Illinois’ 100 Billion Dollar Question: How Do We Solve the Pension Crisis?

Daniel Biss represents the ninth district in the Illinois Senate. Biss grew up in Bloomington, Indiana and moved to Chicago after completing a Bachelor of Arts at Harvard University and a PhD in mathematics at the Massachusetts Institute of Technology. At the age of 25, he joined the University of Chicago’s mathematics faculty. Since first being elected to the Illinois House of Representatives in 2010, Biss has become a leader on public pension reform in the state.

You are one of ten members to serve on the bipartisan conference committee tasked with developing a public pension reform proposal. What are the top changes the committee is considering?

The parameter in the pension formulas that can most easily and most significantly save costs is the annual cost-of-living adjustment (COLA), and for that reason there’s broad agreement that some change will be made to the COLA. The question then becomes what you do.

One school of thought is you just reduce them. It’s simply a reduction across the board. Another point of view is you change the COLA in such a way that, in most situations, it would save money. But this could also, under other situations, give the workers more. So, the conference committee has looked at something where you might replace the state system’s three-percent, compounded COLA with a half-CPI, compounded COLA. In that case, if CPI is under six percent, it would be a cut. If it is exactly six percent, it would be neutral, and if it’s more than six percent, it would be an increase. Now, there is strong interest in saving money, so I don’t think that proposal would be selected unless people thought in likely situations it would save money, but in plausible situations, it could give the workers more.

And the third approach is to craft something a little less universal, which is instead reflective of the different conditions of different workers. In general, I think most legislators either want to reward people who have smaller pensions or people who have worked longer.

A lot of the discussion lives there. It’s in the arena of which of these approaches is the fairest—or the least unfair, the least unpalatable.

What long-term impact would changes in the COLA have on retirees?

Well, the impact is that their purchasing power will decrease. For the retired superintendent drawing an $180,000 pension, that gives me no particular concern whatsoever. But for the person who worked in a downstate school district for their whole career and is subsisting on a $20,000 pension—and there are people like that—that does give me significant concern.

From that point of view, the idea of treating different people differently based on how much they have is attractive. On the other hand, there is some attractiveness to saying, “we’re not only going to take; we’re also going to give.” And the innovation of the half-CPI construct is that it allows us to give back.

Is the committee then leaning toward the half-CPI construct with a cap above three percent?

We’re really conflicted. There’s a very strong interest in protecting those who have less. At the end of the day, that policy goal will be hard to ignore.

The state has gotten itself, over time, into a very, very bad fiscal position. As long as we have a constitutionally-mandated flat income tax—which, as an aside, I think is a terrible idea—but as long as that’s the case, there are almost no mechanisms to save significant money in state government that shelter those in greatest need.

I find that imperative, to shelter those in greatest need, hard to look away from in crafting pension proposals. So I don’t want to say we’re leaning away from that. Making predictions about pension legislation has been an arena of life that has not been kind to me so far, but I will say we’ve been thinking hard about these two approaches.

You said making predictions on when we’ll see pension changes has not been good to you. Let me ask anyway. Will there be a vote on a pension proposal before the end of the year?

Yes.

The conference committee first convened in the summer. State leaders have been sounding the alarm on public pension funding for years, and Governor Pat Quinn has tried to press the issue by calling special sessions and even withholding legislators’ pay. What is the biggest obstacle standing in the way of resolving the issue?

The issue is difficult in four complex and interrelated ways. The first is the technical hurdle, and it’s a big one. The difficulty of assessing future risks and future costs and the impact on different kinds of employees is significant. So, that’s number one.

Number two is the legal complexity. Article 13, Section Five of the Illinois Constitution is pretty strong. It’s very easy to read it and conclude nothing can be done at all under any circumstances. There are skilled and reputable lawyers who feel differently. And indeed there are a variety of different positions held by skilled, reputable lawyers. Some say that there’s absolutely nothing you can do whatsoever. Others say so long as you use contractual principles and offer consideration and acceptance, changes can be made. Some say the situation of the fiscal emergency the state faces renders changes necessary and therefore okay. There are skilled, reputable people on all of these sides. We shouldn’t hide behind the constitution, but we swore an oath to respect and support the constitution, and we need to wrestle with this before we act.

The third issue is the political issue. Cynics often say, “You guys won’t do anything because you’re in the pocket of the unions.” It’s true there are political hurdles to deal with. There are constituencies that I find myself more often aligned with—or much more comfortable when I’m aligned with—who are upset about this. That’s a political hurdle that’s real that creates difficultly.

Finally, there’s the ethical question, and the ethical question is deep. Absolutists on this issue say it’s simply wrong to change anything. Not only is it wrong, but also it violates and besmirches the credibility of the state for us to do so.

I understand that point of view, but I fundamentally disagree with it. I think that the state’s core responsibility to its 13 million residents must, when we make ethical decisions, be privileged above all other considerations. The fiscal problems facing the state are so big. The other mechanisms available are so overwhelmingly weighted against those with the greatest need. Given that, to privilege pensions of people already in the system as untouchable, while an axe is taken to everything else, that seems to me distributionally wrong, and the wrong answer to the very significant challenge of how we navigate these waters

But I just want to stress that’s a hard thing. There aren’t obvious answers. There aren’t easy answers. There aren’t fair answers.

Feature Photo: cc/(Pedro Ribeiro Simões)