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Still no solutions in sight for pension, Medicaid reforms

Monday, Apr 16, 2012

* Subscribers were told about this and other stuff earlier today

A working group of state legislators tasked with charting a path to pension stability will likely miss its Tuesday deadline for releasing a draft report, but members believe they’ll have information to share soon.

The four-member committee is waiting to make its release until after another of Gov. Pat Quinn’s working groups releases its report on how to achieve a $2.7 billion Medicaid cut in fiscal 2013.

“We’ve still got some data we’d like to gather and certainly that the members of the General Assembly would like to see,” said Sen. Bill Brady, R-Bloomington, one of four legislators on the pension panel. “I don’t think we’ll release anything Tuesday, and my understanding is that the governor’s not expecting it until late next week.” […]

“I think it’s been very good,” Brady said of the process. “In the past, not everyone has participated (in these kinds of meetings). This is the first time everyone realized the need and participated. Not everyone will like 100 percent of our product, but sometimes that’s how things work out.”

* Part of what to expect

Gov. Pat Quinn’s pension working group is asking public employee unions to accept lower pension benefits and a higher contribution rate in exchange for a more ironclad guarantee that the state will meet its funding obligations.

The proposal also would shift the employer costs of local teacher and university employee pensions from the state to school districts and universities, according to Rep. Elaine Nekritz, D-Northbrook.

* Rep. Nekritz claimed that the working group has given the proposal to organized labor, but the unions want a lot more info and a pledge

In a statement, AFL-CIO president Michael Carrigan, who spoke for the We Are One Illinois Coalition, said labor has not been given enough information to analyze any potential proposal. The coalition is made up of the AFL-CIO, American Federation of State, County and Municipal Employees, the Illinois Education Association, the Illinois Federation of Teachers, the Associated Fire Fighters of Illinois, the Police Benevolent and Protective Association, the Fraternal Order of Police and the Service Employees International Union. […]

“Our unions are firmly committed to negotiating a solution to the pension funding crisis,” Carrigan said. “However, to go forward, we need both the data supporting any proposals and a commitment that the representatives with whom we engage are authorized to speak for the governor and the legislative leaders.”

There’s no sense in negotiating a bill if the leaders aren’t supporting the process.

* Meanwhile, figuring out how to pay or cut $2.7 billion in additional Medicaid costs next fiscal year is proving to be as tough to accomplish as pretty much everybody thought it would be

Last week, Quinn’s administration floated a different proposal that included $1.3 billion in cuts to Medicaid program spending, with the rest of the $2.7 billion coming from a $1-a-pack increase in the cigarette tax and rate cuts to health care providers, according to Sen. Heather Steans, one of the Democrats on the Medicaid committee.

“When you look at what it takes through just cuts to get to $2.7 billion in one year, it’s impractical,” Steans said. “It’s hard to maintain program integrity.”

Rep. Patti Bellock, a Republican on the committee, is pushing for more cuts and doesn’t want to raise cigarette taxes or cut payments to providers, she said.

“The governor wanted to come forward with a plan this week and had been encouraged by some of the (legislative) leaders to do that,” Bellock said. “I’ve just been trying to push them more. … I think we can find some more reforms.”

Republican Sen. Dale Righter said a cigarette tax is not the right approach when the goal is to reduce the size of the Medicaid program.

* Related…

* Which pension fixes will be on the table?

* Finke: Madigan amendment likely to get OK

* Hinz: Pension reform is nigh . . . unlikely

* Illinois GOP members speak out against health care reform in Rockford

* Editorial: Don’t just get fed up; demand real reform

- Posted by Rich Miller        

37 Comments
  1. - wordslinger - Monday, Apr 16, 12 @ 11:22 am:

    Those working groups just can’t stop working. Actually, the GA group just said to Quinn, “you first.”


  2. - PublicServant - Monday, Apr 16, 12 @ 11:41 am:

    === in exchange for a more ironclad guarantee that the state will meet its funding obligations. ===

    What consideration is being given in exchange for a lessening of the pension benefits, if future legislatures cannot be constrained by the promises, even if they “really, really promise” this time, of the current legislature? Besides, I’m non-union. Never have been. They certainly don’t speak for me.


  3. - TCB - Monday, Apr 16, 12 @ 11:53 am:

    Servant (or anyone with expertise),

    How does this work for merit-comp employees? If the unions are willing to make concessions on their pension benefits, does a merit comp employees automatically forfeit their benefits according to the terms of the union’s agreement?

    It just seems to me that this “enforceable contractual relationship” they keep referencing is the state’s contract with the individual employee, not with the union…….wouldn’t the choice whether or not to forfeit your benefits in favor of a funding guarantee fall on the employee & not the union?


  4. - reformer - Monday, Apr 16, 12 @ 11:53 am:

    ==a Republican on the committee is pushing for more cuts and doesn’t want to raise cigarette taxes or cut payments to providers ==
    Since the Land of Lincoln already ranks 44th in how much we spend per Medicaid recipient, Bellock apparently wants us to be 50th, dead last.

    I wonder if she really believes such cuts could be imposed without harming the health and well-being of the least of these?


  5. - PublicServant - Monday, Apr 16, 12 @ 11:55 am:

    That is my position, but R Eden Martin, Ty Faynor and the civic committee might differ. I’m not a lawyer though TCB.


  6. - Professor - Monday, Apr 16, 12 @ 11:58 am:

    More smoke and mirrors for unpaid bills. The state is going to have to pony up the money. Shifting the payments to the universities and school districts is a good idea to insure future payments are made but don’t expect the school districts and universities to absorb unpaid bills.


  7. - Cook County Commoner - Monday, Apr 16, 12 @ 12:31 pm:

    There is no workable pension and retirement helathcare solution that IL state or local governments would implement which would do little more than kick the can down the road. The politicians won’t give upp the union contributions. The voters will rebel against increased income, sales and real estate taxes. (You may squeeze a bit more from IL public university tuitions, but the state would be inviting “tuition wars” from nearby states.) The gov union bosses don’t want to lose their salaries and perks by advocating meaningful change, especially to a membership who still believes in the Tooth Fairy, especially the teachers.
    The best bet is sweeping Democtatic wins for the White House, US Senate (filibuster proof) and US House (gain majority). Then the gov employee give-away in numerous states can become a national, socialized debt via the federal printing presses. The Treasury hits a few buttons and accounts are flush once again.
    Of course, the issue remains whether Americans will remaim silent as they learn that the federal, state and local governments have created retirement elites while they are left crumbs.


  8. - muon - Monday, Apr 16, 12 @ 12:32 pm:

    ====a Republican on the committee is pushing for more cuts and doesn’t want to raise cigarette taxes or cut payments to providers ==
    Since the Land of Lincoln already ranks 44th in how much we spend per Medicaid recipient, Bellock apparently wants us to be 50th, dead last. ==

    Cuts to expenditures without changing the number of recipients would do as you suggest. For example, cuts to providers would have the effect of lowering our spending per recipient.

    However, we have a very pool of recipients for optional services and that helps make our average spending low. Removing eligibility for some programs reduces the number of recipients so the spending per recipient could go up even as the total expenditures go down.


  9. - Slick Willy - Monday, Apr 16, 12 @ 12:32 pm:

    === What consideration is being given in exchange for a lessening of the pension benefits, if future legislatures cannot be constrained by the promises, even if they “really, really promise” this time, of the current legislature? ===

    This. The legislature has absolutely no credibility on financial issues - especially when it comes to keeping up on their pension contributions.


  10. - Vote Quimby! - Monday, Apr 16, 12 @ 1:00 pm:

    ==in exchange for a more ironclad guarantee==
    More ironclad than the state Constitution? Good luck…


  11. - the Patriot - Monday, Apr 16, 12 @ 1:01 pm:

    The Solution is easy. Get off pensions and put employees money in 401k type plans. It will be tough funding the change over, but you could have sold a tax hike to pay off debt that had stopped.

    for every tax dollar spend on teacher salaries 20% or more goes to pensions. You could take 10% to fund the only pensions and give 10% to the teachers in a 401k and every teacher in IL retires a millionaire.

    The problem is the unions and the democrat party need the pensions to keep members in line. The problem is the same with AFSCME. If they lose control of pensions the union and the democrate party are out.


  12. - Rich Miller - Monday, Apr 16, 12 @ 1:15 pm:

    ===The Solution is easy. Get off pensions and put employees money in 401k type plans. ===

    Anyone who says the solution to a big problem is “easy” usually has no clue. You are no exception. You still have the unfunded liability no matter where you put people. And there’s no way to legally take away everybody’s pensions and put them in said 401k, even if you change the state Constitution.


  13. - William - Monday, Apr 16, 12 @ 1:32 pm:

    @Patriot
    Can I see the actuary tables you are using to predict that 10% of a teachers salary placed in a 401K will result in a million dollars after 30odd years?


  14. - Jimmyd - Monday, Apr 16, 12 @ 2:07 pm:

    Employee bargaining organizations such as AFSCME, IFT, and IEA cannot legally negotiate away something that is constitutionally guaranteed for the State to do something that they are legally mandated to do.


  15. - Not Happy With AFSCME - Monday, Apr 16, 12 @ 2:29 pm:

    A state employee’s pension is defined in ILCS pension code, not a union contract. I am an AFSCME member and I do not want AFSCME negotiating anything concerning pension on my behalf. AFSCME allowed the deferral of our pay and then the Governor refused to pay it. The last deferral was voted on by the locals. All of the locals I have spoken with stated they voted it down and were told that others voted it up. I think just about everybody voted it down but Council 31 had there own agenda.


  16. - Colossus - Monday, Apr 16, 12 @ 2:56 pm:

    I once read that Bigfoot and simplicity are found in nature with the same frequency. When teaching Poli Sci, I lead off the semester with that quote every time to emphasize the necessity of dialogue in solving problems.


  17. - Yellow Dog Democrat - Monday, Apr 16, 12 @ 3:10 pm:

    I’m with Rich and Schnorf:

    Rewrite the Ramp.

    When we built the current ramp in 1995, no one knew that our economy was going to be hit by terrorists and then the Great Recession in a ten-year period.

    Now, we know better, and we should act accordingly.

    I suggest we set the goal of reaching 80% funding, which would put us ahead of more than half the states.


  18. - Yellow Dog Democrat - Monday, Apr 16, 12 @ 3:17 pm:

    As for Medicaid spending, if indeed Illinois is 44th in per capita Medicaid spending, it begs serious questions about why we are cutting there.

    Are our per enrollee expenditures about the same? I assume they are actually lower.

    The best thing we can do to lower our Medicaid liability is create jobs to get people off of medicaid in the first place and improve public health, thereby decreasing health care costs.

    For example, there are huge medical costs associated with domestic violence, especially when you include mental health. Reduce domestic violence in Illinois and you will reduce Medicaid costs and increase economic productivity.


  19. - the Patriot - Monday, Apr 16, 12 @ 3:20 pm:

    Read the whole post Rich. A one time short term tax hike would have passed to fund the pension if the public knew we would bail them out once and be done. People would have gone for it, to fund the past obligations knowing we have resolved the problem moving forward. No one can believe that moving forward using 20-25% of your salary is a viable return for the public dollar. The longer we pretend the funds as they exist are salvagable the worse it will get.

    And yes it is easy. What makes it hard not the employees. It is the Unions. The Unions need to control the pensions to stay in power. The Democrats need the Unions to stay in Power. What makes it difficult is getting it done and keeping democrats in power. But if you move from the first requirement of any plan is that it has to allow democrats to maintain power, it is not that hard.


  20. - sue - Monday, Apr 16, 12 @ 3:22 pm:

    rewriting the ramp without changing the benefits does nothing other then delay the funding requirements- At a minimum- the State needs to eliminate the annual 3 percent COLA’s- If the Democratic State of RI can do it- then so can the Dems who are running Illinois/ after that perhaps we can start charging retirees for the cost of their health care with a substantially smaller subsidy


  21. - Rich Miller - Monday, Apr 16, 12 @ 3:24 pm:

    ===A one time short term tax hike would have passed to fund the pension if the public knew we would bail them out once and be done.===

    Have you any idea what that would cost? Figure $3.5 billion per income tax percentage point increase. And then figure $90 billion in unfunded liability.


  22. - PublicServant - Monday, Apr 16, 12 @ 3:36 pm:

    ===At a minimum- the State needs to eliminate the annual 3 percent COLA’s===

    What about “shall not be diminished or impaired” don’t you understand, Sue?


  23. - Rich Miller - Monday, Apr 16, 12 @ 3:38 pm:

    ===If the Democratic State of RI can do it- then so can the Dems who are running Illinois===

    You’ve been reading too much Tribune. That law has yet to be tested in the courts.


  24. - State Sen. Clay Davis - Monday, Apr 16, 12 @ 3:40 pm:

    Just read the summaries of Rep. Daniel Biss’s plans for a cash balance plan and benefit buyout and they seem to make sense. Any chance of his bills getting momentum?


  25. - Beaten Down State Employee - Monday, Apr 16, 12 @ 4:23 pm:

    As teachers & university employees are not State of Illinois employees, can someone tell me if the state is legally responsible for the TRS and SURS unfunded liability?

    Me thinks the state is really only on the hook for the SERS unfunded liability. If so, it pretty manageable.


  26. - PublicServant - Monday, Apr 16, 12 @ 4:28 pm:

    [B]Membership in any pension or retirement system of the
    State, any unit of local government or school district, or
    any agency or instrumentality thereof[/B], shall be an
    enforceable contractual relationship, the benefits of which
    shall not be diminished or impaired.

    SURS and TRS are included.


  27. - Beaten Down State Employee - Monday, Apr 16, 12 @ 4:34 pm:

    Of course they’re subject to the protection clause, but I think if the unfunded liability was caused by the employer not paying, the employer is responsible for the liability.

    The state is not the employer for TRS/SURS employees. Where does it say that the state is responsible for all other employers contribution short falls?


  28. - PublicServant - Monday, Apr 16, 12 @ 4:38 pm:

    You’re dreaming pal.


  29. - Jorge - Monday, Apr 16, 12 @ 4:47 pm:

    ==The best thing we can do to lower our Medicaid liability is create jobs to get people off of medicaid in the first place==
    Getting people off Medicaid might be a good deal more difficult than just creating jobs. That’s what happens when your income-threshold is almost $70,000 for a family of 4.


  30. - jerry 101 - Monday, Apr 16, 12 @ 4:48 pm:

    Hmmm…you could always change the assumptions.

    The pension liability is just an estimate.

    And the liability being driven higher and higher by Fed policy. There’s this little thing called the discount rate. It’s a HUGE driver of pension costs. I don’t know what rate IL pension plans are using - I couldn’t find anything in the limited searching I did, but I do deal with some pension plans in my job, and the decreasing discount rate is causing liabilities to jump into the stratosphere.

    From 12/31/10 to 12/31/11, the most widely used discount rate, which is published by Citi Bank, decreased by nearly 1 percentage point (from something like 5.5% to 4.6%. That causes huge increases in pension liabilities.

    Why do I blame this on the Fed? The discount rate moves based on Fed actions. It’s based on long term interest rates, which the Fed has depressed significantly in recent years in it’s effort to relieve the financial crisis. Quantitative Easing, they called it. The Fed buying up Treasury bonds to decrease long-term interest rates.

    It kills pension funds.

    Maybe the state should have it’s actuaries rerun some of these numbers using a more traditional discount rate and see what happens. I’m not saying that the problem will disappear or anything, but the estimated liability will go down quite a bit.

    The discount rate won’t remain at historic lows forever. And when it rises, we may find ourselves staring at pension plans that, if not overfunded, will certainly be well enough funded that we’ll feel very silly for destroying state government to try to come up with a way to meet an out-of-whack estimate of a long term liability.

    It’s an estimate. It’s not a real number. Some actuary punched a coupla numbers into a spreadsheet and came up with a number that is as likely as not to be way different from reality.


  31. - Pelon - Monday, Apr 16, 12 @ 4:48 pm:

    “for every tax dollar spend on teacher salaries 20% or more goes to pensions.”

    Patriot,

    If the state was really paying 20% of every salary dollar into the pension funds, we would not have a funding problem.


  32. - Beaten Down State Employee - Monday, Apr 16, 12 @ 5:14 pm:

    I’m aware of the political and practical issues but no one tell me if or where it’s stated that the state is responsible for other employers pension liability.

    Is the state also responsible for any IMRF liabilities (if there ever are any)?


  33. - Yellow Dog Democrat - Monday, Apr 16, 12 @ 5:36 pm:

    @Beaten Down -

    The pension funds are state entities, and so I would suppose that if it ever went that far in court, the state could be ordered to pay benefits.

    but, there are sound economic arguments for making employer responsible.


  34. - Beaten Down State Employee - Monday, Apr 16, 12 @ 5:58 pm:

    Thanks Dog. I wonder how Chicago residents feel about chipping in for TRS’s pension liabilities.

    My point is that it’s very convenient to lump the 5 systems liabilities into one big matza ball rather give any analysis on parsing them and questioning who actually owns those liabilities.


  35. - mushroom in the dark - Monday, Apr 16, 12 @ 7:08 pm:

    Pension liabilities exceed projected revenues to fund them because: A) investment returns that last 12 years are lower than projected. B) record low interest rates, C) lack of funding the pensions, D) 90 percent funding target. On that last one why does there have to be 90 percent of the funds in the fund to pay the next 50 years of pensions? Who has that money in their bank account when they are 30 to fund the next 50 years of their life?

    The returns expected have been lowered to approximately 7.5 percent, which does seem still too high. What should be done is to lower expected returns to lower levels and then lower the percentage of funding needed to a much lower level.

    However one problem with this is that the amount of investment made will be lower at a time when it may be prudent to be buying stocks and bonds. I wonder how much investment was made in the period between September 2008 and September 2009 when stock and bond prices were lower.


  36. - Yellow Dog Democrat - Tuesday, Apr 17, 12 @ 12:33 pm:

    @Mushroom:

    The goal of the 90% ramp is three-fold:

    1) Ensure beneficiaries get paid;
    2) Ensure our budget is sustainable;
    3) Place Illinois in a stronger position relative to other states to offer both employers and citizens a strong future.

    We spend alot of time focusing fruitlessly on #1. No one honestly believes that given even the current level of benefits that beneficiaries won’t get paid.

    The real question is how do we come up with a budget plan that doesnt leave people who havent even been born yet stuck holding the bag, while still ensuring that Illinois is competitive today.

    A balanced longterm approach that relies less on the idealistic 90% benchmark and more on the realistic notion that we’re not going to solve the budget 100% by cutting benefits, raising corporate income taxes or taxes on the 1%, or gutting state services like education, health care and human services is rational and pragmatic.


  37. - Carly EngageAmerica - Friday, Apr 20, 12 @ 10:20 am:

    The rules referred to as the “Medicaid mandates” have not attracted as much attention as the mandate forcing individuals to buy government-approved health insurance. What few people know is that the Medicaid mandates are, if anything, even more constitutionally dubious than the individual mandate.
    Our constitution divides power between the federal government and the states, just as it divides power among the three branches of the federal government. For split sovereignty to work, both the states and the feds must be able to make independent decisions within their respective spheres.
    The ACA attempts to crack the constitution by directing and empowering administrators in the U.S. Department of Health and Human Services (HHS) to effectively bankrupt any state that makes Medicaid decisions different from those approved by the federal government. First, the ACA imposes costly new requirements on states for Medicaid spending, overriding any state choice to the contrary. The federal government has promised to pick up some of the tab, but given the disastrous federal financial situation, it is unclear how or whether this will happen. Whether or not it does, the feds will be unloading huge new expenses onto state taxpayers. Second, if a state does not comply with federal instructions to the letter, the ACA gives HHS virtually unrestrained authority to stop any and all Medicaid funds to that state.
    Medicaid is not some minor state-federal program. It is the largest item in most states’ budgets (http://bit.ly/I5eTc9 ).


Sorry, comments for this post are now closed.


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