* Republican Governors Association…
Despite not paying his own fair share in taxes, Illinois Democrat gubernatorial candidate J.B. Pritzker has promised an “immediate increase” in the state’s flat income tax if elected. Now, the Wall Street Journal editorial board is slamming Pritzker’s tax hike plan, saying it will do nothing to solve Illinois’ massive pension crisis.
The Wall Street Journal explains, “The solution, according to unions, is always to raise taxes. But no tax hike is ever enough because [pension] benefits keep growing faster than revenues… Yet the Democratic candidate for Governor, J.B. Pritzker, and unions are now campaigning to kill the state’s flat tax rate and raise taxes again.”
The contrast in the Illinois governor’s race could not be more clear. GOP Governor Bruce Rauner favors lowering taxes to grow the economy and reforms to fix the pension system, while J.B. Pritzker is already pledging a massive tax hike if elected. Illinoisans need tax relief, not a massive tax increase on every family.
No surprise that the WSJ editorial page would publish a missive entitled “Why Your Pension Is Doomed.” The piece was based on a Wirepoints study…
The real problem plaguing public pension funds nationwide has gone largely ignored. Most reporting usually focuses on the underfunding of state plans and blames the crises on a lack of taxpayer dollars.
But a Wirepoints analysis of 2003-2016 Pew Charitable Trust and other pension data found that it’s the uncontrolled growth in pension promises that’s actually wreaking havoc on state budgets and taxpayers alike.1 Overpromising is the true cause of many state crises. Underfunding is often just a symptom of this underlying problem.
Wirepoints found that the growth in accrued liabilities has been extreme in many states, often growing two to three times faster than the pace of their economies.2 It’s no wonder taxpayer contributions haven’t been able to keep up.
The reasons for that growth vary state to state – from bigger benefits to reductions in discount rates – but the reasons don’t matter to ordinary residents. Regardless of how or when those increases were created, it’s taxpayers that are increasingly on the hook for them.
* Also from Wirepoints…
Total promised benefits in Illinois are nearly 1,100 percent higher now than they were in 1987. In contrast, Illinois personal income – a proxy for GDP – was up just 236 percent during that 30-year period.
Illinois is the poster child for why the common narrative surrounding pensions – that crises are due to taxpayer underfunding – is false. The real problem has been the enormous growth in accrued liabilities across the nation.
* Meanwhile, the Champaign News-Gazette recently published this editorial…
Financial problems swirling around state and local pension systems across the country will be coming to a head in the next few years, and financial experts contend that Congress and the states must be prepared to address the problem.
That’s why James Spiotto, managing director at Chapman Strategic Advisors, is urging Congress to create a special federal bankruptcy court to deal with these impending bankruptcies.
In an address delivered to the Brookings Institution’s seventh annual Municipal Finance Conference, Spiotto said it’s imperative for Congress to act because states and localities won’t be able to continue to ignore the problem.
* However, Rep. Mark Batinick (R-Plainfield) sent me his pension funding idea, entitled “How to Solve the Illinois Pension Crisis And Dramatically Lower Property Taxes”…
Arguably the two biggest issues facing the State of Illinois are its unfunded pensions and high property taxes. Past misdeeds and underfunding has led to a massive unfunded pension liability. Annual required pension payments are increasing quickly. Just a few years ago our annual payment was less than $6B. This year it is almost $9B and it is scheduled to reach $20B by 2045. Every annual increase requires either a cut elsewhere in the budget, or a tax increase.
Illinoisans pay some of the highest property taxes in the nation. This has been a driver of job and population loss. It is a regressive tax that disproportionally affects the poor, unemployed, and elderly. It also hurts small business growth as they are required to pay the tax whether they are profitable or not. Manufacturers are hit extra hard as they have a large real estate footprint. That footprint comes with a large property tax bill.
This article will outline a long-term solution to address both issues.
The Center for Tax and Budget Accountability (CTBA) recently offered a solution on pensions. Their idea was to use the power of compound interest to help drive down massive pension costs in the future. Relatively small skips in pension payments, sometimes called “pension holidays”, in the past led to large-long term debt because of compound interest. Their idea was to reverse that mistake by increasing upfront payments in order to avoid more dramatic increases in the future.
The CTBA’s plan would level pension payments out over the next 25 years until we reach the required funded status. However, this plan would require the state to contribute additional funds over the next 8 years. The initial additional investment by the state would be $2.4 billion which would then slides downward to $320 million in the eighth year. Over the course of eight years additional, and significant funds, would be invested into the pension plans. In total roughly $11 billion extra would be invested quickly. The net effect of this would be that our annual pension payment would never rise above $12 billion. In fact, around the tenth year, our pension payments would actually start to decrease. One important note is that if our system was fully funding pensions in the past, our ongoing costs would only be $2 billion per year.
The CTBA recommends borrowing the additional $11 billion investment. That is where the plan can be tweaked. Borrowing another $11 billion adds additional pressure to the budget. It also does not allow us to phase in property tax relief which is part two of the plan. We need to, and can, find the additional $2.4 billion per year elsewhere.
As the additional pension payments decrease from the initial $2.4 billion, the remainder should be used to lower property taxes on a per pupil basis. So year one, $2.4 billion is going to shore up the pensions. By year nine, all $2.4 billion is going to property tax relief. For every additional dollar in state funding a school district receives, its levy will be required to drop by exactly $1. $2.4 billion is roughly $1200 per pupil. That amount would lower the property taxes where I live by 20 percent. The exact amount of relief per district would vary based on local per pupil spending but it would be significant throughout the state.
Actually having a long term solution to both problems would dramatically improve our credit rating, business climate, and borrowing costs. This would lead to the best way to improve our debt situation – growth.
So where would we get the $2.4 billion? There are several options. First, we need to be much better stewards of the taxpayer’s dollars. Things like workers’ comp reform, expanding the pension buyout plans, reforming Medicaid are some immediate areas that can be addressed. We also need to prioritize our spending. Remember the $3 billion we committed to “medium speed rail”? Wish we had that back.
$2.4 billion separates Illinois from solving the pension crisis and significantly addressing high property taxes. All of us in the legislative and executive branch should be working to find that $2.4 billion. If we don’t, we will be looking for much, much more in the near future.
That $20 billion payment by 2045 is a bit of a misnomer. As we’ve already discussed, the ramp shoots way up in the final few years before 2045 even though the pension systems will be close to fully funded by then. I seriously doubt that the General Assembly will keep that ramp in place.
Anyway, your thoughts on Rep. Batinick’s proposal?
- RNUG - Friday, Jul 20, 18 @ 9:47 am:
Pretty much what Ralph Matire has been saying for years. The property tax relief angle is a nice twist to make it more palatable.
- Real - Friday, Jul 20, 18 @ 9:53 am:
And the Wall Street Journal and Bruce Rauner believe the current flat tax will solve the pension crisis? Nothing but paid misinformation journalist to keep the masses misinformed and voting against there best interest.
- Perrid - Friday, Jul 20, 18 @ 9:54 am:
The idea sounds good to me, though this part,
“So where would we get the $2.4 billion? There are several options. First, we need to be much better stewards of the taxpayer’s dollars. Things like workers’ comp reform, expanding the pension buyout plans, reforming Medicaid are some immediate areas that can be addressed.”
sounds like more magic dust at this point. Everyone (especially Republicans) like screaming about “waste” but when it comes to specifics and they start hearing from the people who would be hurt by the cuts, and people (and businesses) will be hurt by cuts, most of them fold.
- Trapped in the 'burbs - Friday, Jul 20, 18 @ 9:55 am:
Great to see somebody trying to climb that mountain. Obviously, his plan needs to be vetted, but there are too few legislators that want to be attached to pension issues. They need to create a bipartisan committee to make the hard recommendations needed to create solutions and give the electeds cover, like the old compensation committee.
- A Young Person - Friday, Jul 20, 18 @ 9:55 am:
Conveniently, an additional $2 billion is what the CTBA thinks you could raise with a progressive income tax that also gives most people a tax cut. If you could find $400 million in cuts there’s your $2.4 billion.
- RNUG - Friday, Jul 20, 18 @ 9:56 am:
State pension funds are the only large amount of capital the financial sector have been unable to tap. I see every attempt at bankruptcy of govermental pension funds adjust a way for the banksters to raid the funds.
- Lucky Pierre - Friday, Jul 20, 18 @ 9:57 am:
I would much rather hear Speaker Madigan’s take on this and any other proposals for shoring up the pensions he admits are unsustainable.
He has torpedoed the bipartisan Cullerton plan that would save 1 billion dollars a year for the past 3 years. That would make quite a dent in the 2.4 billion they are looking for.
- 47th Ward - Friday, Jul 20, 18 @ 9:58 am:
Anytime a Republican offers a plan whose central point is to pay what is owed (rather than stiff the pensioners), I consider that a positive development.
So this is a good starting point. I have some doubts about how he’d find the $2.4 billion annual increase though. This sounds a lot like the usual magic beans savings that we’ve heard from the usual suspects for years:
“Things like workers’ comp reform, expanding the pension buyout plans, reforming Medicaid are some immediate areas that can be addressed. We also need to prioritize our spending. Remember the $3 billion we committed to “medium speed rail”?”
But it’s a very welcome start and it sets the table for a new conversation about how best to pay what we owe. Good for him for bringing it forward.
- flea - Friday, Jul 20, 18 @ 9:58 am:
Rnug and Martire are right on. thanks
- Juice - Friday, Jul 20, 18 @ 10:06 am:
“They need to create a bipartisan committee to make the hard recommendations needed to create solutions and give the electeds cover, like the old compensation committee.”
Pat Quinn literally proposed that in May 2013. God, that was an awful day.
- Grandson of Man - Friday, Jul 20, 18 @ 10:07 am:
Nothing in Rep. Batinick’s ideas is about taxing the rich more, which contributed to the problem. For the GOP, it’s cut workers and the poor.
Too bad the GOP is so beholden to super-wealthy interests. If not, Republicans could work with Democrats to craft proposals that include a progressive income tax with tax cuts for lower incomes and property tax relief based on such. Voters support a progressive income tax. With a bipartisan push, it could happen.
But not Bruce. He peddles bogus hysteria, that a progressive income tax would bring economic doom. He made his riches in part from pensions, but Republicans absolutely refuse to consider taxing him more and are blind to the hypocrisy.
- WhoKnew - Friday, Jul 20, 18 @ 10:10 am:
Explain to me again why State needs a 100% funded Pension???
- Downstater - Friday, Jul 20, 18 @ 10:10 am:
State pension funds are already invested in the market (equities, bonds, real estate, etc.). There’s nothing to “raid”–they already have it.
- Juice - Friday, Jul 20, 18 @ 10:14 am:
On Batinick’s plan, the pension part sounds good. I like the idea of using the saving in the out years for property tax relief, but I don’t think all of it should go out regressively in the form of a per pupil grant. The new evidence based model, when funded, is intended to reduce the need for school districts to have high property tax rates, so either plug the savings in there, or incorporate additional property tax relief into the formula somehow.
On his savings, the State spends around $100 million GRF on workers comp, and its not like it is going to be eliminated. We don’t know if the pension buyouts will actually be taken up. And “reforming Medicaid” is just Paul Ryan gobbledegook. And the State’s share of funding for high speed rail was about a tenth of what the Representative is saying it is (and that share was bonded out, so annual cost is actually another tenth of that.)
- Generic Drone - Friday, Jul 20, 18 @ 10:15 am:
Just pay down the pension debt already and move forward. We have stalled a along and have done little to accept the fact our legislators have all been blowing smoke at us while committing political malfeasance.
- Oswego Willy - Friday, Jul 20, 18 @ 10:18 am:
I defer to the nuts and bolts of the plan to - RNUG -…
My agreement with - RNUG - begins with the property tax relief angle makes the plan juicy for real discussion.
- wordslinger - Friday, Jul 20, 18 @ 10:21 am:
I’m just glad that I’ve held on to my AAA Enron and subprime MBS paper, rather than throw my money away on risky SOI bonds.
Once the War of Northern Aggression is over, I’m going to cash out my Stonewall Jackson Series Confederate war bonds, buy an island in the Gulf of Thailand and become a pirate king.
So, I’ve got that going for me.
Which is nice.
- ughh - Friday, Jul 20, 18 @ 10:23 am:
Explain to me again why State needs a 100% funded Pension???
We need higher than 50%
- Da Big Bad Wolf - Friday, Jul 20, 18 @ 10:23 am:
Here is the problem with James Spiotto’s “special bankruptcy courts.”
1. If the US Congress were to change US bankruptcy laws and amend the contract clause of the US Constitution it would affect ALL states (not to mention the stock market would tank). Financially healthy states would be made sick because the cost of borrowing would increase, since now they CAN go bankrupt. States borrow at low rates now because they CAN’T go bankrupt.
2. Let’s say a state went bankrupt anyway. That state would either be unable to get credit or pay such punitive rates on credit that it would have to increase revenue, i.e. raise taxes.
3. Take away pensioners’ pensions and they would have to rely on the social safety net. Social safety net costs would go up and the state would have to increase taxes.
4. Stiff venders and they will go bankrupt. They will not pay into state revenues and will lay off workers who will not pay state revenue, and might need the safety net. Everyone else has to make up that lost revenue.
- RNUG - Friday, Jul 20, 18 @ 10:25 am:
== State pension funds are already invested in the market (equities, bonds, real estate, etc.). There’s nothing to “raid”–they already have it ==
Yeah, but they also have professionals keeping an eye on it. The banksters would prefer it all be individual accounts with naive investors where they can generate lots of fees with minimal oversight.
- Da Big Bad Wolf - Friday, Jul 20, 18 @ 10:26 am:
So you can have bankruptcy and chaos and raising taxes, or you can raise taxes without the bankruptcy and chaos.
- thechampaignlife - Friday, Jul 20, 18 @ 10:29 am:
As I said yesterday, just keep paying what we are paying now ($8B), adjusted each year for inflation, and we will have this paid off in 31 years.
@WhoKnew: they do not need to be 100% funded. The ramp only gets us to 90% funded. And that is not cash sitting in the bank, but a smaller amount invested such that with reasonable returns it will grow enough to cover 90% of the cost of the pension. We could switch to a 0% funded, pay-as-you-go system, but that would be pushing today’s costs off onto later generations and is very expensive since you lose all the investment returns.
That $2.4B is per year, so that rail money would have only covered the first year and a bit of the second.
I agree with Juice: dump the money into the new formula, not a blunt per pupil approach.
- City Zen - Friday, Jul 20, 18 @ 10:33 am:
==So where would we get the $2.4 billion?==
JB already spent it…6 times, maybe 7.
- RNUG - Friday, Jul 20, 18 @ 10:35 am:
== So you can have bankruptcy and chaos and raising taxes, or you can raise taxes without the bankruptcy and chaos. ==
Exactly.
I still think the Feds made a major mistake the way they bailed out the banks and Auto makers. They should have given the same money to the American taxpayer / consumer with the requirement it be used to either pay off their mortgage or buy a new car. Any money not used for those two functions had to get returned to the US Treasury on the tax return that year. That plan would have generated cash into the banks and car companies AND it would have reduced consumer debt, allowing for a immediate spending boom. Giving the money out directly to the banks and Auto companies just left the rest of the country still in debt.
- Smitty Irving - Friday, Jul 20, 18 @ 10:38 am:
RNUG -
You’ve pulled back the curtain! The federal non-military / non-law enforcement pension (Thrift Savings Plan) has a defined contribution component (something like a 401k) that is centrally run, with fees of .03%. Wall Street has tried to make them individual accounts with considerably higher fees. Make work program for investment advisors.
- City Zen - Friday, Jul 20, 18 @ 10:47 am:
==Explain to me again why State needs a 100% funded Pension?==
Do we intend to pay less than 100% of someone’s pension? Didn’t think so.
From an actuarial perspective, since the pension systems use the same discount rate and expected rate of return, 100% funding should be the goal. The 50%/80%/90% funding goal does not apply to pension funds that discount obligations at the same rate as they expect to earn on assets.
The better question: Why would you not want a fully funded pension? A fully funded pension ensures those who received the service paid their full share for that service.
- cdog - Friday, Jul 20, 18 @ 10:48 am:
Interesting ideas, and, I like the circumspective mash of relevant news.
Question. Before we throw good new money at the property tax situation in IL, maybe we can discuss Durkin’s idea which would sunset the current Property Tax Code, making room for a completely new replacement code.
I believe the current tax code is nearly indefensible and not worthy of continued use in Illinois.
http://www.ilhousegop.org/reform_broken_property_tax_system
- JS Mill - Friday, Jul 20, 18 @ 10:52 am:
= One important note is that if our system was fully funding pensions in the past, our ongoing costs would only be $2 billion per year=
Batinick is a little high on this one. Tier II knocked it down towards $1.6 billion.
=For every additional dollar in state funding a school district receives, its levy will be required to drop by exactly $1. $2.4 billion is roughly $1200 per pupil.=
The error here is the dollar for dollar part. This makes an assumption that costs will either go down or stay the same. Not very realistic.
Martire’s plan always called for property tax relief, but his plans back when this all could have been avoided was to have an increase in the state sales tax and send that money straight to pensions. It was coupled with a commitment to a 25% reduction in property taxes.
The payment to pensions will never be $20 billion but Batinicks idea to go with Martire’s plan is sound and will actually be a solution.
As for the WSJ et al- stick it.
- A Jack - Friday, Jul 20, 18 @ 11:01 am:
It seems we are developing a bipartisan agreement to prepay the mortgage since JB and Rep Batinick have basically the same idea. We just need the cash. Moody’s took us off the credit watch. While in general I am against borrowing more money, it may be the time to do so until permanent revenue solutions can be put in place.
As Rauner’s budget impasse has shown, the faster you pay your bills, the less taxpayers have to pay in the end.
- Anon0091 - Friday, Jul 20, 18 @ 11:01 am:
I love the idea that conservative GOPer Mark Batnick is adopting the idea of uber-liberal Ralph Martire. Now that’s what I call bipartisanship.
The idea itself is very solid and seems strikingly similar to what JB has been saying about pensions throughout this campaign. This problem isn’t going away and if you put this, along with buying out 3% cola’s and other reform ideas together, we might just begin to get a handle on this before it strangles our state.
Oh, and the WSJ edit board is a joke. Are they jealous they aren’t the Trib edit board. They spend an awful lot of time obsessing about Bruce Rauner and JB Pritzker.
- Driveby - Friday, Jul 20, 18 @ 11:04 am:
Pay more sooner, and fund some of it with a pension obligation bond. That’s all this is. Good luck.
- City Zen - Friday, Jul 20, 18 @ 11:05 am:
==Batinick is a little high on this one. Tier II knocked it down towards $1.6 billion.==
It would be lower than that because if our system was fully funding pensions in the past, that money would’ve come out of operating expenses, meaning less money for salaries and/or benefits. Smaller raises beget smaller pensions.
- Whatever - Friday, Jul 20, 18 @ 11:11 am:
WhoKnew ==Explain to me again why State needs a 100% funded Pension???==
From Batinick’s plan: “One important note is that if our system was fully funding pensions in the past, our ongoing costs would only be $2 billion per year.”
“Fully funded” means that, along with the predicted investment return, there is enough in the fund to pay all the pensions that have been earned. Less than full funding means you’re losing investment income, which is the same as running an interest-bearing debt. And if you don’t make up the lost interest, the compounding will kill you, which is what happened.
BTW, that $2 billion annual number means the WSJ “overpromise” claim is nonsense. This problem is completely due to decades of underfunding.
- wordslinger - Friday, Jul 20, 18 @ 11:12 am:
–Do we intend to pay less than 100% of someone’s pension? Didn’t think so.–
So your mortgage is covered, 100%, with dedicated funds you have squirreled away in stocks and bonds?
When’s the last time pension checks were skipped, or late, or short, anyway?
Does anyone really believe the “pension crisis,” or “special bankruptcy courts,” are not just other fronts in the reactionary assault on workers? Ways to try to steal their contracted compensation for goods and services already delivered?
What’s hilarious and pathetic at the same time is the leading role of the tronc edit board in promoting this shallow farce.
Zell robbed their retirement funds blind. Instead of raging against the crime perpetrated against them, the troncs think it’s only just that everyone should take it — good, hard, and with smiles on their faces — like they did.
- Big Jer - Friday, Jul 20, 18 @ 11:17 am:
This was posted yesterday:
https://capitolfax.com/2018/07/19/the-new-guilded-age/
From the post:
In Illinois:
Average annual income of the top 1%: $1,412,024
What you need to make to be in the top 1%: $456,377
Average income of everyone else (the bottom 99%): $52,216
The top 1% make 27 times more than the bottom 99%
In Illinois, the top 1% take home more than 21% of all the income in the state…but pay the same state income tax rate.
There is a lot of wealth and extremely high incomes to help pay down pensions.
BUT there needs to be compromise in the form of some reasonable pension reform. In the US and Illinois the population is aging and many of those retirees in Illinois are leaving the state for warmer southern states. The young and middle age taxpayers cannot be expected to pay for the pensions of the huge wave of baby boomer retirees. Something has to give.
Lastly we have plenty of money for wars and the military, bank bailouts, and tax cuts but no money for the pensions of teachers, police, etc?
- Jibba - Friday, Jul 20, 18 @ 11:24 am:
Big Jer…your handle is new to me, and I wonder if this issue is new to you. Tier 2 was the pension reform, and Tier 1 cannot be legally changed. So most of what can be done legally has already been done. But I like your thoughts on the availability of tax revenue.
- Anonymous - Friday, Jul 20, 18 @ 11:28 am:
Talk about pension reform is so old and useless. No matter what is done constitutionally, it does not erase the backlog of debt accrued over many decades by non funding or underfunding by the state. The only discussion of any value is how to go about paying down the debt. And the other discussion of value will be how to attract workers for these jobs under seige. There are serious teachers shortages in this state and that will be the next problem unless we want to employ high school grads to teach your children.
- Anotheretiree - Friday, Jul 20, 18 @ 11:34 am:
I’m worried about the bankruptcy idea. With out activist rightwing Supreme Court, I can see them targeting pensioners separately. No worries about that pesky equal protection stuff. Agree with RNUG, we should’ve recreated the depression mortgage program. I don’t think we’ve left the great recession. Next downturn is probably two years away. Feds are 1 trillion in debt with full employment, Fed reserve wont have rates high enough to be able to respond, and Illinois is on a cliff with a barely balanced budget with low unemployment. We are in danger budgetwise.
- Thoughts Matter - Friday, Jul 20, 18 @ 11:45 am:
—BUT there needs to be compromise in the form of some reasonable pension reform. In the US and Illinois the population is aging and many of those retirees in Illinois are leaving the state for warmer southern states. The young and middle age taxpayers cannot be expected to pay for the pensions of the huge wave of baby boomer retirees. Something has to give.—
Those baby boomers would be the people who changed the diapers of the middle age and younger, paid the taxes to have schools, law enforcement, fire departments, libraries, roads, who bought their kids clothes, food, put a roof over their heads and educated them. So I, one, don’t agree with your argument two- not sure you understand what the point of social security is either.
As to the switch- I’m all for the state taking over the majority of the cost of educating our children. Of course, that will raise income taxes as property taxes lower. Also think the value of ones home shouldn’t be the basis for property taxes. What does the value of ones home have to do with the price of educating children?
- RNUG - Friday, Jul 20, 18 @ 11:45 am:
== BUT there needs to be compromise in the form of some reasonable pension reform ==
Over the past 7 or 8 years I’ve shared asdorted legal pension reform ideas.
Let’s hear your Constitutional pension reform ideas.
Or your ideas for legally paying down the debt.
- City Zen - Friday, Jul 20, 18 @ 11:55 am:
==So your mortgage is covered, 100%, with dedicated funds you have squirreled away in stocks and bonds?==
Are you asking if I’m paying a mortgage on a house I don’t expect to live in until retirement or a house someone else lives in? In either case, no. But I found your mental gymnastics were quite invigorating.
==When’s the last time pension checks were skipped, or late, or short, anyway?==
The question is not if pensions will be paid but by whom? You could have 0% pension funding (pay-as-you-go) and never miss a payment, but that would mean people today would pay full freight for a service that many are far removed from. Is that preferred?
- JS Mill - Friday, Jul 20, 18 @ 12:02 pm:
=It would be lower than that because if our system was fully funding pensions in the past, that money would’ve come out of operating expenses, meaning less money for salaries and/or benefits. Smaller raises beget smaller pensions.=
Maybe, maybe not.
And these raises you mention, they have next to nothing to do with it. The largest raise I ever received was just over 5% and tha was once. In the last 10 years since the school financial crisis began a 3% raise was big and many got less than 2%.
BTW- those raise percentages are almost always predicated on the “base” which means the entry level salary. experienced teachers routinely get less than 1% unless they have a lane change, which requires them to invest time and money to get additional education.
I guess I could have been a vulture and drag on society by become a corporate raider like Rauner and make $50-$150 million in retirement and get 300% raises. I chose to do something productive (if not profitable) instead.
- Jocko - Friday, Jul 20, 18 @ 12:04 pm:
==reasonable pension reform==
It’s interesting how the WSJ and fiscal Republicans never talk about shorting the bondholders.
- Occam - Friday, Jul 20, 18 @ 12:09 pm:
Basically, the recommendations are to accelerate the current Bust-Out scheme being run in the State of Illinois.
So, we start out with a negative arbitrage plan to issue billions in debt at high interest rates and invest it at a rate of return that is less than the cost of the debt.
Then, in order to pay the massive annual increase in debt service resulting from the debt issuance, the legislature will fail to find the necessary cuts and/or run an operating deficit that will require more debt to be issued in order for the State Comptroller to pay the State’s bills.
And then we move on to the property tax relief phase of the scheme that will somehow magically transfer non-existent State funds to school districts and other local taxing bodies that will somehow manifest itself in lower property tax rates. Only the legislature will monkey with the formula so that the allocation of State money will on some sort of “evidence based” formula which means only democratic towns will see the tax relief and typically republican suburban and downstate towns will see a diminished level of property tax relief, if any.
- RNUG - Friday, Jul 20, 18 @ 12:15 pm:
== these raises you mention, they have next to nothing to do with ==
Actually, raises, even small raises, do matter because they compound and increase the FAC.
The pension received is based on 2 factors: the time on the job and the salary earned. For cooredinated SERS, the formula is 1.67% * number of years of service * final average compensation (capped at 75% of FAC).
The higher the FAC, the higher the pension.
- Big Jer - Friday, Jul 20, 18 @ 12:16 pm:
===RNUG, Thoughts Matter, Anonymous====
Wow. Take a breath people. Let’s play word association. I say pension reform and everyone throws their hands up! My point about pension reform was an olive branch to a compromise that is not just Raise Taxes which seems to be Pritzker’s solution to everything. I apologize if my attempt at compromise was poorly worded.
Clearly I am not an expert on pensions. There has to be some solutions if not for the current pension debt than going forward. I place a high value on people who work for the public good: teachers, police, firefighters, etc. but I also have seen and heard of people that abuse the pension system.
===And the other discussion of value will be how to attract workers for these jobs under seige===
Excellent point. In the zeal to privatize everything and “drown the government in a bathtub” I believe the public sector is under siege.
====What does the value of ones home have to do with the price of educating children?====
Great point. Probably because it intentionally promotes inequality and class divisions. God forbid everyone should have equal opportunity and play on equal footing.
- TheInvisibleMan - Friday, Jul 20, 18 @ 12:24 pm:
For Batinick, this is quite the shift from his focus on laws about hairdressers(his relatives) and real estate agents(his business).
Batinck has an actual competitor this election cycle.
- Anonymous - Friday, Jul 20, 18 @ 12:29 pm:
How is “overpromise” not the obverse of the “underfunded” coin? The state promised benefits and now it’s tough to find the funds to pay those benefits. Did the state overpromise or underfund?
It’s just spin aimed at solving the problem by promising less rather than by funding more. Except that the state can’t promise less after the fact. So underfunded it is.
- RNUG - Friday, Jul 20, 18 @ 12:33 pm:
== Batinck has an actual competitor this election cycle ==
And with this proposal, he has a real / serious issue that can be spun as future property tax relief … something that is on every voter’s mind.
- CrazyHorse - Friday, Jul 20, 18 @ 12:41 pm:
==Actually, raises, even small raises, do matter because they compound and increase the FAC.==
So true. That’s why “pension spiking” is often at the heart of the attack.
Everyone deserves a raise but there are reports of school districts giving teachers somewhere in the ballpark of 25% increases in the twilight of their careers. I don’t know how prevalent it is or if there are legitimate reasons for it but I assume it’s a huge part of the reason why people have been threatening to push that liability onto the school districts.
With the advent of Tier II you would think there would be more of a hiring push in order to cut OT which is also a huge factor in the pension calculation. I know many people who make 1.5 to nearly 2x their salary due to overtime. Cutting OT saves pension dollars.
- City Zen - Friday, Jul 20, 18 @ 12:52 pm:
JS Mill - My point was no one ever considers the impact to their salaries when they imagine full pension payments being made. Every dollar the state puts into the pensions is a dollar that doesn’t go to the districts. If every raise you received in your career was a mere one-tenth of one percent lower as a result of lower funding, your resulting pension would be a couple grand smaller, not to mentioned thousands of dollars of earnings over your career. And this is an extremely conservative estimate.
Would you have been fine with higher taxes, smaller raises, and a smaller pension in exchange for a 100% funded pension today? Because that’s what it would’ve taken to properly fund the pensions all these years.
- TheInvisibleMan - Friday, Jul 20, 18 @ 12:56 pm:
== And with this proposal, he has a real / serious issue ==
Which will draw even more attention to him not accomplishing anything meaningful in his past two terms.
I suppose that would work out better for him than having any scrutiny on his donors list…
- Stan - Friday, Jul 20, 18 @ 1:14 pm:
-Which will draw even more attention to him not accomplishing anything meaningful in his past two terms-
His pension buyout concept that just became law is hardly meaningless…
- Arthur Andersen - Friday, Jul 20, 18 @ 1:31 pm:
Crazy, catch up. Pension spiking was curtailed in 2006 by a law that made districts responsible for the cost of salary increases over 6% when that salary is in the pension calculation. The FY19 budget lowered that cap to 3%.
Further, removing OT from the pension calculation for current members is arguably a benefit impairment, though it is indeed abused.
- Anonymous - Friday, Jul 20, 18 @ 1:50 pm:
- Big Jer - Friday, Jul 20, 18 @ 12:16 pm:
RNUG knows what he is taking about. If you start questioning RNUG or being aggressive with him, you will not have any friends on this site.
- JS Mill - Friday, Jul 20, 18 @ 2:11 pm:
=His pension buyout concept that just became law is hardly meaningless…=
You mean the one that two people will agree to? Yeah, it’s UGE.
- JS Mill - Friday, Jul 20, 18 @ 2:20 pm:
=The higher the FAC, the higher the pension.=
With respect, I have a pretty good idea how the pension is figured. I should have been more clear in my response as I was thinking about so called pension spiking.
See Eric Madair (I would guess you have read his research on the pension issue)
Thats said, the higher the raise the high the employees contribution. Yes, the final pension is higher and the state match (when the did) was higher.
But, with a few exceptions raises were/are generally low to modest and not the significant driver of the pension debt.
=Would you have been fine with higher taxes, smaller raises, and a smaller pension in exchange for a 100% funded pension today? Because that’s what it would’ve taken to properly fund the pensions all these years.=
I don’t know, that isn’t what happened and the two are not mutually exclusive.
Is your position that public employees should not get raises? Tiny raises (which would, when less than inflation, mean they basically work for less every year.) really inhibit participation in the economy. Not a good plan.
- City Zen - Friday, Jul 20, 18 @ 2:41 pm:
==Is your position that public employees should not get raises? ==
It is my position that compensation is compensation and money is finite. Pensions are just one component of compensation, like salaries and health care benefits. When the cost of one goes up, it impacts the ability to fund the others. Unfortunately, pensions are the one thing governments can short to mask the true cost of the others.
I am for 100% pension funding using conservative estimates that will guarantee hard working public servants such as yourself receive their full pensions, not because of a contract clause, but because of sound mathematical and financial principles. Pensions funded fully by the people who consumed those services, not their children.
No one will take me up on this offer of full funding. I bet you know why.
- RNUG - Friday, Jul 20, 18 @ 2:44 pm:
-JS Mills-
Gotya. Pension spiking is a whole topic in itself.
Some if it is institutionalized, specifically the guaranteed (and now somewhat limited) teacher’s end of career raises.
I’m not as upset about that (because they are just following the rules they were given) as I am about the special carve-outs and insider deals that get cut. But if you want to slow or stop the teacher bumps, the easiest way is the proposed shift of normal pension costs to the local school districts.
- Big Jer - Friday, Jul 20, 18 @ 3:18 pm:
—Anonymous - Friday, Jul 20, 18 @ 1:50 pm:
====RNUG knows what he is taking about. If you start questioning RNUG or being aggressive with him, you will not have any friends on this site=====
A lot of people know what they are talking about. That does not mean they cannot be questioned. That is the point of a political blog to foster debate. I was not even questioning anyone just exploring other avenues other than raising taxes which I think needs to be done progressively.
Where in my comments do you think I was aggressive?
I am for the public sector and civil service. I am for a progressive tax structure. But we also need to for bipartisan solutions or nothing gets solved.
- Anonymous - Friday, Jul 20, 18 @ 3:18 pm:
==Pensions funded fully by the people who consumed those services, not their children==
Clarify. Public schools serve everyone, I thought. Unfortunately, the children can’t pay though. Their parents, who used those schools, now do.
- City Zen - Friday, Jul 20, 18 @ 3:39 pm:
Anonymous - I pay the full freight of whatever the pension costs are based on the parameters I gave in my comment while I’m a resident of this state/county/town. I don’t leave the state/county/town and stick our kids and anyone else moving here with the bill. Simple as that.
But it’s a moot point as you won’t take me up on this offer of full funding anyway. And you know why.
- Arthur Andersen - Friday, Jul 20, 18 @ 3:47 pm:
CZ, no one likes your proposal because it’s punitive toward one group of employees. What you are saying is that we’ll allocate “X” for pensions and salaries of teachers, with raises coming out of any surplus. What if the investments have a bad year? No raises? Sounds like it.
Why shouldn’t all public employees get this special deal?
Because it makes no sense?
- Jibba - Friday, Jul 20, 18 @ 3:58 pm:
CZ, your suggestion is not for the situation we currently find ourselves in, so it is sensible that no one “takes you up on it”. In the ideal world, expenditures would be decided, and sufficient revenues collected for them. In the ideal world, politicians would be prevented from shorting pension funding. However, you were right about one thing: the pension syste, should be designed using real world assumptions by actuaries. Guess what? It was.
- Jibba - Friday, Jul 20, 18 @ 4:05 pm:
Big Jer, the problem is that we have already argued these points in detail for years, and you tread no new ground. RNUG knows CZ’s points by heart and vice versa. The new info is in Rich’s post. The fact that legislators are discussing legal options like borrowing, especially Republicans, might suggest movement toward a Solution.
- City Zen - Friday, Jul 20, 18 @ 4:09 pm:
AA - A fully funded pension is punitive? If so, it’s punitive to all as it will also require higher taxes. The alternative, which we have today, is punitive to taxpayers who are not employees.
We allocate “X” for pensions and salaries because we allocate “X” for compensation or any other expense. Each component impacts the total price.
A fully-funded pension is not a special deal. It is the true cost of the benefit being offered born by the people who directly benefited from the service.
I agree, no one will take the deal of the fully funded pension. At least you admit why.
- RNUG - Friday, Jul 20, 18 @ 4:12 pm:
-Big Jer-
I wrote you a long response explaining the limitations that have to be worked around. I don’t see it here on my phone (which sometimes gets flaky), so I don’t know if it posted or got trapped by some of Rich’s automatic filters.
The short version is Tier 2 in 2011 fixed it going forward and you can’t eliminate the Tier 1 debt; it has to paid.
- CrazyHorse - Friday, Jul 20, 18 @ 4:34 pm:
==Pension spiking was curtailed in 2006 by a law that made districts responsible for the cost of salary increases over 6% when that salary is in the pension calculation. The FY19 budget lowered that cap to 3%.==
Has it truly been curtailed or has it just been partially shifted onto the backs of local taxpayers? BTW, I am a Tier1 state employee so I’m all for pension protections etc. but this practice is just plain awful if it is indeed still occurring. Keep in mind that we are all paying sky high property taxes and while I want the LSD teachers to be fairly compensated I personally think anyone getting a 25% bump as a retirement perk is pretty indefensible.
==Further, removing OT from the pension calculation for current members is arguably a benefit impairment, though it is indeed abused.==
I never suggested removing OT from the pension calculation. That would indeed be unconstitutional. My suggestion was to hire more people that would enter under the system under the Tier 2 formula. By doing that they could minimize or even eliminate the OT that is being doled out right now. No one has a constitutional right to work OT but when one does then it is indeed part of the calculation.