Governor Quinn is defending his proposal to cut benefits for some public employees in an effort to boost Illinois business.

In what he calls a “bold step” toward solving the problems created by the Illinois legislature, Governor Pat Quinn released a statement last month proposing changes to pension benefits for active public workers hired prior to January 1, 2011, delaying full retirement benefits for some until age 67. Public employees may choose either to accept less benefits or lose their state health benefits following retirement. In addition, the amount employees pay for their pensions would increase by 3 percent, and the proposal would mitigate annual cost-of-living increases.

“Action is Critical”

Quinn told a group of reporters in the Windy City: “I did not create the problems, but I am here to solve these problems,” adding: “Action is critical” as Illinois’ bond rating will be downgraded if the state fails to address the issue.

Caterpillar CEO Doug Oberhelman supports the Governor’s plan and said in a statement that the plan is a step toward improving business in the state. Caterpillar spokesperson Jim Dugan read the statement, which claims the Governor’s proposals “set the right tone and provide leadership” for reforming the state and bringing about “long-term fiscal health and ultimately an improved business climate for Illinois.”

Other groups, such as the Illinois Federation of Teachers, the Illinois Education Association, the American Federation of State and the Service Employees International Union, have questioned the constitutionality of the Governor’s proposal. The state constitution describes pension benefits as a contract between local and state governments and their employees that “shall not be diminished or impaired.”

Local Peoria residents are also wary of the Governor’s plan. “If you have to choose between receiving less benefits or losing your health insurance, that to me isn’t much of choice,” says Marjorie Wilkinson, 61. “I don’t think it’s fair. I don’t think it’s right.”

“I suppose something has to be done, but I know hurting our teachers and public employees is not the way to go,” says Curt Kiser, 64. “Sixty-seven years old is an awful long time to wait for benefits when you’ve been working hard for forty years or more.”

The state’s $83 billion unfunded pension liability has mitigated both Illinois’ finances and credit ratings. The Governor says his plan would save approximately $65-$85 billion out of $300 billion in past due, current and future pension payments. By 2042, the Governor estimates, Illinois systems will be fully funded. By 2045, state law mandates systems must be funded by 90 percent.

Rescuing Medicaid

The new pension plan comes on the heels of the Governor’s proposal to save the state’s Medicaid health program by cutting spending and raising revenue with a $1 per pack tax increase on cigarettes. The $2.7 billion plan would save approximately $1.3 billion per year by reducing Medicaid coverage and eliminating programs. Decreasing pay rates to providers is expected to save $675 million. The cigarette tax increase would raise a little over $330 million per year. Revenue from the tax hike would increase federal matching funds for Medicaid.

The Illinois Senate has passed the cigarette tax twice, but state Republicans have consistently voted against the measure. Tom Cross, the state’s GOP leader, believes that cuts and reforms to Medicaid will solve the issue rather than “revenue enhancements.”

Illinois’ Medicaid program, which covers 2.7 million of the state’s residents, owes just under $2 billion to service providers by June 30, the end of the fiscal year. By 2017, the government estimates the state could owe as much as $21 billion if nothing is put in place to curb spending.

In a statement, Quinn said the Illinois legislature must “act quickly to save the entire Medicaid system from collapse and protect providers and the millions of Illinois residents that depend upon Medicaid for their healthcare. The statement went on to say that the Governor’s proposal will decrease budget pressures and “ensure the program is sustainable for years to come.”

Both Medicaid and the state’s pensions currently account for nearly 40 percent of the state’s general fund spending.