Capitol Report

The buzz…

The Illinois General Assembly adjourned as anticipated on May 31st. However, as we have seen over the past few years, it is expected that legislators will return before the November veto session to take up unfinished business, including the issue of pensions. There is a detailed discussion of end-of-session activity on the pension issue in the next section of the report.

Regarding education funding, K-12 education faced a reduction of about 4 percent as compared to FY 12. In fact, it took the Senate two attempts to pass the education funding bill, SB 2413. The problem was that the House budget, which was based on significantly reduced revenue projections, contained significant cuts to education.

To help compensate for those cuts, the Senate approved two bills designed to raise $175 million for education. One would impose a tax on satellite TV service and the other would tax offshore oil rigs operated by Illinois companies. Neither revenue enhancement was taken up by the House before adjournment. The education bill negotiated by Republicans and Democrats in the House cuts education spending below the current budget, reduces general state aid (GSA) to schools, decreases money for pre-school programs, and cuts free and reduced-price school meals for students.

In summary, GSA is reduced by approximately 3.6 percent. Mandated categorical aid, which includes special education funding and the transportation reimbursement, is reduced by approximately 1.4 percent. The total appropriation is down by about $200 million or about 3 percent.

Dueling pension bills, one stalls but one passes

During the closing days of session, a number of pension proposals were introduced.

Major pension legislation that would have negatively affected IEA members and retirees DID NOT PASS in this legislative session.

Below is an outline of the pension legislation that was proposed but did not garner sufficient support to pass.

In the House, SB 1673 (Madigan-D, Chicago) was amended to include the State Employees Retirement System, the State Universities Retirement System, the General Assembly Retirement System, and the Teachers’ Retirement System. The amendments would have changed pension benefits for people that have already retired and for people that are active employees in the previously listed retirement systems. The proposal was as follows:

Tier 1 Employee and Tier 1 Retiree Election:
Tier 1 employees and Tier 1 retirees would have been required to make an irrevocable election between one of two options. The election period would have started January 1, 2013 and concluded on May 31, 2013. The election choice would have been effective July 1, 2013.

Option 1 – Under Option 1, employees and retirees elect a reduced, non-compounded Cost of Living Adjustment (COLA) on their future annuity. The COLA is equal to the lesser of 3% or one-half the urban Consumer Price Index (CPI) on the amount of their original annuity (Tier 2 COLA). Employees and retirees electing Option 1 would receive a delayed COLA beginning the January 1st following the earliest of age 67 or the 5th anniversary of the annuity start date. Retirees who elect Option 1 would receive the same COLA reduction and delay; however, previous increases received remain unchanged.

A Tier 1 employee or Tier 1 retiree who elects Option 1 would be eligible to participate in their applicable retiree healthcare plan (the health benefits of the plan are uncertain).

Increases in pay to Tier 1 employees and Tier 1 retirees who return to active service would increase the member’s pensionable earnings.

Option 2-Under Option 2, employees and retirees elect to not reduce their 3% compounded COLA and to avoid a delay in receiving their COLA. Current law allows a retiree to receive their COLA on the January 1st following the first anniversary of the annuity start date.

Tier 1 retirees and Tier 1 employees who elect Option 2 would not be eligible to participate in their applicable retiree healthcare plans.

Additionally, under Option 2, increases in pay to Tier 1 employees and Tier 1 retirees who return to active service would NOT increase the member’s pensionable earnings.

This proposal contained a shifting of pension costs to local school districts, universities, and community colleges. The proposal ran into intense opposition not only from public employee unions but also by legislators who simply did not want to vote on a proposal that would divert local resources from the classroom and probably raise property taxes.

In the Senate, there were three separate amendments introduced that incorporated the components previously listed. Each amendment included the changes to the General Assembly Retirement System. HB 1447 (Cullerton-D, Chicago) included the pension changes to the State Employees Retirement System. HB 3076 (Cullerton) and HB 3865 included the changes to the State Universities Retirement System and the Teachers’ Retirement System respectively.

HB 1447 (impacting state employees and legislators) was the only proposal that was called for a vote on the Senate floor on May 31st. The proposal passed with 30 “yes” votes, that is the minimum required amount to pass legislation in the Senate. To see how your Senator voted click here. The legislation did not impact our members but it is clearly indicative of how possible changes to either TRS or SURS could look. The House did not act on this legislation before adjournment.

Again, HB 3076 and HB 3865 were not called for a vote because of the problems associated with the shifting of pension costs onto local school districts, universities, and community colleges.

Other pension bills

HB 4513 (Cullerton, D-Chicago) is a piece of legislation that amends the Metropolitan Water Reclamation District (MWRD) article of the pension code. The pension board of MWRD proposed legislation that it felt would stabilize its financial position. The fund is roughly 60 percent funded. There are an estimated 2,400 active participants in this pension fund and those employees live in the Chicagoland area. It is one of the smallest public pension funds in the state. The legislation increased the active employee pension contribution by 3 percent of salary over the next 3 years (beginning in 2013). Currently, members of MWRD pay 9 percent of their salary toward their pension but after these increases, their contributions would rise to 12 percent of their salary. The legislation also required the employer to increase its contribution amount and requires the fund to be 90 percent funded by 2050.

The IEA took a position of opposition to this legislation along with the Illinois Federation of Teachers. However, neither organization represents employees that participate in this pension fund. The unions that represent members in this pension fund either took no position or were proponents of the bill. The IEA’s opposition to this legislation was based on our constitutional view that contributions by members cannot be increased unless there is a corresponding benefit modification. The bill passed the Senate 50-2-2 and now goes to the Governor’s desk.

Charter schools

HB 4277 failed to pass out of the House by a vote of 45-69-4. The proposal, which was opposed by IEA, IFT and CTU, significantly alters the funding formula for charter schools in the state. IEA’s opposition to the bill focused on the fact that we have negotiated agreements in place between the school districts and charter schools. Negotiated charter school legislation passed in 2008 included a moratorium on new charter laws until June 30, 2013. The proposed legislation could be a significant change to charter law, thus violating the spirit of the agreement. Additionally, at a time when school districts are facing likely cuts in funding, increased funding for charter schools is not warranted.

Gaming

Last week, the General Assembly took a major step forward for additional funding for education by passing SB 1849 (Lang, D-Skokie). The bill will provide nearly $200 million new dollars for education and it is anticipated that the proposal will create 20,000 new jobs, half of them construction jobs.

What’s next

There has been talk about the Legislature coming back for a special session to deal with pensions. We will keep you updated as soon as we know something.