for Tier 2 public safety workers was a mistake because it represents a piecemeal approach.
“Tier 2 workers — those who started work after January 2011 — will at some point have to be fixed. We’ve written about that in the past. It’s a real mess,” they said.
There’s a concern that the Tier 2 pension benefits for public employees are legally inadequate because they do not meet the minimum government “safe harbor” standards.
Enrolled in the state’s Tier 1 pension system, those hired before January 2011, receive benefits far in excess of Social Security.
The concern about Tier 2 enrollees is that retirement benefits are so low that it might force some government employees to participate in the Social Security system that requires both employer and employee contributions.
Ironically, the legislation containing the problematic Tier 2 pension program illustrates the same concern as that raised by the consolidation legislation. The Tier 2 bill also was passed in a rush by legislative leaders without adequate time to study all its provisions to see if they passed muster.
The consolidation bill would roll roughly 650 downstate fire and police municipal pensions into two — one for firefighters and one for police.
Proponents of the plan say consolidation would reduce administrative costs and generate larger returns. The best case scenario estimates it would generate an additional $850 million to $2.5 billion over five years. A less optimistic forecast predicted between $800 million and $1.5 billion.
The municipal pensions are, collectively, underfunded by an estimated $12 billion.
Gains, of course, depend, at least partly, on how high the transition costs will be for each individual municipal fund and when the anticipated savings start to accrue?
Kass said she anticipates that some municipalities will benefit and that other municipalities “will be caught flat-footed” with higher costs than they predicted.
Like the state’s five public pension funds, municipal fire and police pensions face severe financial constraints due to shortfalls in contributions and excessive benefits.
Only one local legislator, Democratic state Rep. Carol Ammons of Urbana, voted in favor of the legislation. State Rep. Mike Marron, a Danville Republican, did not vote. The roll call list indicated he had an excused absence.
State Sen. Chapin Rose, a Mahomet Republican, indicated he was conflicted about the merits of the plan and complained about the rush to vote it into law.
“If it’s a good idea now, it’ll still be a good idea next year,” he said.
Ultimately, Rose, along with state Sens. Scott Bennett, a Democrat, and Jason Barickman, a Republican, voted against the bill.
It passed the House by a 96-14 margin and the Senate by a 42-12 vote. Pritzker is expected to sign the legislation as soon as it gets to his desk.