Illinois Capitol Building

We continue our look at Illinois Governor Bruce Rauner’s budget proposal for fiscal year 2019 with a deeper dive into pension state employee group health insurance.

Governor Rauner touted balancing the budget by changing teacher and state benefits, including pensions. The Chicago Sun-Times reports “Rauner is seeking to cut $228 million for Chicago teacher pensions, and $101 million from university pensions.”

“The simple truth is this: We have to change the way we manage pension costs and group health expenses,” Rauner said. “If we don’t, our finances will continue to deteriorate, our economy will remain sluggish and our tax burdens will stay high and keep rising.”

The governor’s fiscal year 19 budget proposal contains significant changes to pension and health insurance benefits for teachers, both active and retired, and changes to the state pension systems to provide nearly $1 billion in cost savings to the state. The proposed changes would need to be implemented through legislation, and then any potential court challenges, to be enacted.

The governor proposes shifting the burden of paying for pensions to school districts, community colleges, and state universities over a four-year period. This shift is commonly referred to as the “cost shift,” as it simply shifts the costs of pensions from the state to local governments. The “cost shift” would be paid by property tax increases by the aforementioned local governments. Further, the governor proposes eliminating a $228 million block grant to Chicago Public Schools used for pension funding for the school system. The governor feels eliminating this block grant provides parity with the other school districts in the state, as Chicago is the only school district to receive a block grant to help pay for education and pension costs. In total, shifting the costs of pensions from the state to local governments is estimated to save the state $591 million in fiscal year 2019.

Governor Rauner also proposes implementing pension reform through the consideration model previously debated by the General Assembly. The consideration model offers state employees two choices: freezing the salaries that count toward their pension or receiving a small cost-of-living adjustment in retirement. The governor’s proposal realizes savings provided by the consideration model by decreasing the recently increased personal income tax rate to 4.7% from 4.95%. Implementation of the consideration model will most likely face a challenge in court, as previous pension reform legislation has been struck down by the Illinois Supreme Court because it fails to pass constitutional muster. The budget proposal estimates implementation of the consideration model will save $900 million.

The governor’s proposal seeks to remove state group health benefits from collective bargaining. This will allow the governor to both decrease benefits and increase premiums for state employees, retirees, and dependents, as well as those of the state universities. Further, the budget proposal will end state support for teachers’ retirement health insurance costs provided through the Teachers Retirement Insurance Program and the College Insurance Program. Removing state group health benefits from collective bargaining and eliminating funding for insurance programs for teachers is estimated to save the state $701 million in fiscal year 2019.

Travis Shea
Bio Link Prior to joining Michael Best Strategies, Travis Shea was a senior analyst for the Office of the Speaker of the Illinois House of Representatives, Michael Madigan. While in that role, he worked with legislators, staff and various stakeholders on the development, analysis, and negotiation of legislation. Shea served as the speaker’s point person for issues related to the state budget, capital, gaming, economic development, and bonding. Expertise: Illinois Legislative Process, Bill Drafting, Strategic Planning, State Budget, and Tax & Finance

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