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*** UPDATED x2 - Cullerton responds ***New pension plan to be unveiled today

Wednesday, Dec 5, 2012

*** UPDATE *** The response by Senate President John Cullerton’s spokesperson indicates that he believes the proposal is unconstitutional…

The Senate President is encouraged that members identifying ways to capture the local share of pension costs from local school districts. However, the larger proposal appears to impose unilateral pension reductions without offering voluntary acceptance by participants. We appreciate the efforts of Representative Nekritz and her colleagues but we will take a closer look at the plan to see if it can be squared with the pension clause.

*** UPDATE 2 *** . We Are One Coalition…

“We appreciate lawmakers’ latest attempt to move the pension conversation forward. As we have consistently stated, the We Are One Illinois coalition stands ready to work collaboratively toward a solution.

We were not consulted in the development of this plan, but our preliminary review suggests that there are significant problems with HB 6258 that need to be worked through. The pension debt was caused by the state’s failure to make actuarially adequate pension contributions, not by public employees, but like its predecessors, this proposal essentially balances the pension debt on the backs of teachers, police officers, nurses, caregivers, and other public servants both active and retired. It is also unclear at this juncture whether this proposal is constitutionally or actuarially sound.

We intend to thoroughly analyze this proposal’s elements and provide a more comprehensive response in the coming weeks.”

[ *** End Of Update *** ]

* Here are some dot points about the new bipartisan pension reform plan being floated by 20 rank and file House members

* Cost of living adjustments would apply only to the first $25,000 of a pension if the retiree does not receive Social Security and $20,000 if he or she does. This change applies to both current and future retirees.

* Pensioners would receive no COLA adjustment until they reach age 67 or five years after they retire, whichever comes first. The summary says this provision will apply to retirees already receiving COLAs. So an employee who retired at age 58 and is now 60 would not receive another COLA adjustment until age 63.

* The retirement age would increase as follows:

    Retirement ages in the current statute would apply to employees 46 and older.

    One year would be added to current retirement ages for employees between 40 and 45 years old.

    Employees age 35 to 39 would have to wait an additional three years.

    Employees 34 and younger would have to wait an additional five years.

* Employee contributions to pensions would go up by 1 percentage point in fiscal year 2014 and 2 percentage points in fiscal year 2015.

* The salary that counts toward a pension would be capped at the higher of the Social Security wage base or the employees’ salary when the bill becomes law. […]

* School districts, community colleges and universities would take over the state’s pension cost at a rate of 0.5 percent of payroll per year.

* Pension systems would achieve 100 percent funding in 30 years.

* Courts could force the state, school districts and universities to pay their required pension contributions. “Other state funds” could be intercepted if the payments are not made as required by law.

* Once existing pension obligation bonds are paid off, annual bond service funds would be rerouted to pay off broader pension debt — about $694 million starting in fiscal year 2016 and $900 million per year in 2020.

* Sun-Times

State Rep. Elaine Nekritz (D-Northbrook), a leader on pension issues in the House is spearheading the latest effort, is being joined by a group of lakefront Democrats and two Republicans - state Rep. Chris Nybo (R-Elmhurst) and state Rep. David Harris (R-Arlington Heights). […]

The cost shift, as it’s commonly known, is the component that could most easily blow up a pension-reform deal in January. Even though Nybo and Harris support the idea, they appear to remain in the minority among Republicans, who see that shift as a de facto property-tax increase of $20 billion or more on suburban and downstate school systems. […]

But Tuesday, Senate Minority Leader Christine Radogno (R-Lemont) said there has not been any softening within her caucus on the question of shifting pension costs to suburban and downstate school systems, and that a cost-shift is a non-starter for most Republicans.

“The fact of the matter is the proposal on the table isn’t acceptable to us. Period. The end,” she told the Chicago Sun-Times.

In the big picture, a shift of a half a percentage point of payroll a year is not a whole lot of money and surely ought to be manageable. It won’t be easy, but new union contracts and better budgeting could avert major property tax hikes.

…Adding… A good point by Rep. Nybo

Nybo said that while the idea of passing some of the state’s financial problems on to local schools still makes him uneasy, rising pension costs for the state means it has less money to send to schools.

“Schools are going to be hit either way,” Nybo said.

* Meanwhile, it doesn’t look like local government pensions will be addressed any time soon

Roselle Mayor Gayle Smolinski told the Daily Herald Editorial Board Monday that a delegation of suburban mayors trying to lobby lawmakers in Springfield last week for pension changes on the local level found little support.

State officials could be looking to solve their own pension problems first before considering mayors’ rising police and firefighter retirement costs.

“It was worthless,” Smolinski said.

- Posted by Rich Miller        


80 Comments
  1. - PublicServant - Wednesday, Dec 5, 12 @ 9:40 am:

    Representatives Nekritz and Biss will attempt to float another in a string of unconstitutional proposals to reduce pension benefits this morning. Just wanted to restate Eric Madiar’s analysis of why this, and the others won’t pass constitutional, or contractual muster.

    ===
    In his analysis, Madiar pointed to the Pension Clause debates that took place during the 1970 Illinois Constitutional Convention as a starting point for his interpretation of the Pension Clause language that prohibits Illinois from reducing benefits at all. In 1970, the Pension Clause sponsors argued that the Illinois Constitution needed a codified protection for public employees, similar to a provision in the New York Constitution that declared the contractual nature of pension benefits and foreclosed the possibility of the state reducing or eliminating those benefits entirely.

    According to Madiar’s brief, after the Pension Clause was sent to committee for editing prior to submission to the voters, the Pension Laws Commission attempted to change the language by adding a contingency clause that would give power to the General Assembly to “enact reasonable modifications in employee rates of contribution, minimum service requirements and other provisions pertaining to the fiscal soundness of the retirement systems . . .” This change (submitted by the Commission twice) was rejected prior to sending the Constitution in its final form to the voters. Anti-reformers point to this fact as evidence that the drafters of the Pension Clause clearly sought to prohibit the state from reducing or diminishing an employee’s benefits.

    When the text of the Pension Clause was eventually sent to Illinois voters, it included an official explanation from the Convention. The explanation stated that under the Clause, “provisions of state and local governmental pension and retirement systems shall not have their benefits reduced” and that membership in these systems “shall be a valid contractual relationship.” Finally, the explanation stated that the clause was “self-explanatory.”
    ===

    Get real. You don’t get to use the pensions as your piggy bank for 7 decades, and use the excuse that the debt you ran up is to high to pay, and place it all on the employees. Taxes should have been higher all those years to properly fund your priorities.

    So…See ya in court.


  2. - Anonymous - Wednesday, Dec 5, 12 @ 9:42 am:

    Is medical marijuana done for ? Sorry off topic


  3. - Pot calling kettle - Wednesday, Dec 5, 12 @ 9:56 am:

    ==In the big picture, a shift of a half a percentage point of payroll a year is not a whole lot of money and surely ought to be manageable.==

    This will depend on whether or not the pension contribution comes from the education fund or if it will be added to the tax that can be levied from the uncapped pension fund. Levying from the uncapped “retirement” fund would require specific authorization language.

    Because state funding has been declining, many (most?) schools are seeing their ed fund balances slowly dwindle. This could easily become more straws on the camel’s back.


  4. - SIUPROF - Wednesday, Dec 5, 12 @ 10:03 am:

    “The salary that counts toward a pension would be capped at the higher of the Social Security wage base or the employees’ salary when the bill becomes law.

    This is a non starter for some university disciplines. Universities compete in a national and often an international market for talent. Beginning salaries for business, law, medicine and some other disciplines are in excess of the SS maximum. Why would someone come to Illinois when other states are funding pensions on the entire salary. Or in the alternative anyone starting their career here would opt for a self managed plan which means that fewer people will be paying into the defined benefit plan, making cash flows worse.


  5. - Demoralized - Wednesday, Dec 5, 12 @ 10:19 am:

    If this isn’t a reduction in retirement benefits I don’t know what is. Indeed . . . see you in court.


  6. - Sir Reel - Wednesday, Dec 5, 12 @ 10:23 am:

    Republicans opposing the cost shift should come up with a disincentive to end- loading teachers salaries instead of saying this is a non-member starter.


  7. - cassandra - Wednesday, Dec 5, 12 @ 10:25 am:

    Do these bonds have a sinking fund, or will Illinois have to borrow again to pay off the bondholders?


  8. - Crime Fighter - Wednesday, Dec 5, 12 @ 10:36 am:

    Those who are so sure how an Illinois state judge will rule on a pension rip-off may want to think twice. The 4th district appellate court and the supreme court agreed that the state doesn’t have to follow it’s own rules when it wants to take adverse action against any state employee. Also the courts have been very deferential to AG Madigan in eliminating protections from employer (SOI) wrongdoing against state workers.


  9. - RNUG - Wednesday, Dec 5, 12 @ 10:37 am:

    About the only constitutional part is the TRS ‘normal cost’ shift … and that won’t save the State enough money soon enough to fix the rest of it.


  10. - Former Merit Comp Slave - Wednesday, Dec 5, 12 @ 10:39 am:

    Except for the 100% funding, this is the best proposal I’ve seen yet. I don’t believe it will pass constitutional muster in court, but I think it’s a good compromise all around.


  11. - jacobbo23 - Wednesday, Dec 5, 12 @ 10:45 am:

    Can someone put this summary provision in laymen’s terms for me? (someone who has been following the pension legislation but doesn’t quite get how this part makes sense?)

    *Once existing pension obligation bonds are paid off, annual bond service funds would be rerouted to pay off broader pension debt — about $694 million starting in fiscal year 2016 and $900 million per year in 2020.


  12. - RNUG - Wednesday, Dec 5, 12 @ 10:45 am:

    One of the theories this is based on is that the COLA is too high.

    From a historical perspective, inflation was 3.23% from 1914 to 2012 and 2.9% from about 1970 to 2012. It looks like the people who came up with the fixed COLA did their research before proposing and enacting 3%.


  13. - M Smith - Wednesday, Dec 5, 12 @ 10:46 am:

    Proposal requires me to work one more year. I would actually work more to receive even a portion of my benefits as I fear I will get 0. I think current retirees & those close should realize most people years away (but still over 40) fear we will have nothing - social security, medicare or pensions when applicable. That is much worse than what they have & I was promised the same thing for the last 15 years. Please offer a better fix.


  14. - Capitol View - Wednesday, Dec 5, 12 @ 10:50 am:

    COLAs apply to only the first $20 or $25,000 of a pension…

    So if my pension is more than that, my COLA is reduced.

    Say a pensioner has benefits of $50,000 annually. The state may say that it is giving a 1 1/2% COLA, but since it is only on the first $20-25,000 of earned benefits, the COLA is in actuality only 3/4 of 1% of the annual amount.

    My sense is the same as the federal interest in addressing the upper income “1%”. I would prefer to see the state:

    (1) apply the COLA restriction to the first $50,000, and
    (2) set a maximum of $150,000/yr of pension benefits from all state government pension funds to a single worker - $200,000/yr to a couple where both worked for the state.


  15. - RNUG - Wednesday, Dec 5, 12 @ 10:54 am:

    jacobbo23

    In English,

    In the past the state sold bonds to fund the pensions one or more years. The bonds are being repaid with (mostly) GRF funds.

    Once the bonds are paid off, the State uses the ‘freed up’ money for whatever they want. In this case, it is being proposed the ‘freed up’ money be put in to the pension funds.

    Great proposal … but no way to legally obligate future GAs to follow through …


  16. - RNUG - Wednesday, Dec 5, 12 @ 11:00 am:

    Capitol View @ 10:50 am

    The COLA is an already earned and protected benefit.

    Even Madigan concedes that by offering the “choice” proposal to try to get retirees to voluntarily give up their COLA. Re my previous comments, the fixed 3% COLA is historically reasonable.


  17. - Small Town Liberal - Wednesday, Dec 5, 12 @ 11:00 am:

    - Great proposal … but no way to legally obligate future GAs to follow through … -

    I’m not an expert on this by any means, but couldn’t the state issue new bonds backed by this revenue, use the money to put into the unfunded liability, then they are legally obligated to dedicate that money to the bondholders?

    Just a thought.


  18. - jacobbo23 - Wednesday, Dec 5, 12 @ 11:03 am:

    RNUG,

    Thanks for the translation.


  19. - RNUG - Wednesday, Dec 5, 12 @ 11:09 am:

    Small Town Liberal @ 11:00 am

    They could do a bond float for the existing $83B - $95B shortfall. That would get the State “current”.

    But there would be nothing to force the State to make a “full” payment next year … or the year after … or the year after … which is how we got in this mess in the first place.


  20. - walkinfool - Wednesday, Dec 5, 12 @ 11:27 am:

    As predicted, the smarter members working together, from both parties, are ahead of the leaders on trying to fix this monstrous problem. If the leaders had the solutions, it would have been done already.

    I am a Nekritz fan big time. She’s smart, practical, compromising, and independent. Props also to David Harris, who has moved out ahead of his caucus.


  21. - M Smith - Wednesday, Dec 5, 12 @ 11:38 am:

    Would like those who advocate for bonds to think about how they don’t want to put the pain on the backs of state workers but GO bonds have almost tripled the past 10 years - that puts current problems on the backs of everyone in the future.


  22. - sadface - Wednesday, Dec 5, 12 @ 11:39 am:

    spot on Public servent


  23. - PublicServant - Wednesday, Dec 5, 12 @ 11:43 am:

    As opposed to other elected officials who seem to feel that whatever they propose, illegal though it may be, is great, cooperative, heavy-lifting legislation, I have to applaud Senator Cullerton for placing the law above political expedience.


  24. - geronimo - Wednesday, Dec 5, 12 @ 11:54 am:

    With regard to putting the problem on the backs of everyone as opposed to public workers, that’s where it should be! The funds diverted away from the public pension funds went to serve everyone in this state, and kept taxes artificially low for all! Now, public workers are supposed to excuse the ripoff over multiple decades and make up that deficit from their own pots? What kind of logic is that? Everyone needs to be involved in paying back, since everyone benefitted.


  25. - PublicServant - Wednesday, Dec 5, 12 @ 11:57 am:

    M Smith, these last 70 years our (yours and mine) elected representatives have created the debt that is the “current problem on the back of everyone in the future”. The current legislature’s problem is their apparent refusal to admit repaying that foolish borrowing is a problem equitably shared by all taxpayers. The 1970 Constitutional Convention saw this day coming, and precluded the legality of this vicious theft by placing the pension clause in the Illinois Constitution, declaring it to be an enforceable contract and not a gratuitous promise. Since there are those on this blog that believe that political expedience trumps the constitution, well, pass what you’d like, and …

    I’ll see ya in court.


  26. - geronimo - Wednesday, Dec 5, 12 @ 12:08 pm:

    Public Servant,spoken well. The current legislature thinks (and apparently so do the financial elite in this state, sitting on their stacks of cash), that it’s easiest to screw public servants and have them make up the deficit because, they are givers as opposed to takers. The guilt trip I’ve seen laid out on this blog and just about everywhere, about depriving students, abandoning the case loads, giving up on rehabilitation, etc. —-the takers would love to have the givers wringing their hands over what will become of them as they sacrifice their earnings for the good of others. They’re banking on that psychology. I don’t see the well compensated feeling guilty about their ever increasing pots, do you?


  27. - titan - Wednesday, Dec 5, 12 @ 12:16 pm:

    I think this one is egregiously unconsitutional.

    The “pick COLA or health care” version at least had a strong argument for being consittutional (since the healthcare isn’t a pension benefit, and could arguably be eliminated, it did give consideration for givig up the COLA).


  28. - Norseman - Wednesday, Dec 5, 12 @ 12:24 pm:

    - walkinfool - It’s nice to see folks compromise, but when they ignore the constitution it’s all a wasted effort. Their hope here is like a political “Hail Mary” in that they will put something together that is politically palatable and then wait a year or two to see if the courts will uphold it.

    I don’t see this as leadership.


  29. - Anon - Wednesday, Dec 5, 12 @ 12:32 pm:

    Why doesn’t the state of Illinois simply tax retirement income? I know this wouldn’t solve all of the problem, but it would help. And there would be no question about reducing benefits or constitutionality. I don’t want to pay more taxes, nor does anyone, but I would rather pay taxes than lose my pension entirely, and given the inability of our legislators to come up with a plan, I’m afraid that the ultimate solution to the pension mess will be for the state to have to say, at some point in the future, sorry, there is no more money, that’s it, don’t bother cashing that last pension check.


  30. - Sgtstu - Wednesday, Dec 5, 12 @ 12:41 pm:

    Has anyone come up with a number of what it will cost the State to pay back all State employees and retires if they loose in court. I am going to just guess it would be HUGE !


  31. - Shemp - Wednesday, Dec 5, 12 @ 12:45 pm:

    And right there is the problem with the cost shift! You shift the cost to local schools like they do police and fire, but when the police-fire has MAJOR problems, the State ignores the locals and worries only about their own problems. Shifting the cost is not solving the problem!!!


  32. - rusty618 - Wednesday, Dec 5, 12 @ 12:46 pm:

    So does this include the GA and judges, too? Oh, wait a minute, the legislators are already at 85% after 20 and 3% for every year after that. We can’t mess with their sweet deal.


  33. - Crime Fighter - Wednesday, Dec 5, 12 @ 12:46 pm:

    SGtstu- ==”Has anyone come up with a number of what it will cost the State to pay back all State employees and retires if they loose in court. I am going to just guess it would be HUGE!”==

    I would agree that the payback would likely be substantial, but what if they win and get away with it?


  34. - Archimedes - Wednesday, Dec 5, 12 @ 1:11 pm:

    As far as Consitutional problems - even Sidley Austin opined that only benefits not yet earned can be unilaterally changed. i.e. change the pension credit formula going forward, change the salary credit going forward, or change the COLA on pension credits not yet earned. This changes the COLA for all credits earned without consideration.

    How come stuff like this, that seems obviously to be a problem, gets attention - but something more reasonable and possible like Fortner’s bill gets no attention?


  35. - Six Degrees of Separation - Wednesday, Dec 5, 12 @ 1:14 pm:

    Has anyone come up with a number of what it will cost the State to pay back all State employees and retires if they lose in court

    No retiree is missing a pension check now, so they will continue to get their base checks for the foreseeable future (at least while the 1970 state constitution is still in effect), and presumably the reduced COLA payment. Assuming the plaintiffs don’t get an injunction against the state (where the state would continue giving the full 3% COLA raises while the matter is being settled) the back pay would probably be a few tens of millions, depending on how long the case took to be ultimately settled.


  36. - Six Degrees of Separation - Wednesday, Dec 5, 12 @ 1:17 pm:

    Why doesn’t the state of Illinois simply tax retirement income?

    It’s our state’s bribe to senior citizens so they all don’t pack up and move to Florida, in which case they wouldn’t pay sales or property taxes here either.


  37. - SIUPROF - Wednesday, Dec 5, 12 @ 1:19 pm:

    What bothers me about the medical or COLA argument is that most state employees have already earned the medical. It was promised and accepted. If you put in 20 years, you got free medical care during retirement. There was even a sliding scale starting at 8 years up to 20 years. So Cullerton can go back and amend the plan to offer a choice. If its medical care, the state breaks its contractual duty to provide health care, then offers it back to you as a choice. Huh–How does that work?


  38. - StayFree75 - Wednesday, Dec 5, 12 @ 1:19 pm:

    As a state worker, if this plan ensures the long-term solvency of the pension funds, I support it.

    Would the Rule of 85 become the Rules of 85, 86, 88, and 90, respectively?


  39. - Ahoy! - Wednesday, Dec 5, 12 @ 1:27 pm:

    – new union contracts and better budgeting could avert major property tax hikes.–

    That is very true, but I worry about future years when State Government can increase retirement benefits for teachers since someone else is paying the bill, exactly what happened to our cities with police and fire pensions. I believe in a cost shift, but the State needs to have skin in the game to ensure accountability and make it thing twice.

    The legislature should also tackle pension reform for local governments as well. If they do it right the State could probably keep more of the replacement property tax in exchange for savings on police and fire pensions.


  40. - M Smith - Wednesday, Dec 5, 12 @ 1:28 pm:

    I am a current worker - 40 years old (with 16 years served)& a realist. If state employees think that in 30 years, the status quo & colas etc will be in place, they are sadly mistaken unless reform is done. The tax hike in 2011 did little to help the State’s finances, so they can’t tax their way out of it. Open your eyes & don’t tell politicians to fix it by raising taxes when you know it won’t work. Change is coming & we need to accept it & not keep making it worse.


  41. - Anyone Remember? - Wednesday, Dec 5, 12 @ 1:43 pm:

    Given Illinois political history, this decent proposal should make the payment guarantee a part of the Constitution, not statute. Otherwise, it will get “BIMPed” into abeyance when money is tight.


  42. - illinifan - Wednesday, Dec 5, 12 @ 1:44 pm:

    I think Archimedes is onto something with citing Sidley Austin’s idea….instead of going through all of this craziness and making the pension system more complex just pass legislation, saying what you have earned you have, but that going forward establish the new pension plan and make it affordable….somehow I have a feeling it is less about getting a revision but rather trying to figure out ways to hide how badly the pension funds have been gutted through underfunding and moving funds to financial schemes managed by friends.


  43. - steve schnorf - Wednesday, Dec 5, 12 @ 1:44 pm:

    With one exception, this resembles the Fortner proposal. The exception, though, is huge. Fortner told me he was convinced that touching the benefits of those already retired was the “third rail” of pension reform-you just couldn’t legally do it. They need to be sure to include a strong severabilty clause.

    Good for Reps Harris and Nybo for being willing to break the pack mentality currently constraining too many members. This may not be the final solution but it definitely moves the ball down the field from where we’ve been.


  44. - dupage dan - Wednesday, Dec 5, 12 @ 1:54 pm:

    StayFree75 @1:19pm

    = As a state worker, if this plan ensures the long-term solvency of the pension funds, I support it.

    Would the Rule of 85 become the Rules of 85, 86, 88, and 90, respectively? =

    The con/con of 1970 anticipated this very crisis and sought to prevent it. The GA apparently chose to ignore it and here we are. Has someone crunched the numbers to see what kind of savings would result from this moderate proposal? I find it hard to believe it would help much.


  45. - Last Bull Moose - Wednesday, Dec 5, 12 @ 2:22 pm:

    Tax only those pensions from the State of Illinois and its derivative entities (counties, cities, school boards, etc) . Consider all such payments as earned in Illinois, wherever the person resides. Legal, targeted, and unavoidable.


  46. - Lobo Y Olla - Wednesday, Dec 5, 12 @ 2:43 pm:

    My mind is slipping… wasn’t there a proposal floated in these august pages about putting a $1 tax on option contracts? I’d love to see this proposal as a part of any pension reform. Institutional option traders would just pass the literal buck to their clients…


  47. - titan - Wednesday, Dec 5, 12 @ 2:46 pm:

    @Last Bull Moose - that, of course, does almost nothing to help the situation if the GA fails to make its payments to the system (which is the problem). There really isn’t a solution to the problem as long as the GA is “required” to fund things and fails to do so.


  48. - wishbone - Wednesday, Dec 5, 12 @ 3:06 pm:

    “The COLA is an already earned and protected benefit.”

    It is only protected to the extent that the legislature annually appropriates funds to pay the pensions. Anyone who believes that in the ultimate crunch time that we are rapidly approaching the courts will step in and assume the legislative role of taxing and spending is simply whistling past the graveyard. All of the ignorant threats I see here of “see you in court” are simply that.


  49. - Pot calling kettle - Wednesday, Dec 5, 12 @ 3:33 pm:

    The bill is an interesting read so far.

    100% funded by 2043. How?

    The Treasurer shall transfer $693,500,000/yr 2016-2019; $1,593,500,00/yr 2020-2033; $2,693,500,000/yr 2034-until full.

    Great plan, I wonder where all the money will come from?


  50. - Pot calling kettle - Wednesday, Dec 5, 12 @ 3:39 pm:

    A CYA clause at the end of the section on the new Cash Balance Plan:

    “Qualified Plan Status. No provision of this Section shall be interpreted in a way that would cause the applicable retirement system to cease to be a qualified plan under the Internal Revenue Code of 1986.”

    What does this mean? If the IRS declares it otherwise, is the section negated? Is it automatically adjusted to meet the requirements?


  51. - wert - Wednesday, Dec 5, 12 @ 3:54 pm:

    I have a simpler plan. Institute a progressive income tax in Illinois. Why is Ty Fahner only paying 5%?


  52. - RNUG - Wednesday, Dec 5, 12 @ 4:17 pm:

    titan @ 12:16 pm:

    The “choice” bill had the appearance of being constitutional because the issue of health insurance after 20 years has never been the subject of a lawsuit … until now. The cases have all been consolidated and will proceed in January.

    If the pending case gets decided in favor of the retirees, then the future Insurance / COLA choice becomes a choice between two protected items … and there is no consideration, so it would be unconstiutional.

    Given the original work requirement of 8 years and the later change to 20 years without making it retroactive, there is a pretty good basis for thinking the GA thought it was protected in the past, either under the pension clause, straight contract law, or as deferred compensation. We’ll know one way or the other in a couple of months …


  53. - RNUG - Wednesday, Dec 5, 12 @ 4:25 pm:

    wishbone @ 3:06 pm,

    The pension payments come out of the 5 trust funds. Even though those funds are only at 40% - 50% funded, they still have a lot of assets to continue to pay benefits. They’ve never missed a pension payment.

    What the State appropriates every year (from GRF) is the State’s ‘normal’ pension payment and the additional ‘ramp-up’ payment into the fund.


  54. - titan - Wednesday, Dec 5, 12 @ 4:33 pm:

    @wishbone - it is no more “whistling past” than a similar threat from a bondholder would be.


  55. - RNUG - Wednesday, Dec 5, 12 @ 4:37 pm:

    Anon @ 12:32 pm said:

    “I’m afraid that the ultimate solution to the pension mess will be for the state to have to say, at some point in the future, sorry, there is no more money”

    The IL Supreme Court has already ruled (IFT, et al, 1976) that if the pension funds run out, the State has to make the pension payments directly.

    Take the time to read the 80 some page Madiar report to Cullerton “Is Welshing on the Pensions an Option?” It’s the most objective and factual analysis about the pension problem.

    The bottom line is the State has to pay the already earned pensions and protected benefits … the only question is how the State finds the money to fill the $95B hole it has dug.


  56. - Six Degrees of Separation - Wednesday, Dec 5, 12 @ 5:05 pm:

    The IL Supreme Court has already ruled (IFT, et al, 1976) that if the pension funds run out, the State has to make the pension payments directly.

    “Anyone want to buy a used Tollway?”


  57. - steve schnorf - Wednesday, Dec 5, 12 @ 5:10 pm:

    Pot, did you see the part about as the current pension bonds and notes expire?


  58. - quincy - Wednesday, Dec 5, 12 @ 5:11 pm:

    anybody making over 100.000. should not get the 3%. If they cant live on that then go hungry, So we under that can eat


  59. - RNUG - Wednesday, Dec 5, 12 @ 5:16 pm:

    RE: taxing retirement income …

    Here’s a 2 minute back of envelope analysis.

    From 2011 US Census figures and IDOR figures …

    63.2% of IL citizens are ages 18 - 64, so we’ll call them the working population

    12.7% are ages 65 up, so we’ll call them retirees

    The working population generated $12.4B in income taxes on a per capita income of $27,334 (note, per captita didn’t break out by age in the summary I used)

    The retirees are about 1/5 of working, so if you assume per capita income and fully taxing at current tax rate, they would generate about $2.3B annually. If you assume they are lower than average, and they probably are because a lot of them only get social security and not state pensions, then divide by a swag of 2 and the income tax revenue would be only $1.2B annually. Seems to me I’ve heard other people toss around between $1B and $1.5B estimates, so that seems reasonable.

    If you’re trying to pay back $95B, it will take a lot of years at $1.2B … and that’s why taxing retirement income won’t fix this problem by itself.

    And, based on the news report I heard earlier, that is more analysis than the proposed bill has received … it’s reported they won’t have any numbers for 30 days.


  60. - jake - Wednesday, Dec 5, 12 @ 5:17 pm:

    The scary part of this proposal is what would happen to pension benefits in a high-inflation environment, which could happen in the future given the debt strains in the economy in the present I think it is neither fair nor reasonable to expect public sector employees to bear so much of the risks of possible future inflation. In the interest of full disclosure, I am a public sector retiree, but I have tried to look at the proposal with as much of a disinterested eye as I can muster.


  61. - PublicServant - Wednesday, Dec 5, 12 @ 5:47 pm:

    In a nutshell, to all you doom and gloomers; Show the actuarial studies and their underlying assumptions that support your contentions about the upcoming apocalypse, or don’t expect us to value your opinions as anything more substantial than the unsupported foundation upon which they are based. Apparently, we’ve been lied to before. Without the facts, we should believe you now why?

    Better Rich?


  62. - Anon. - Wednesday, Dec 5, 12 @ 6:59 pm:

    ==Tax only those pensions from the State of Illinois and its derivative entities (counties, cities, school boards, etc) . Consider all such payments as earned in Illinois, wherever the person resides. Legal, targeted, and unavoidable.==

    Except for the fact that federal law prohibits states from taxing nonresidents on pensions, that plan works fine.


  63. - Anon. - Wednesday, Dec 5, 12 @ 7:02 pm:

    ==It is only protected to the extent that the legislature annually appropriates funds to pay the pensions. Anyone who believes that in the ultimate crunch time that we are rapidly approaching the courts will step in and assume the legislative role of taxing and spending is simply whistling past the graveyard. All of the ignorant threats I see here of “see you in court” are simply that.==

    So you’ve already forgotten that when the General Assembly failed to appropriate funds to pay the constitutionally-protected COLAs for judges, that the Illinois Supreme Court ordered the Comptroller to pay the COLAs without an appropriation?


  64. - wishbone - Wednesday, Dec 5, 12 @ 7:49 pm:

    “So you’ve already forgotten that when the General Assembly failed to appropriate funds to pay the constitutionally-protected COLAs for judges, that the Illinois Supreme Court ordered the Comptroller to pay the COLAs without an appropriation?”

    Of course, we are not bankrupt yet. Down the road a little ways when the money really runs out, the legislature not the courts will be calling the shots, and across the board cuts (including pensions) will be the only viable and politically acceptable solution. I could be wrong, but I don’t think so. Whistle, whistle, whistle.


  65. - PublicServant - Wednesday, Dec 5, 12 @ 7:58 pm:

    Yeah, thanks for the unsubstantiated and easily ignored opinion, Wishbone. It contributes exactly zero to solving the issue. Congratulations on your irrelevanvce.


  66. - PublicServant - Wednesday, Dec 5, 12 @ 8:28 pm:

    P.S. Wishbone, can I borrow your crystal ball. I need to firm up my certainty about the future too.


  67. - wishbone - Wednesday, Dec 5, 12 @ 8:44 pm:

    “Yeah, thanks for the unsubstantiated and easily ignored opinion, Wishbone. It contributes exactly zero to solving the issue. Congratulations on your irrelevanvce(sic).”

    Oh, I guess I missed your solution. An across the board budget cut followed by a spending freeze is the only feasible solution, but keep up with your ignoring.


  68. - Harry - Wednesday, Dec 5, 12 @ 8:50 pm:

    RNUG–regardless of what happens on health care, Cullerton’s “choice” is already bogus even leaving health care aside–you get to choose between reduced COLA or reduced pensionable pay (your future raises won’t count). No choice to just stick with what you have. Why do you all pretend that’s a fair example of contract law?


  69. - PublicServant - Wednesday, Dec 5, 12 @ 9:10 pm:

    And I guess I missed the analysis supporting your opinion substantiating your statement that “Down the road a little ways when the money really runs out…”. When will that be? What do you base that on? Again, do you have any verifiable facts that support your “the end is nigh” opinion?

    I seek a legal, negotiated solution to this issue. I applaud your bid to shift the attention of viewers of this thread from my quite straight-forward question regarding any facts that you might want to bring forward supporting the opinions that you have. The unfortunate fact remains that you aren’t contributing to the resolution of the pension issue. You are attempting to state facts unsupported by any verifiable evidence. I and others that base their opinions on independently supported facts will continue to give your opinion the weight that it deserves. That being exactly zero.

    Oh and thanks for pointing out the typo. Quite petty of you.


  70. - PublicServant - Wednesday, Dec 5, 12 @ 9:25 pm:

    Hitting the sack Wishbone. I look forward to examining the link(s) I’m sure you’ll be providing to justify your predictions of imminent doom. Peace.


  71. - steve schnorf - Wednesday, Dec 5, 12 @ 10:33 pm:

    Nybo’s point that it doesn’t make any difference to a school district’s bottom line whether the state is taking away some with it’s left hand or giving less with it’s right hand is a good one.


  72. - RNUG - Wednesday, Dec 5, 12 @ 10:44 pm:

    Harry @ 8:50 pm:

    You make a good point. I overlooked that, apparently because that portion of the ‘choice’ applies to those who are still working and I’m already retired … that’s the R in RNUG (Retired Non-Union Guy).


  73. - Madison - Wednesday, Dec 5, 12 @ 11:21 pm:

    I do not believe school districts will see a change other than angry taxpayers, and The state will see only a cost avoidance. The taxing districts I follow have no maximum rate for their pension lines, so a pension related tax increase simply passes through to the property tax base.


  74. - Pot calling kettle - Thursday, Dec 6, 12 @ 12:14 am:

    ==Nybo’s point that it doesn’t make any difference to a school district’s bottom line whether the state is taking away some with it’s left hand or giving less with it’s right hand is a good one. ==

    True, but allowing schools to levy for TRS in the uncapped retirement fund would take the pressure from this action off of the Ed Fund. This is a fair compromise considering that retirement benefits are determined by the GA. It’s a question of whether the burden is shifted to the kids or the taxpayers.


  75. - Sue - Thursday, Dec 6, 12 @ 6:56 am:

    Since anything and everything which might ever be proposed is going to be ridiculed and opposed- How about this for a solution-lets do nothing and when the funds are depleted the beneficiaries can form a line at the Court of Claims and file their lawsuits


  76. - Sue - Thursday, Dec 6, 12 @ 7:17 am:

    Although everyone will probably call me Chicken Little- at this sad state on the time curve- there is probably no solution to the funding crisis which will either satisfy the Pension Clause or the political reality that Illinois’ ability to enact additional tax increases is non-existent- Having raised the income tax by 67 percent with no meaningful improvement to State Finances- the legislature will be unable to revisit tax increases for a generation- For the past 40 years Illinois has constantly improved Pension benefits with early retirement incentives and other refinements but always neglected to contribute sufficient monies to satisfy all of these obligations- Time has caught up with this sham to the point where the unfunded liabilities exceed a rational solution- Transferring the obligation created by the legislature on to the school Districts absent an equalization of State aid with what is paid to Chicago will be(or at least should be) a non-starter with downstate and Suburban legislators(or at least should be)- For all of the whining about Chicago residents being double taxed paying for both CPS pensions and TRS- they always neglct to mention the outsized funding paid by ISBE into CPS’ coffers. Cinda Klickner now serving in the double role of IEA President and TRS Trustee must be losing sleep because she of all people knows that TRS is simply incapable of paying the obligations being created for her members- The courageous thing for her would be to embrace the pension proposal announced by Elaine Nekritz but instead- the Union community has already declared it to be DOA and violaticve of the Pension Clause- Sadly- some form of recievership will probably be the ultimate conclusion of this fiasco- here’s hoping that between now and then the Pension Boards can at least start to earn somewhat higher returns then the below 0ne percent achieved this past year


  77. - PublicServant - Thursday, Dec 6, 12 @ 8:07 am:

    Yet another Doom and Gloomer heard from. Thanks for contributing to the conversation. No solution to the supposed crisis will be imposed on state employees and retirees without their consent. The borrowing from the pension benefitted all state taxpayers through lower taxes than would have otherwise had to have been imposed. It had zero benefit for state employees, but the so-called solutions that place the debt burden totally on current state employees and retirees are non-starters. DOA. Period. As for receivership (the threat of bankruptcy) that private industry has abused to strip their employees of their pensions is not applicable to the State of Illinois, a sovereign entity. If and when the funds run out of money to pay pensions from their assets, the state will have to pay from the general fund to cover them. And when that happens, all taxpayers will need to make up the difference.

    The responsible thing for the legislature to do is to revamp the pension ramp to come up with a sustainable pension repayment schedule to get pensions funded at a 70% level over 4-5 decades (after all it took us 7 decades to get to this point). Keep the current tax rate in place until tax reform can occur in this state. Borrow as needed to make up any revenue shortfall that might hit the state due to any unpaid for wars, Wall Street recklessness, corporate tax breaks, etc. Those are the truly legal and responsible things this legislature can do to solve the debt run up by previous state legislatures. Attempting to place the debt burden solely on the backs of employees and retirees, while politically expedient, is illegal and immoral.


  78. - the Patriot - Thursday, Dec 6, 12 @ 8:14 am:

    Any shift of teacher pensions to local districts is should scare everyone. We are talking about the state requiring local districts to tax constituents and sent the money to the state with no control or guarantee how it will be used. Once they state gets their paws on our local property taxes, do you really think they will use it properly.

    The IEA is too entrenched with Madigan and Quinn to really face reality. It is time to cut bait or they will lose their pensions completely. They need to take a hit and get s shift to a 401k type plan so the money belongs to the members. You will hose a lot of older members in this shift, but if you don’t no one is going to get a pension.


  79. - Carlos S. - Thursday, Dec 6, 12 @ 8:36 am:

    ==borrow as needed to makeup any revenue shortfall==

    You must be counting on Emanuel not being able to get pay day loan businesses banned.


  80. - Madison - Thursday, Dec 6, 12 @ 8:37 am:

    Why do we have to make this harder than it is? It’s a problem, yes. Irresolvable? Certainly not.
    Cut non public safety spending. A lot.
    Cut public safety spending some.
    Pensions according to our values, are sacrosanct. Leave it that way.
    Cut future pensions and benefits.
    Raise taxes. Democrats addd seats so this is a no brainer.
    Borrow. It will never be cheaper than now.
    Raise fees everywhere. Not to the moon, but higher.
    School districts will pay theirvown way. It should be that way.
    Employees may have to move on when benefits are reduced. Thats the way we live today. It’s not the America it was.


Sorry, comments for this post are now closed.


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