Illinois has the nation's worst pension debt problem, and everyone involved
agrees a solution is needed now.
But there are myriad ways to deal with
it and no easy choices. A look at the pros and cons of the most-talked about
ideas:
1. PENSION BOND: Under this plan pushed by Gov. Rod Blagojevich,
the state would borrow $16 billion in lower-interest debt and pump the money
into the pension systems.
PROS: The administration says the state could
save $55 billion over the next 33 years by essentially trading the 8.5 percent
interest pension debt for lower interest debt. This would lower the massive $42
billion debt and make the systems 75 percent funded, providing retirees more
certainty about the future.
The state made the same move in 2003,
borrowing $10 billion and bringing the systems from 48 percent to 61 percent
funded. Blagojevich officials say market conditions are right for another
pension bond.
"Something's got to be done," said John Filan,
Blagojevich's top budget adviser. "The current situation is just not tolerable."
CONS: Critics, including business groups and Republicans, say borrowing
to pay off old debt, even if it's at a lower interest rate, isn't wise. It just
puts off the problem.
They say there's also too much risk in a pension
bond. It only works if the invested proceeds from the bond get a better return
than the interest rate on the amount borrowed, which could be 5 percent a year.
In a shaky stock market, critics warn, nothing is guaranteed and the state's
pension debt could get even worse.
"This is a craps game, and you
shouldn't operate the state's finances based on taking those kinds of risks,"
said Eden Martin of the civic committee of the Commercial Club of Chicago.
2. INCOME TAX INCREASE: Under this idea backed by some Democratic
lawmakers, the state would raise its income tax rate by a couple of percentage
points to raise several billion dollars to spend on needs, including paying down
pension debt.
PROS: Backers, including some state employee unions, say
the pension debt and other budget problems were caused because Illinois simply
didn't have enough revenue to cover its bills for many years.
Raising
the income tax would bring in enough cash to significantly pay down the pension
debt, allowing lawmakers to possibly restructure yearly pension payments and
free up cash for more school funding, paying off health care bills and making
other needed improvements. Illinois' income tax is low compared to other states,
they argue, and citizens would support an increase if the proceeds went to the
right priorities.
"We've got to do all those things, and we've got the
capacity to do it," said Ralph Martire of the taxpayer watchdog Center on Tax
and Budget Accountability.
CONS: A big obstacle is Blagojevich, who has
repeatedly vowed to veto any general income or sales tax increase because it's
unfair to working people.
Other opponents include Republican lawmakers
who argue the state's tax burden is already too high, and raising taxes in a
slow economy is foolish. They fear the extra money will go to create new state
obligations rather than paying off existing ones.
3. NEW BENEFIT SYSTEM:
Under this plan backed by business groups and Republicans, Illinois would switch
to a 401(k)-style retirement program that requires the state to pay a defined
contribution each year rather than providing employees set benefits.
PROS: Advocates say it would be cheaper to run in the long run because
benefit packages could be slimmer. It would ensure the state pays its share of
retirement costs each year and give employees more say over their invested
money. It would also provide more flexibility for universities to attract
out-of-state professors and for employees to take their pensions with them if
they leave state employment.
"People get really afraid when you talk
about a defined contribution system, but they really shouldn't be," said Sen.
Bill Brady, R-Bloomington. "I can't see frankly a downside to it if you do it
right."
CONS: Critics, led by teacher and state employee unions, say a
contribution system would be more expensive because the state would have two
tiers -- one for current employees and retirees in the existing system and a new
system for new hires.
They contend employees would get worse benefits
and would be more vulnerable to poor investment performance. They say it could
hurt recruiting into state employment and would do nothing to reduce the current
$42 billion debt.
"I just think we're putting people in jeopardy and our
economy at stake," said Cinda Klickna, secretary-treasurer of the Illinois
Education Association.
