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Media finally catches on

Wednesday, May 16, 2012

* Subscribers were told about this proposal back on Monday

A House panel is scheduled to discuss a plan today that could divert more than a billion dollars from local governments to help plug a hole in the state’s underfunded teacher retirement system.

The legislation, introduced by House Speaker Michael Madigan, D-Chicago, is just one piece of an emerging proposal designed to fully fund the state’s pensions within 30 years. Other elements that remain under negotiation include raising the retirement age to 67 and requiring state workers, university employees and school district personnel to pay more toward their pensions.

Madigan’s plan calls for tapping into a 2.5 percent tax on corporations, called the personal property replacement tax. The tax is collected by the state and the distributed to local governments.

Under one of Madigan’s options, $1.4 billion that currently is earmarked for all forms of local governments, from tiny library districts to cities, would instead be diverted to teacher pensions.

The Illinois Municipal League, which lobbies on behalf of local governments, is calling the idea “Armageddon.”

“This is absolutely financially disastrous,” said Joe McCoy, municipal league legislative director.

* More

If the measure passes, it would blow multimillion-dollar holes in the budgets of the city of Springfield and the Springfield School District and hit other local government budgets in varying degrees.

Madigan is suggesting the state use corporate personal property replacement taxes to bolster pension funding. Receipts from the tax currently support schools and other local government bodies.

Madigan has introduced three amendments to House Bill 3637. One would divert about $536 million, another would divert $982 million, and the third would divert $1.4 billion. The tax brings in $1.4 billion for local governments.

* What’s going on

The measure appears to be intended to make a point. Madigan maintains that the state’s obligation to teacher pensions isn’t sustainable, and that other ways need to be found to fund them. Implicitly threatening to cut off such a huge revenue stream to local governments could ultimately press legislators to start talking about other solutions.

“It’s one approach you could take,” said Madigan spokesman Steve Brown. “It’s an argument that might draw others into the discussion.

“We’re open to compromise,” he added. “We just can’t afford to keep doing what we’ve been doing.”

Real or not, the proposal has got local government advocates forming ranks. The proposal “would be crippling to local governments!” declares a statement on the Illinois Municipal League website.


* Related…

* Villages to pay for teacher pensions?

* Joliet objects to state plan to divert money to pensions

- Posted by Rich Miller        

  1. - PublicServant - Wednesday, May 16, 12 @ 10:51 am:

    The stated proposals so far are crippling to state employees and annuitants, and that’s ok with the repubs because “Pensions are ‘Unsustainable’”, but when Madigan forwards a bill that will place the cost of local teacher pensions on local governments and their revenues, then it’s “Armageddon.”

    Shared sacrifice bites when you’re the one doing the sharing doesn’t it pubbies?

  2. - Yellow Dog Democrat - Wednesday, May 16, 12 @ 10:53 am:

    I wouldn’t say the media has quite “caught on” yet.

    On one-hand, the Illinois Municipal League is calling for reducing pension benefits for police and firefighters as well as health benefits for those who suffer “catastrophic injury” in the line of duty.

    On the other hand, the IML is opposing efforts to ensure that local governments have a fiscally sustainable plan to pay for the benefits they do promise their employees.

    The IML alignment with the GOP is undeniable. By giving the IML skin in the game, Madigan is forcing Republicans’ hands.

    Another point the media ignores is that Madigan doesn’t bluff. Anyone who doubts that Madigan can and will find enough Democratic votes to pass his amendment as written if need be is gonna regret that assumption.

    Finally, I’m guessing that if the basic premise of the measure was explained to voters — local governments should pay for the pension promises they make, not taxpayers on the other side of the state — it would find OVERWHELMING public support, especially from fiscal conservatives.

    Checkmate in four…three…

  3. - Inactive - Wednesday, May 16, 12 @ 11:01 am:

    Isn’t the buzzword “shared” sacrifice? As things have unfolded, the only ones sacrificing are teachers. I kept wondering who teachers were sharing the sacrifice with! Obviously, the kill has been on teachers because they’re an easy group—-not usually armed with lawyers, not militant, certainly not hostile and aggressive like other groups. But interesting that once the finger starts pointing at some of those other folks, their aggression starts. The sharing will not only take place in cuts to other funds, but let’s face it—–there will be tax hikes. All these years, the pension fund has been one great big credit card, as has been stated many times and people have been receiving services in this state that the pension fund was paying for–all along folks thought they were paying plenty of tax! I guess now it’s time to pay up for all those things people thought they were getting for free!

  4. - Anonymous - Wednesday, May 16, 12 @ 11:01 am:

    The hearing today this proposal will be an interesting lesson in brinksmanship. The Speaker can and will muster votes for the legislation’s passage, just to send a meessage if nothing else. But will the Senate and the Governor propose any support of the concept if not the actual legislation? And I wonder what the tax losses in the Speaker’s district would amount to?

  5. - Anon - Wednesday, May 16, 12 @ 11:05 am:

    I think Mr. Madigan is right on the money. It makes perfect sense to pursue a logical revenue solution to the issue. This should have been amended a long time ago. I am disappointed that this wasnt addressed because of obvious political reasons, but now that we are totally broke (putting it mildly) we start looking for ways to save money. Im sure they dont run their households like they run the state budget. To think that the suburban communities should continue to get free teacher care is just plain wrong.

  6. - Anonymous - Wednesday, May 16, 12 @ 11:14 am:

    This is just a “shuffling the deck chairs on the Titanic” move though - it just shifts the burden from the public (state) to the public (local).
    Filling a budget hole at the state level by diging one at teh local level doesn’t help the public at all.

  7. - Rich Miller - Wednesday, May 16, 12 @ 11:18 am:

    ===it just shifts the burden===

    Burden-shifting is one way to describe it. Making school districts think more about the burdens they’re creating down the road is another.

  8. - Plutocrat03 - Wednesday, May 16, 12 @ 11:21 am:

    “free teacher care is just plain wrong.”

    Not exactly correct.

    Keep in mind that the State has been sending more money to Chicago than other communities for years in order to support the city’s responsibility for their teacher pensions.

    If the other communities have to shoulder the pension load, will the state increase the payments to reflect the change in responsibility, or will they reduce/eliminate Chicago’s bonus payments?

    “the only ones sacrificing are teachers”

    Don’t the homeowners who (in some areas) pay 70% of their property tax bills to the local school districts get to count that as sacrifice? In my area tax bills are well up (7.1% in my case) despite huge reductions in property values. Any property tax increase is rough on fixed income retirees who don’t even have the option to move in this real estate market.

  9. - wordslinger - Wednesday, May 16, 12 @ 11:28 am:

    Here’s the carrot, here’s the stick. Which would you like?

  10. - Robert - Wednesday, May 16, 12 @ 11:30 am:

    == the only ones sacrificing are teachers. I kept wondering who teachers were sharing the sacrifice with!==
    Stop wondering:
    1) Anyone who pays income tax - 67% rise last year
    2) Property taxpayers
    3) Medicaid recipients
    4) State employees who are not teachers
    5) State retirees

  11. - Nearly Normal - Wednesday, May 16, 12 @ 11:36 am:

    HB 3637 has 3 amendments all filed by Madigan. Only Amendment 3 takes all the replacement tax funds ($1.4 billion) from all public bodies including those in the City of Chicago. Amendment 2 takes funds ($982 million)from those taxing bodies outside of the City of Chicago and Amendment 1 rakes in $536 million only from the school districts outside of Chicago.

    The opposition to the other amendments will be fierce so I expect that Amendment 1 will likely be the vehicle of choice with a possible amendment for a ramp type phase in.

  12. - Anonymous - Wednesday, May 16, 12 @ 11:40 am:

    If local taxes are being diverted for another purpose, doesn’t need voter approval via referenda?

  13. - Anon - Wednesday, May 16, 12 @ 11:42 am:

    These maneuverings turn me off to whatever the Dems will ultimately propose. Makes it seem like more of a political exercise and less one based on accounting principles.

  14. - Yellow Dog Democrat - Wednesday, May 16, 12 @ 11:50 am:

    To Rich’s point, ensuring that local government units are responsible for paying for the promises they make is a fundamental, fiscally-conservative budget principle.

    It known as “budgeting with hard constraints,” which doesn’t “shift the burden” of paying for local government’s promises, but prevents them from shifting the costs in the first place.

    It’s critical to ensuring fiscally-responsbile decision-making.

    For the very same reason I’ve argued that the state’s worker’s comp costs shouldn’t come out of the CMS budget, but should be attributed to the budget for the agency and program where those employees work. When those costs are no longer shifted into someone else’s budget, but contained in the agency and program manager’s bottom line, it creates a strong incentive for them to act to improve worker safety.

    It also gives policymakers, government watchdogs, and the media a more complete and objective measure of the true cost of a particular policy option.

    So, for example, we’ll have a much better idea of the true cost of our prison system, compared with alternative public safety strategies like child abuse and drug addiction prevention. And we’ll have a much more complete picture of the cost of providing a world-class education in Republican communities like Kennilworth and Wheaton, which will give us a better idea of how and how much to spend in less affluent communities.

  15. - Yellow Dog Democrat - Wednesday, May 16, 12 @ 11:57 am:

    @Anon -

    Honestly, I don’t understand your view.

    The “accounting principle” at stake here, “hard budget constraints”, is precisely why fiscal conservatives argue against government bailouts.

    Under the current system, Illinois taxpayers are perpetually bailing out local school districts by diverting tax dollars from our General Revenue Fund to pay for their pension promises.

    If you don’t like Madigan’s suggestion that local pension costs should be paid for with local dollars, I’d love to hear your plan.

    Perhaps you’d prefer that state just not send any money at all?

    I can live with that, although I’d point out that to the degree that municipalities and school districts essentially operate as sister government agencies, Madigan’s proposal seems like a fair compromise and a far better system than the current one.

  16. - Anonymous - Wednesday, May 16, 12 @ 12:12 pm:

    you mean steling from the pension fund.

  17. - CircularFiringSquad - Wednesday, May 16, 12 @ 12:23 pm:

    “would be crippling to local governments!” declares a statement on the Illinois Municipal League website….perhaps Mr. McCoy et al could buzz Billboard & Co. to suggest the local school property tax and school reserves should be looking more attractive.

  18. - Anonymous - Wednesday, May 16, 12 @ 12:23 pm:

    let me just ask,what ever job you have are hade . what would you do after you have been retired 4 are five years and all asodon they say sorry we lied we know need you to pay.for one it is not fare to lump all state employes into one lump. thar are hundreds of different pensiones and pay scales and benafits. no matter who the gov. is the speker runs the state,every time i go to the store i see a lot of people using the link to by junk and for the most part they look perfily hethey to me. so can i have one.

  19. - Wensicia - Wednesday, May 16, 12 @ 12:28 pm:

    Local governments do not have a say in the TRS, why should they bear the burden of funding it? Already two thirds of our property taxes go to the schools in my high poverty district. I doubt many could afford the needed increases in this tax and the rents that would result.

  20. - Archimedes - Wednesday, May 16, 12 @ 12:29 pm:

    Divide and conquer. Make the municipalities put pressure on school districts to talk about assuming more of the normal cost of the pension - instead of just protesting. This is another way to skin that cat.
    The Normal Cost to the schools goes down every year, anyway, until it is nothing by 2035. At that point, the employee is paying the full Normal Cost of the pensions.
    I think it makes sense to have school districts pay. With the Tax Cap - property tax payer won’t see an increase unless they vote for it.
    Right now everyone in Springfield is throwing a lot of stuff at the wall hoping something might stick.

  21. - wordslinger - Wednesday, May 16, 12 @ 12:41 pm:

    The unnamed poster at 12:23 either is pulling a gag or is someone really trying to make state employees look bad for their own sinister purposes. At least I hope so.

    Still, this is one of the best lines in a long time:

    –for one it is not fare to lump all state employes into one lump.–

    That would make you a Willie Lump-Lump, and no one wants that.

  22. - Inactive - Wednesday, May 16, 12 @ 12:52 pm:

    Seeing as how the only money school districts have to operate is local/property taxes, state funds , “making the school districts pay” just means increasing local taxes, cutting programs, eliminating things like busing, etc. I’d bet the only people talking about salary cuts, staff cuts and program cuts are people who don’t have children still in the system. Friends of ours who supervise student teachers for 2 major universities in the state are seeing less than 1/2 the numbers of student teachers in the program. Wonder why that is………. Young and old are looking for a quick exit. That solves the money problem, but is that what we want?

  23. - Inactive - Wednesday, May 16, 12 @ 1:05 pm:

    Just sayin……………

  24. - lookingforward - Wednesday, May 16, 12 @ 1:05 pm:

    Any ’solutions’ to pension reform will ultimately result in larger class sizes, brought on by less funding available for schools districts to hire and keep highly qualified educators.

  25. - reformer - Wednesday, May 16, 12 @ 1:43 pm:

    While I think school districts should have some skin in the pension liability game, I’m also aware that Illinois already ranks 50th in the percent of state funding provided for K-12 public education.

    As a direct result, IL has one of the widest spending disparities between rich and poor districts in the nation.

    It appears to me these problems would be aggravated by a major shift in pension liability.

  26. - Judgment Day - Wednesday, May 16, 12 @ 1:45 pm:

    YDD, the IML isn’t aligned with any one political party. Having attended more than a few of the different Cook County municipal events, it’s more than clear that if the municipalities are located in a primarily Democratic area, they tend to be Democrats. If a Republican area, then Republicans. If the municipality is pretty evenly split, well the same rules tend to apply to the municipality.

    But one thing they are about is being very dedicated to the needs of their municipality, and their neighboring municipalities.

    And the Speaker’s amendments to HB3637 have certainly caught everyone’s interest. One issue is that the municipalities (with the exception of the City of Chicago) don’t have very much control over their own local school districts.

    If the State of IL is going to strip away the Corporate Personal Property Replacement Tax monies from units of local government so it just goes directly to fund TRS, where’s the hook to make sure that going forward that there will be serious pension reform with TRS?

    Realistically, the TRS pension fund currently has right at 55% of the employees having annual pension benefits of under $50,000 per year. This means that right about 45% of the TRS eligible employees will have annual pension benefits over $50,000 annually (that’s over $4,166.67 per month for the math challenged). That’s a pretty good buck in retirement - much, much better than most of us will ever see.

    After all, the school districts are going to lose revenue in this game no matter what. If it’s only their share of the Corporate Personal Property Replacement Tax, well, that’s actually a better deal than them having to bear 100% of the burden out of their annual property tax collections (options are pay 100% or less than 100%).

    But if the amendments go forward, all the other tax districts lose revenue (now directed to TRS) with no additional say in TRS benefits. So the whole pension shell game continues going forward with no real pension reforms, except to say that (a) the State of IL is off the hook for the money, and (b) TRS now has a ‘guaranteed’ annual income source.

    So, what it really comes down to is “Who can we steal the money from, and still continue with business as usual”.

    Got to give the Speaker credit for this one, though. Talk about finding a way to get everybody to the table.

    As an aside to this, the entire Corporate Personal Property Replacement Tax was very, very controversial back in the day. I remember hearing a long while back that there were a whole lot of questions about the constitutionality of this tax based upon it’s ‘checkered’ history.

    This whole issue is really about a business tax. This could really open up the proverbial ‘can of worms’ with the business community. Is/has the business community getting a good return on their soon-to-be ‘investment’ in TRS?

    Are you really sure you want to have that particular conversation?

  27. - steve schnorf - Wednesday, May 16, 12 @ 1:50 pm:

    JD, re that $4100/month, remember, they do’t get the $1500-$2000/month SS that many others get.

  28. - Sarge - Wednesday, May 16, 12 @ 1:52 pm:

    Here’s the lunacy of this from a municipality’s perspective - State law requires local governments to direct a portion of their CPPRT revenues to the same funds that were receiving pre-CPPRT revenues back in the 1970’s. In some cases those pre-CPPRT revenues were used to underwrite local pension expenses (IMRF and local fire and police pension fund contributions). The Speaker’s proposal, then, requires those cities to give up local pension funding for municipal employees (paid for by CPPRT dollars) so the State can have dollars to pay for its share of downstate teacher pension funding (for a group of employees over which municipalities have no oversight or responsibility). I get “the State giveth and the State can taketh away,” but this makes no sense. It is as Judgment Day states, another pension shell game. In this one, though, municipalities have no ball left under their shell.

  29. - maddem - Wednesday, May 16, 12 @ 1:56 pm:

    Madigan’s proposal is probably unconstitutional. The Constitution says that the tax to replace the personal property tax “shall replace all revenue lost by units of local government and school districts.” I don’t think they can divert it elsewhere.

  30. - Inactive - Wednesday, May 16, 12 @ 2:13 pm:

    Who can we steal from so we can conduct business as usual is exactly what got us into this mess in the first place! Only the stealing has been from the pension funds——DUH? Besides, given no other source of retirement income (how many times does it have to be said—no social security?), no 401K, no bonuses, salaries way behind private sector salaries……………..this is old news but some aren’t getting it apparently.

  31. - Yellow Dog Democrat - Wednesday, May 16, 12 @ 2:43 pm:

    @Judgement Day -

    Look at the state map. Now cover your eye so you can’t see Chicago.

    See all those dots in all the big, rural, mostly Republican areas of the state? Those are Republican IML members.

    The relatively small handful of blobs representing major downstate cities? Those are Democratic IML members.

    When it comes to pension policy, the IML’s main task is to block or weaken any effort by unions to increase benefits for police, fire and AFSCME union members.

    Both the IML’s political alignment and their policy alignment with the GOP is undeniable.

    I agree with you to a point about the Teacher’s Retirement System for downstate and suburban schools being largely outside of the “control” of local GOP municipal officials.

    But I also understand that mayors work closely with school boards and have a heavy amount of “influence.”

    Now’s the time for Republican mayors to realize that they and their GOP friends in the General Assembly have an interest in coming up with a workable Plan B if they don’t like Madigan’s Plan A.

    I recommend expanding the sales tax to include personal services like haircuts, which would could not only generate revenue to solve local pension problems, but increase revenue for municipalities and has a potential ally in the Illinois Retail Merchants Association.

  32. - Nearly Normal - Wednesday, May 16, 12 @ 2:45 pm:

    House Executive Committee meeting is underway now. You can watch/hear on the House of Representatives Live Audio/Video feed here:

  33. - Inactive - Wednesday, May 16, 12 @ 2:46 pm:

    If anyone disputes my statements about earnings, consult your local school district’s state report card. Check out average salary/educational level attained. Consider the cost of real estate/property taxes to be paid in your community or nearby. Surely, no one would suggest that teachers be housed in barrios so that they can serve their communities? There’s alot of information out there……….unfortunately, the only info that ever makes the news is people earning 100K plus (mostly administrators or teachers coaching/sponsoring a handful of sports/activities to help the cause)…….also the only pensions that make the news are ditto the above. There is a reality that many love to ignore to suit their own agendas. There is also a ton of misinformation out there too. Many people think teachers’ health insurance is free in retirement. Not true, as was clarified last week on this blog site. People run with wild rumors, inaccurate facts.

  34. - Nearly Normal - Wednesday, May 16, 12 @ 2:59 pm:

    Well, that was a short Exec. Committee meeting. There was testimony on one bill, SB1034, in regards to FOID cards and then the meeting was adjourned. No discussion of the bill and the Madigan amendments.

  35. - Anonymous - Wednesday, May 16, 12 @ 9:02 pm:

    The theft continues… Past governors and especially legislatures have failed to make the payments for all of the pension systems and now the deficit is so big Mr. Madigan must blackmail local government leaders into agreeing with his plan to “reform” the pensions or lose millions of dollars. Mr. Madigan, as speaker of the house for for most of the past 25+ years, you must take primary responsibility for this mess and should be ashamed to even propose these pension funding and benefit changes. If the CEO of a private company messed with pensions like this, they’d be on their way to jail.

  36. - Anonymous - Thursday, May 17, 12 @ 1:17 am:

    lol word’s 12:41. New state “slogan” for IL:

    “One lump, or two? And we’re not talkin’ about sugar.”

Sorry, comments for this post are now closed.

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