CULLERTON’S IDEAS TRICKLE OUT

This is from todays Capital Fax. Interesting read. Cullerton is looking for different ways to force employees to eat “reform”.

CULLERTON’S IDEAS TRICKLE OUT

Senate President John Cullerton has been trickling out a little bit of his thoughts lately on pension reform.

Aside from forcing suburban and Downstate school districts to pay into the pension system, Cullerton has also been talking about a new guarantee on state pension payments in exchange for concessions from employees.

“No skipping payments,” Cullerton told GateHouse News Service yesterday. “We could put language in the law that (makes) pension payments É akin to bonds, the language that bondholders have.”

But what does he want in return? For that, you should check out a speech Cullerton’s chief legal counsel Eric Madiar gave last June to the State University Annuitants’ Association. Madiar is probably best known for writing a long, detailed report last year about how changing benefits for current employees was flatly unconstitutional.

“In my view, Madiar said, “any solution will require shared sacrifice. As I mentioned, the pension rights guaranteed by the [Illinois Constitution’s] Pension Clause are contractual in nature. As a result, while the General Assembly cannot unilaterally cut pension benefits to resolve this crisis, it can offer public employees something of real value as an incentive to participate in a solution.”

Madiar then went on to describe last year what Cullerton laid out to GateHouse about guaranteeing payments to the funds. In exchange, Madiar said, “public employees could be asked to contribute perhaps 3 percent more of salary to their respective pension systems. The increase in employee contributions would be used solely to pay unfunded pension liabilities. Those payment would in turn help level the State’s payments to the pension system on a long-term basis.”

The state Constitution’s pension contract language is viewed an individual contract, so it’s not negotiable by unions. But would all that many employees agree to pay more for a promise of a guarantee on future funding?

Doubtful. But I’m told there could be some “inducements” to bring workers on board. Free health insurance premiums for retirees, for instance, could be put on a potential chopping block, as well as other benefits that aren’t protected by the Constitution.

But the three percent of payroll cited by Madiar in that speech isn’t going to be much. State employee payroll is around $3 billion, so we’re talking $90 million a year. That’s hardly a fix when the state’s annual pension payment is scheduled to rise by a billion dollars next fiscal year alone. Other things will have to be done.

Most importantly, Cullerton also told GateHouse that he’d like to do away with the statutory mandate to fund 95 percent of the state’s 30-year pension obligations by 2045, saying the 95 percent figure was “artificially determined” when the law was passed in 1995. “I always thought 80 (percent) was the acceptable percentage,” Cullerton said. “A hundred percent would be if everybody retired on the same day, that’s how much money you’d have to have. Well, that doesn’t happen.”

Reducing the end target from 95 to 80 percent would definitely bring down the state’s annual burden and is something I’ve suggested several times in the past. As long as the state is just funding up to 80 percent and not paying interest on anything above that in the meantime, the annual payments would be significantly more manageable.

Wall Street will hate this idea, however. No bank would ever require a potential homeowner to set aside 95 percent of the value of his or her new house in a separate bank account before granting a 30-year mortgage, but that’s pretty much what Wall Street wants states to do with their pension funds. And any diversion from that imposed norm could bring severe ratings heat once again.