A growing number of states face serious financial issues caused in part by soaring pension costs. But none of those states fare worse than Illinois, and solving those issues will require tough decisions and a good deal of bipartisan cooperation.
That was the key message delivered by Illinois Senate President John Cullerton to an audience of more than 150 at Elmhurst College on October 2, when he reviewed the state’s nearly $34 billion budget and explained a massive $83 billion tab for unfunded pension obligations.
Illinois’s annual cost for pensions has soared 300 percent in just five years to $6 billion in the current fiscal year, rising nearly $1 billion this year alone. Illinois owes current and future retirees $146 billion, but the pension funds have only $63 billion in assets. Financial analysts have identified the $83 billion shortfall as the largest unfunded pension liability among the 50 states.
Cullerton, a Chicago Democrat, said both political parties share the blame for this shortfall by not fully funding the pension system over decades.
“It’s been a chronic problem primarily because, collectively, we’re all guilty of not funding the pension systems. That’s the number one reason,” he said, adding that though Democrats currently control both houses of the state legislature, Republicans will have to be part of any solution. “I can assure you that it will not pass unless we have bipartisan support.”
Though Illinois faces unique fiscal problems, Cullerton pointed out that other states also are wrestling with rising pension costs and “entitlement” programs such as Medicaid that have become national political issues.
Republican presidential candidate Mitt Romney recently sparked debate by describing the 47 percent of Americans who receive some type of federal aid as “victims” who “believe that government has a responsibility to care for them.” Cullerton said a closer look at Medicaid recipients in Illinois shows that politicians have to make tough choices if they want to cut back on such programs.
About 3 million people in Illinois are eligible for Medicaid—nearly 25 percent of the state’s population—including 1.8 million poor children who receive health care under the program. Medicaid also covers 180,000 senior citizens who are in nursing homes but can’t afford to pay the cost. Cullerton said seniors make up only 6 percent of the state’s Medicaid enrollment but account for 18 percent of the cost.
“It’s a major concern, and we want to do something about it, and we did do something about it,” he said.
The current state budget includes a $1.1 billion reduction in Medicaid spending by changing eligibility, reducing benefits and eliminating waste and fraud. In addition, Illinois increased revenue for Medicaid by raising the cigarette tax $1 per pack—“the one tax that I’m proud of,” said Cullerton, because it will encourage some people to quit smoking and others not to start.
Illinois had to cut Medicaid and trim $659 million from education and human services because the rising cost of state pensions “is crowding out the money we need for basic services,” he said.
Under Illinois law, the state pays the pensions not only for state employees but also for teachers, police and firefighters from outside of Chicago. In addition, the state’s constitution stipulates that the pensions cannot be reduced or eliminated without the agreement of those affected.
“In order for us to solve this problem, we have to somehow get people to reduce their own pension system, and they have to do it voluntarily,” Cullerton said. He and other legislative leaders in Illinois have proposed two potential solutions to the state’s pension crisis that could be voted on after the November election or in early 2013.
One proposal would reduce automatic cost-of-living allowances for retirees, lowering the amount they would receive over time. The other would preserve the cost-of-living raises but eliminate health benefits for retirees. Cullerton said either proposal would fully fund the pension system in 30 years, but he candidly admitted both ideas face strong opposition from union members, who traditionally support Democrats in Illinois.
“It’s a tough solution. Who’s against it? The unions; the teachers’ union, the state employees’ union. We’re taking them on. We’re saying, ‘Guys, we’re doing this for your benefit, and you have to help us.’ So far they’re not supporting it,” he said. “Hopefully, we can do this in a bipartisan way because otherwise it won’t work. If we don’t do it soon, we’re going to have a real crisis.”
Illinois has the distinction of being the only state with two former governors in prison—Republican George Ryan and Democrat Rod Blagojevich. On his first day as president of the state Senate, Cullerton presided over the impeachment trial of Blagojevich.
“It’s very embarrassing for the state. It’s obviously bipartisan,” Cullerton said during a question-and-answer session with the audience. “I’d like to think that going forward, we can continue to improve and convince people that we are honest and not out there to line our pockets but to do public service.”
In response to a comment from an audience member opposing gambling expansion in Illinois, Cullerton said he has “really, really mixed emotions” about adding to the state’s 10 casinos, even though he supports a proposal that would allow one in Chicago (which currently does not have one) and more elsewhere.
Currently, he said, many Chicagoans gamble at casinos in nearby Hammond, Indiana, and residents of other parts of Illinois gamble in neighboring states that have casinos near the border.
“We have a geography problem. [At the casinos in] Hammond, two-thirds of the license plates there are from Illinois, and they’re going down there and spending their money in Indiana,” he said, adding that he has “reluctantly supported” gambling expansion to keep that money in Illinois.