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Translating the Tribune

Wednesday, May 30, 2012

* The Chicago Tribune editorial board is not impressed with House Speaker Michael Madigan’s pension plan

Madigan’s plan, which incorporates some but not enough of Quinn’s plan, keeps the reduced COLA. But it doesn’t ask employees to contribute more or raise the retirement age. Those are huge pluses for the unions, which on Tuesday were opposing Madigan’s plan through what struck us as crocodile tears. More crucial to this discussion, eliminating those demands depresses the state’s predictable savings: Quinn’s proposal to exact higher contributions from workers and reduce the number of years they will collect pensions creates definite, knowable savings for the pension system.

Translation: The unions didn’t cry hard enough so workers should definitely be forced to endure more pain.

* The Trib also contradicted itself

Madigan’s plan also creates a big risk for property taxpayers statewide. We share his belief that school boards irresponsibly have sweetened educators’ pensions and blithely passed along those huge costs to Springfield. But the gradual shift of all educator pension costs from state government to school districts is more central to Madigan’s plan than it is to Quinn’s original proposal. As a result, the districts essentially would have three options: They could slash expenditures (not likely), they could force teachers to forgo raises or otherwise chip in (more likely), or they could do what school districts historically have done in tight times, namely, raise property taxes (most likely by far).

Translation: We agree that school districts should be more responsible for jacking up pension costs, but a gradual phase-in over several years will cause property taxes to spiral upward, even with tax caps.

From the Daily Herald

The reform would require school districts to pay an additional 1 percent of their payrolls into the pension system that year and each year after for the next six years. After that, the annual increase would be 0.5 percent for an undetermined number of years.

School officials say it’s premature to say what the consequences of this added cost would be on property taxes, class sizes and teacher contract negotiations.

But there will be consequences, District 300’s Chief Financial Officer Cheryl Crates said.

“The 1 percent increase will cost the district about $800,000 in the first year, alone,” she said, and it will compound after that.

* There is, however, a good reason to worry about the Madigan proposal. From the Senate Republicans…

Schools, universities, colleges are also on the hook for increases in unfunded liability. Those increases from market fluctuation, rate of return changes, investment decisions etc — are not capped or phased. We believe the costs will be more than the normal costs.

Fair enough.

- Posted by Rich Miller        

14 Comments
  1. - Louie - Wednesday, May 30, 12 @ 10:03 am:

    Quinn, Madigan, and Cullerton continue to get grades of c- for effort and d- for solving the financial mess. People working in private enterprise have endured for more in cuts in pensions and health benefits and in some cases lost both. No sypmpathy here.


  2. - CircularFiringSquad - Wednesday, May 30, 12 @ 10:05 am:

    Bankrupt Tribbies continue to isolate themselves …Thank goodness no one listens to their babble anymore. Billboards failure to object to cost shift at U’s and Community Colleges fully explains just how shallow his rant really is.
    Finally some might say Bost throws like a girl, but we know girls and he doesn’t even make it to that level.
    Where is Bill Black when we need him?
    Fire,Aim,Ready!


  3. - Allen Skillicorn - Wednesday, May 30, 12 @ 10:15 am:

    Most school districts already raise property taxes by the maximum allowed under PTELL. This includes Cheryl Crates’ D300.


  4. - soccermom - Wednesday, May 30, 12 @ 10:26 am:

    Hey –when these school districts were handing out huge end-of-career raises to jack up their administrators’ already-bloated pensions, did any of those school board members stand up and say “This is wrong. This puts taxpayers statewide on the hook for our selfish choices.” Um, not to my recollection. So kwitcherbellyakin now.


  5. - reformer - Wednesday, May 30, 12 @ 11:14 am:

    School districts in the Chicago area operate under PTELL, the tax cap. Unless the legislature lifts that cap, then school districts may not jack up their levies beyond CPI plus new growth without passing a referendum.


  6. - Anonymous - Wednesday, May 30, 12 @ 11:42 am:

    Local governments under imrf are already on the hook for potential unfunded liabilities. I think we either make school districts responsible for pension costs or make the state responsible for payments to imrf. Also school employees that are not teachers, ie janitors are members of imrf, meaning they are already on the hook for the unfunded liabilities for those employees.


  7. - Cincinnatus - Wednesday, May 30, 12 @ 11:57 am:

    Here again we see a problem with the pension structure, and its unintended, or perhaps intended, lifting of the responsibility of local school boards to control costs. Perhaps a method can be derived where only the maximum amount of pension funded by the state is that of an average entry level teacher. Any costs above that are the responsibility of the hiring district. Better yet would be to place retirement contributions into a 401k-type program attached to the teacher who can then will the wealth to their heirs and survivors.


  8. - Liberty_First - Wednesday, May 30, 12 @ 12:27 pm:

    Cincinnatus doesn’t seem to understand the state hasn’t paid enough funding to make contributions to 401k style plans. In fact the proposed cash management plan would end the current SURS 401K plan ( yes there is one). A cash management plan is nothing more than the old money purchase formula with reduced rates ( which they could reduce now).

    The state has passed laws requiring additional contributions for pension bumps. That could be increased.

    The agenda here is take away the COLA instead of contributing the money and shifting the pensions to the local schools so the state is no longer responsible for anything.

    We certainly are not getting our money’s worth from the state legislature.


  9. - Cincinnatus - Wednesday, May 30, 12 @ 12:42 pm:

    Liberty,

    I indeed understand what I am saying. 401k type programs have several benefits, among which we can count fiscal discipline to state budgets since the Illinois contribution is mandated BY FEDERAL LAW. No more sweeps, no more “re-programming”, no broken promises, no gauranteed returns. Now we have a baseline for budgeting.

    A clearer picture of whether spending cuts, tax increases or the combination of the two becomes evident, to the governor, the legislature, and the citizen. I also realize that there is a slight increased initial cost to state to transition from fixed benefit to fixed contribution. Employees benefit because the account becomes personal wealth that they can dispose of as they see fit.


  10. - Chicago Cynic - Wednesday, May 30, 12 @ 2:34 pm:

    Chicago Tribune Edit Board contradicts itself? What a shock! They also don’t read their own news pages but what else is new.


  11. - reformer - Wednesday, May 30, 12 @ 3:41 pm:

    CINCI
    Four out of five state workers are not covered by Social Security. If you eliminate their pensions, then the state would have to start paying into Social Security. When you add that 6.5% to the 401K contribution, you’re exceeding the current normal contribution to the pension.


  12. - Cincinnatus - Wednesday, May 30, 12 @ 3:52 pm:

    reformer,

    Take 20 years to transition the program, and I know that the costs are higher, as I say in my post.


  13. - Judgment Day - Wednesday, May 30, 12 @ 4:58 pm:

    “School districts in the Chicago area operate under PTELL, the tax cap. Unless the legislature lifts that cap, then school districts may not jack up their levies beyond CPI plus new growth without passing a referendum.”

    Reformer:

    First off, a tax district can submit tax levies for any amount they want. It’s not levies that are controlled by PTELL, it’s extensions.

    All school districts located both in Cook and in all the collars (Lake, McHenry, DuPage, Kane, and Will) are all under PTELL. Also any overlap school districts between the collar counties and Boone, DeKalb, Kendall, and Kankakee are also capped. Along with a lot of other school districts.

    The problem is that under tax cap, a ‘capped’ district always get the highest amount extended (for ‘capped’ funds only) from the prior 3 years.

    So with assessments decreasing, tax rates are increasing.

    The real issue is that you are going to see the vast bulk of the amount a school district can extend yearly from local property taxes moved into pension funding, and out of operations.

    In effect, the school district operations are going to be ‘hollowed out’ because there won’t be any money available for operations.

    Few ideas as to where this will go:
    1) Massive numbers of taxpayer referendums being put on the ballots. Few are likely to pass.
    2) A substantial increase on the number of School districts on the so-called ‘watch list’ for financial instability (that will be an understatement).
    3) School district consolidations will be the preferred route, but that’s not likely as it takes too long, and consolidation without serious cost controls means that the newly consolidated school districts are just bigger, not stronger.
    4) School districts will start to file for bankruptcy (Chapter 9; see http://www.uscourts.gov/federalcourts/bankruptcy/bankruptcybasics/Chapter9.aspx for details).
    5) Under federal bankruptcy, the school district pension liabilities CANNOT be handed off to the PBGC (Pension Benefit Guarantee Corporation).
    From the PBGC website:
    “PBGC insures the pension plans of more than 23,000 companies. We don’t insure the pensions of government employees (federal, state, or local).”
    6) Which means that individuals for the specific school district either eligible, retiring, or already retired under TRS will most likely incur a ‘cram down’ of their potential/established pension benefits. It’s going to be lawsuit heaven!
    7) One interesting side effect will be that this will inspire even more of a push to make further ‘adjustments’ to local property taxes. Can’t make the changes to assessments, because they are already decreasing. I expect to see adjustments made for senior citizens to somehow reduce the taxes they are paying to school districts (means tested, with multiple exceptions, of course). Time to make things even more complex.

    I wonder what’s going to happen when TRS says that a school district has to make this much in contributions, period because that’s what the established pension benefit package calls for, and the federal bankruptcy judge says “no way”. You are getting this much, and that’s all there is.

    Does TRS then just ‘adjust’ all the teacher’s retirement benefits for just that school district?

    Oh, the lawsuits…. This is going to be fun (Not)…


  14. - Yellow Dog Democrat - Wednesday, May 30, 12 @ 10:23 pm:

    It looks to me like the Tribune editorial board is trying to provide political cover for Tom Cross.

    Because, it turns out, its Republicans who can’t say “No’ to the teacher’s unions.

    Oh, the irony.


Sorry, comments for this post are now closed.


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