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Quinn talks pension reform, Medicaid cuts, tax loopholes

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* Gov. Pat Quinn leaked a few details about his upcoming budget speech yesterday

Speaking before a packed City Club of Chicago audience, Quinn said he wants to cut Medicaid expenses by $2 billion, close tax loopholes that cost the state millions of dollars and examine changes to the public employee pension system that include raising the retirement age for workers.

* Let’s look at his pension ideas first

Quinn said that when it comes to pension cost reform “everything must be on the table,” including lowering cost of living increases, hiking the retirement age and asking employees to pay more for benefits. He also wants to examine shifting some of the pension burden to universities and local school districts, saying they pay little or nothing toward the cost of retirement benefits for their workers.

The governor would not say whether he would support efforts to revamp the state’s pension payment structure, which requires the state to make larger contributions each year in what was supposed to be an effort to fund the system by 90 percent by the year 2045.


Meanwhile, the governor is looking to off-load some of the state’s pension costs. The state contributes $5.2 billion a year to pensions, but Quinn complains that only a fraction of that benefits workers directly under state control. Employees of state universities, community colleges and local school districts, for example, are in state-funded retirement plans.

He wants state universities and school districts to contribute, figuring if they have “skin in the game,” they’ll think twice about awarding generous benefits.

* Now, Medicaid

Quinn said the state can no longer afford to pay $15 billion a year for the Medicaid program, which provides health care for the poor. He wants to cut that by $2 billion, and amount he says lawmakers “shifted” over from last year’s budget by delaying payments.

* More

Some options for restructuring the system are shrinking payments to hospital and doctors, reducing how many people are eligible and cutting benefits the state isn’t legally required to offer.

Rep. Greg Harris, D-Chicago, said even ending optional benefits would mean tremendous pain for some people.

“If you look at the services the federal government says are ‘optional,’ they are prescription drugs, they are long term care nursing homes, they are hospice care. So this is going to be horrible decision making,” said Harris, chairman of the House Human Services Committee.

* More

Last year Quinn proposed cutting the state’s Medicaid budget by $600 million. The state Senate cut that to $300 million and in the House of Representatives, “Democrats and Republicans banded together and announced they would take ‘zero percent’,” Quinn said. He plans to triple down and try for a bigger cut.

What exactly will he cut?

Quinn said he would spell that out in his budget address in two weeks. But it involves changing the state’s Medicaid program into a “wellness system” instead of a “provider payment system,” he said. The problem he faces is that cuts to Medicaid can mean cuts to federal matching funds.

* And, now, tax loopholes

“We’ll ask the loophole lobby: ‘What’s more important, early childhood education for a 4-year-old or your loophole?’ We’ll ask: ‘What’s more important: Scholarships for somebody who’s deserving but can’t go to college without a scholarship or your loophole?’”

* Meanwhile

Speaker Michael Madigan on Tuesday outlined grim budget news to House Democrats who left a closed-door meeting predicting deep budget cuts, particularly in health care for the poor. […]

Madigan’s memos laid out scenarios for how much additional money could come in during the next budget year that starts July 1. If revenue grows a modest 2 percent, the state would collect an additional $568 million. If it grows 4 percent, which one lawmaker suggested is unlikely, the state would gain about $1.13 billion.

But the amount of new money isn’t likely to be enough to cover the increased costs of public worker pensions, which are expected to increase by $957 million. And that doesn’t take into account the desire to increase spending in the rest of the budget, especially on politically popular areas like education.

* More budget stuff…

* Washington State’s Medicaid Program Will No Longer Pay For Unnecessary ER Visits

* Schools pay for teacher pensions? They say no - But some people, even unions are willing to discuss it

* Legislative panel critical of Quinn’s plan to close two facilities

* Lawmakers complain about no details at Jacksonville facility hearing

* JDC: Closing plan gets cool reception

* Director says prepaid tuition program ‘lost its way’

* Director: College Illinois! to stay afloat, even if that means taxpayer bailout

* State torture panel strapped for cash

* Budget cuts force cancellation of DNR’s Outdoor Illinois magazine

* Kadner: State turns its back on the needs of the mentally ill

posted by Rich Miller
Wednesday, Feb 8, 12 @ 11:01 am


  1. I think the people who support moving the pension responsibility for those teachers and other workers back to the entities that are making the spending decisions are on the right track. But I’m skeptical that this can be accomplished. In the past when shifting a spending burden from the state to the locals the state usually provides some sort of funding reimbursement or pass through. However the state hasn’t been making a pension payment that matches true cost (regardless of what the ramp schedule mandated) for some time. The state just doesn’t have the money to pass down to the local institutions to cover these costs. State lawmakers have learned how to manage the howling when the pensions get underfunded for one more year, but they’re not prepared for the howling that would/will come if they pass down this enormous financial obligation to these local entities without any funding to support their new burden. That’s why, however well intentioned, this seems likely to fall apart to me. Especially in an election year.

    Comment by The Captain Wednesday, Feb 8, 12 @ 11:24 am

  2. The state of Ill, Medicaid cost savings could be substantial IF they allow the medicinal use of cannabis by cutting our (chronic and terminally ill) pharmaceutical costs and costs related to repeated hospitalizations caused by the adverse reactions and effects of those pharma products. IT CAN BE DONE!!!

    Comment by MedCannMike Wednesday, Feb 8, 12 @ 11:35 am

  3. For the cost shifting to the school districts, the best thing they could do would be to take the amount the state pays directly on behalf of non-state employees and have it be paid directly to those entities while also requiring those entities to them contribute the appropriate amount to the pension system. If district XYZ knows it has $10M coming in and can control how much they have to pay out, that gives them incentive to lower costs so they end up ahead. It also gives the state leverage to hold steady or cut the amount it gives the schools to wean off the subsidy if that’s what it so chooses to do.

    Comment by thechampaignlife Wednesday, Feb 8, 12 @ 11:37 am

  4. Mostly red meat for his Chicago audience.

    About all Quinn can legally get is revamping the pension payment schedule and offloading payments to the schools. Can’t change anything else listed for existing employees; courts have said so. Don’t see anything on the table for the workers to give up what they already have. Going to guarantee payment to the pension funds? They don’t need it; the clause says the State has to pay the pensions and there are court rulings. If the pension funds run out, there are both htose opinions and other rulings (both IL & NY) that will likely require direct disbursement of GRF monies to pay the pensions. Looks like the State is going to waste more money on lawyers …

    They can (and have already) changed the rules for new hires. Further changes doesn’t get a lot of savings now. And it may become an administrative nightmare to keep track of Tier 1 through Tier 10 levels of employee benefits.

    The payment offload is described as being phased in … so there won’t be huge immediate savings. And who gets stuck with the unfunded shortage?

    Changing Medicaid is going to be even tougher than mentioned. Yes, Illinois provides optional services and eligibility beyond federal requirements. But the ACA (aka Obamacare) has placed some strict limits on what can be cut now before it takes full effect, especially in the eligibility area. Because we were fairly generous before, we have to maintain it now.

    Moving to managed care (as not only suggested but actually enacted a year or two ago but it’s going slowly) is one of the few things that can be done. But that isn’t easy either; you have to reorient people to seeing their doctor first instead of always running to the ER. It will take an entire generation or maybe even two generations to fully effect that mindset change.

    If the State tries to do much else, that will lead to the spectacle of the President’s home state and fellow Democratic Gov trying to undermine ACA. Think how that will play at the national level in an election year …

    Closing loopholes - too many interested lobbies, ain’t going to happen unless it’s part of an entire tax code revamp where everyone feels they got something.

    Going to be interesting times this year …

    Comment by Retired Non-Union Guy Wednesday, Feb 8, 12 @ 11:50 am

  5. I don’t have an issue with the local district paying for the pensions it negotiates. However, is it time to make teachers and university faculty actual state employees and pay them on that scale? After all, the local district also negoiates wages, which is what pension payments are based on. This has been happening in other states for a long time. It is one way of evening the playing field between districts.

    Comment by lincolnlover Wednesday, Feb 8, 12 @ 11:58 am

  6. Trial balloon time. Gives time for the special interests to get organized. Based on recent history can anyone predict what PQ will say, much less do?

    Let the pandering continue……

    Comment by Plutocrat03 Wednesday, Feb 8, 12 @ 12:02 pm

  7. Before off-loading pension contribution obligations to the school districts, it appears that state government and the school districts must advise home owners as to the extra cost and likelihood of increased property taxes and how much and how often. District by district. The real estate lobby should weigh in on this, especially as to impact on increased foreclosures and loss in home values. Are there reliable projections as what is being off-loaded?

    Comment by Cook County Commoner Wednesday, Feb 8, 12 @ 12:07 pm

  8. “…and asking employees to pay more for benefits.”

    Employees pay premium for themselves and 2 dependents. If they have more than 2, coverage for those dependents is, essentially, free. Cutting this “benefit” would be a good place to start.

    Comment by SgtSchultz Wednesday, Feb 8, 12 @ 12:13 pm

  9. @champaign - If the state is going to be handing money to the local school districts when they mandate that they pay their employee pensions locally, how much will Chicago’s share be?

    Comment by PublicServant Wednesday, Feb 8, 12 @ 12:40 pm

  10. Early retiree health insurance. Early retirement is a choice, especially in government. In 2014, no one can be denied health insurance, assuming all goes as planned. Starting in 2014, give a cash subsidy to help early retirees buy their own policies from early retirement to age 65 if you want to be generous. Many early retirees get retirement jobs that come with health insurance anyway. Use the savings to pay down the pension debt. This seems like such low-hanging fruit, but somehow it never goes anywhere. ACA will provide a logical opportunity. And early retiree health insurance is not protected by the state constitution, as I understand it.

    Comment by Cassandra Wednesday, Feb 8, 12 @ 12:41 pm

  11. For those employees under 65 who have worked for the state for less than the maximum time needed to obtain full pension benefits, retiring is a choice. If they continued to work for the state and pay into their pension fund after achieving the full benefit, that would be a choice too, but a stupid one.

    Comment by PublicServant Wednesday, Feb 8, 12 @ 1:13 pm

  12. lincolnlover - doesn’t having the school district pay the amount nominally assigned to the employees benefit the districts and pension plan (i.e. the employee gets an effective raise - but not a increase in actual salary - and the pension payout is based on salary)?

    Comment by titan Wednesday, Feb 8, 12 @ 1:30 pm

  13. I predict a mass retirement of all those with Rule of 85. Taxpayers are going to get hurt because servies will slow down even more.

    Anyone who is currently in the system that is over 20 years should be exempt from the 65 age retirement rule.

    Will the legislative retirement follow the same guidelines proposed by Quinn?

    Comment by He Makes Ryan Look Like a Saint Wednesday, Feb 8, 12 @ 1:59 pm

  14. A couple of posters have stated that they are okay or do not have an issue with school districts paying for the pensions they negotiate. It needs to be clarified that the districts do not negotiate pension benefits for their employees. Benefits are negotiated and set through the State legislature.

    This is true of all other pension systems in Illinois. The big difference, though, is that with police, fire and IMRF, municipalities and counties are required to come up with the revenue to pay for the benefits set by the General Assembly.

    Comment by GA Watcher Wednesday, Feb 8, 12 @ 2:03 pm

  15. GA-I must be missing something. My local school district just announced the results of its salary and benefit negotiations with the teachers. There was no mention of the state being involved. What part of this process does the state control? Actually, the teachers accepted a salary freeze and some retirement benefit enhancements (!). That is surely not the case across the state.

    Comment by Cassandra Wednesday, Feb 8, 12 @ 2:14 pm

  16. If this goes through, the districts will be asked to take over the entire pension amount? Including the part that wouldn’t be there if the GA had made the payments they were supposed to make?

    And the ” pension cost reform” where “everything must be on the table,” including lowering cost of living increases, hiking the retirement age and asking employees to pay more for benefits” will be across all pension systems including judges, constitutional officers and the GA. Right?

    I mean “everybody in no one left out.”

    Comment by Irish Wednesday, Feb 8, 12 @ 3:19 pm

  17. What happens if, for whatever reason, the school districts begin to miss pension payments?

    Near I can tell, even though the state has missed payments - the retirement system still has the burden of having pay out the pension benefits. So, assuming that holds true, then we’re still in the same boat regardless of whether the state has to pay the pensions or the school districts. Or is there something else that I’m not taking into consideration?

    Comment by Name Withheld Wednesday, Feb 8, 12 @ 3:34 pm

  18. Cassandra @ 12:41,

    It ain’t low hanging fruit. Even though some people say it can be done, it isn’t all that clear. At best, it is something that will have to be resolved via another lawsuit but it seems fairly obvious, if you read the “impairment” case decisions from 1970 to date, that even the health insurance can be considered a protected benefit.

    The rules in place at hiring (plus any subsequent enhancements) are protected. When I hired on, the free health insurance at retirement required 8 years. If you want to use the day I retired rules as the benchmark, that rule said 20 years, but the change was *not* retroactive. I had nearly double the 20 years credible service required for my “free” insurance. I pay co-pays, deductibles, and for my wife’s coverage … it isn’t exactly free. And if you retired with more than 8 but less than 20 years of service, you already pay a prorated amount for health insurance based on the years less than 20.

    I’ll admit to a personal interest in the issue. I was less than 5 years from retirement when the 2002 ERI was offered. In simple terms, the State bribed me to retire early with the combination of the pension and insurance. They replaced me with someone making half of what I used to get … so they got the GRF savings they were looking for each year for the past 10 budget years and shifted my cost onto the pension system. I wasn’t some politician gaming the system, I was a career employee. I put my years in, made my payments, and played by the rules. The law says you can’t change the rules after the fact …

    Final point: In State budget terms, there isn’t that much money to be saved. People had to be at least age 50 to take the 2002 ERI; most were older. By now, the majority are already at age 65 and the State insurance is nothing more than a Medicare supplement, which costs the State very little … no savings there. Even the 50 year old then is now either 59 and some months or 60. At best, you could save a bit of money for the next 5 years. Putting it in mathematical terms, 11,000 of us retired 12/31/2002. For arguments sake, let’s say 1,100 (10%) of us were age 50 (that’s probably high but makes an easy example). We’ll use the State’s claimed cost of $1,028 per month to provide insurance (from my 2012 Comptroller statement). $1,028 * 12 months * 1,100 people = $13.6M annual cost … a rounding error in the State insurance / personnel expenses budget. It ain’t going to make a hill of beans difference in solving the State’s problems.

    Comment by Retired Non-Union Guy Wednesday, Feb 8, 12 @ 4:38 pm

  19. @Name Withheld, call me cynical, but the only thing I can think of that you are missing is that school districts might be able to declare bankrupcy. So if school districts end up with too much debt from missed payments, there’s a chance that they could at some point declare bankrupcy, giving their creditors (including retiring school district employees) only a portion of money owed to them.

    Comment by Robert Wednesday, Feb 8, 12 @ 4:41 pm

  20. Well, if the population of early retirees is declining, I suppose that in itself would create savings.

    But it seems to me that when the Quinn admin was talking about changing early retiree health care a couple of years, they were talking about savings of a lot more than $14 mil per year.

    Maybe they should just get rid of the Rule of 85. Now that would take some doing.

    Comment by Cassandra Wednesday, Feb 8, 12 @ 5:28 pm

  21. Casandra,

    Yes, the early retiree population is declining, not only because 2002 ERI people are aging out but also because of the fact almost every State job title requires a college degree. Not too many people starting at the State straight out of high school at age 18 or 19 anymore; now most the hires are at least 23 or 24. Since you have to work 30 - 35 years to get a decent percentage, most those hires wouldn’t retire before age 60 - 65 anyway (60 was already the age you could retire with a minimum of 8 years of service). Rule of 85 usually meant you could get out at age 55 - 56 if you started right after college. The 2002 ERI was an unique exception with it’s age 50 clause.

    There was an early retirement option in 2004 but very few people took it, so they are mostly irrelevant to this discussion.

    Rereading my note @ 4:38, I realized I oversimplified the example (because I was in a hurry to get to a scheduled meeting … us retirees do keep busy with non-job stuff). I apologize for posting somewhat incomplete data; it only included the people then age 50 in 2002 … it didn’t include the people who were 51 - 54, which was misleading. If you realized it, you could have extrapolated the numbers, but I’ll correct that now and make it crystal clear. I’m going out on a limb here with assumptions but if we say the same numbers are in the class of 51, 52, 53 and 54 (which may be a high guess because that says 1/2 of the ERI retirees were age 50 - 55) then the savings per year would be 5 times this year, 4 times next year, 3 times the year after, 2 times the following year, 1 times the subsequent year, down to no savings.

    To chart those declining savings (rounded, today’s dollars, no adjustment for future premium increases):

    FY12 - $68M
    FY13 - $54M
    FY14 - $41M
    FY15 - $27M
    FY16 - $14M
    FY17 - $0

    So it is a bigger number this year, but still a rounding error when you are talking billions of dollars.

    The above numbers are based on a guess of the age distribution of the 2002 ERI retirees. Only SERS has the data to accurately calculate it.

    If Quinn was throwing figures around a couple of years ago (and my numbers above are close), the number was higher by about $14M for every year back it was. Go back a few years to FY08 or FY09 and it was most likely over $100M. (I didn’t adjust for lower premiums back them; just kept it a simple straight line comparison. If I really cared that much, I could dig out old statements and do the adjustment … ).

    Like I said, we are aging out. That problem fixes itself in 5 years with no action by anyone …

    Comment by Retired Non-Union Guy Wednesday, Feb 8, 12 @ 8:50 pm

  22. It’ll be interesting to see home Quinn plays the nursing home game.

    If he’s smart, he won’t try to take on the docs, hospitals and nursing homes all at once.

    My bet is the nursing homes, they’ve got the least clout.

    Trouble is, on paper they’ve also got one of the lowest reimbursement rates, and they’ve got decent allies in SEIU.

    BTW, the reporter isn’t 100% correct. Federal Medicaid match WAS an issue when we used that cash flow to essentially balance our budget on paper.

    But now that we have stricter accounting rules that enforce balanced budget constraints, you can’t balloon Medicaid spending to capture more Medicaid dollars in the fiscal year and then trickle it out in the six months after the fiscal year ends.

    Fed money coming in the door goes right back out the door pretty darn quick…no more using Medicaid as payday loans.

    Comment by Yellow Dog Democrat Wednesday, Feb 8, 12 @ 11:46 pm

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