Is S&P really that clueless? It appears so
Thursday, Jun 7, 2012 - Posted by Rich Miller
* A top Moody’s analyst is fine with the progress Illinois has made on the budget and pensions so far this year…
Moody’s analyst Edward “Ted” Hampton praised the session’s achievements and said the agency at the moment remains comfortable with the state’s current rating level, though pensions remain a central concern. “Obviously this session yielded some progress on some fronts and not on others,” he said.
* But an S&P analyst is more circumspect…
[S&P analyst Robin Prunty] said in an interview that while the state retains some breathing room to act, she is concerned over the difficulty of achieving the three-fifths majority needed to approve legislation in a special session: “We are watching to see if there is credible action but it’s hard to know if they will come to an agreement.”
I pointed out S&P’s misreading of the Illinois Constitution to subscribers today, but since the analyst repeated the assertion made in the firm’s original report, I figured I’d pile on some more. Here we go…
* From the Illinois Constitution…
SECTION 10. EFFECTIVE DATE OF LAWS
The General Assembly shall provide by law for a uniform effective date for laws passed prior to June 1 of a calendar year. The General Assembly may provide for a different effective date in any law passed prior to June 1. A bill passed after May 31 shall not become effective prior to June 1 of the next calendar year unless the General Assembly by the vote of three-fifths of the members elected to each house provides for an earlier effective date. (Source: Amendment adopted at general election November 8, 1994.) [Emphasis added.]
So, yes, they could pass a pension reform bill with an immediate effective date and try in vain to round up 71 House votes and 36 Senate votes. That would be hard. Maybe impossible.
Far more likely, though, is that any pension reform bill (if there is one) will have a delayed effective date, requiring only simple majorities.
This ain’t rocket science.
* Related…
* Will Walker election affect pension debate?: While the Wisconsin vote Tuesday is seen by some as a jumping-off point for GOP leaders in states like Michigan, Minnesota and Missouri to push for anti-union measures, Illinois public employee unions remain part of the discussions that are focused entirely on benefit costs. “I have a difficult time drawing a lot of parallels between them,” said Illinois Education Association director of government relations Jim Reed.
* State pension talks stalled: “My position on pension reform is that we have to eliminate the free lunch for local school districts,” Madigan said after emerging from the meeting. But Senate Republican Leader Christine Radogno, of Lemont, said the proposal amounts to a “poison pill” designed to hold up action on other pension reforms. She noted the idea has little support among suburban and Downstate lawmakers because it could force property taxes to go up as schools seek to cover the added expenses. Radogno said the cost-shift idea should be separated from other pension proposals that do have support.
* Officials to meet again on pension solutions: Illinois officials will spend the next two weeks gathering financial information from the state’s more than 800 school districts to get a better idea of how shifting pension costs away from the state would affect those districts… Quinn said the next two weeks will be spent collecting financial data from school districts, including “what their reserves are, what their current contracts are, what exactly they have right now as to their costs.” “The more facts we could gather regarding what the impact would be on school districts, it would be very important facts we should know,” Quinn said.
- CircularFiringSquad - Thursday, Jun 7, 12 @ 11:25 am:
Or….dear Capt Fax the legis could pass a summer time bill with 30 & 60 — effective 6-1-13 and return in early January, repass 30 & 60 and make effective immediately…probably in time to impact FY 13 pension contributions.
Why oh why does anyone heed the rating agencies when the “experts” make so many dumb comments, miss the credit swap scandal and somehow think Greek debt can impact American credit markets.
- Sue - Thursday, Jun 7, 12 @ 11:30 am:
Given what has occurred in WI and now the elections in California where the taxpayers have had some input on municipal benefits- why not get a referendum started in Illinois and give the taxpayers some ability to direct the legislature(if only by voicing opposition) to their refusal to take on the pension problem and do something meaningful- it is hard to believe that we in Illinois are outliers and still think the benefits paid to the public sector are reasonable- Certainly the President of the Chicago Teachers Union will find out where public sentiment is as she seeks support for her 29 percent(not 30 percent) contract increases
- steve schnorf - Thursday, Jun 7, 12 @ 11:33 am:
I’ve had a hard time understanding which school districts my Rs are protecting from a deal that I understand has been signed off on by the the school boards and the school superintendents associations
- jerry 101 - Thursday, Jun 7, 12 @ 11:35 am:
S&P analysts can’t understand the rather plain wording of the Illinois Constitution section cited by Rich.
Yet, they get to determine the credit-worthiness of the State (and so many other entities).
Don’t let facts get in the way of your overriding desire to reduce Illinois debt to junk grade, S&P!!
- Bill White - Thursday, Jun 7, 12 @ 11:37 am:
Sue, regarding your call for a referendum, isn’t every member of the Illinois General Assembly up for election in November 2012?
How much more of a referendum do you want?
- Anonymous - Thursday, Jun 7, 12 @ 12:00 pm:
Does anyone else see the irony of a “credit rating agency” improving our state’s credit rating based on how well they can screw the people they currently owe money to?
- Liberty_First - Thursday, Jun 7, 12 @ 12:04 pm:
If you read the entire article at the link, the last part is telling: “While the COLA changes would make a significant dent in future payments, Ciccarone said an infusion of cash is still needed. Quinn’s original proposal called for additional employee contributions.” There are not really that many choices.
- wordslinger - Thursday, Jun 7, 12 @ 12:16 pm:
I don’t buy the poison pill argument. They’re taking a lot of heat from constituents for what is being argued is a bad-faith effort.
- Demoralized - Thursday, Jun 7, 12 @ 12:19 pm:
Sue:
Take away my benefits. Fine. But you better make up for it with a big increase in salary. I gave up salary for the benefits. You can’t screw me on both ends. I’m tired of the public whining about public sector workers. Bite me.
- Sue - Thursday, Jun 7, 12 @ 12:26 pm:
Steve Schorf-maybe someone needs to better explain what exactly the local school districts will be on the hook for- I am not aware that anyone has offered much of an explanation- Does Madigan propose that past underfunding obligations be transferred or only future contributions for future normal cost obligations- it would help if someone educated the public- it would also go down better if the transfer was part of an aggressive reform of the cost structure in terms of COLA and perhaps better protections on the final year games the districts now play with the teachers and the administrators
- Shemp - Thursday, Jun 7, 12 @ 12:39 pm:
Cost shifts aren’t savings nor are they a reform. I’ve written many times, if the State allows locals to bargain and set pension benefits and plans, then feel free to talk about passing the costs down. However, don’t set the benefit in one place then tell someone else to figure out how to fund it.
- Rich Miller - Thursday, Jun 7, 12 @ 12:43 pm:
===However, don’t set the benefit in one place then tell someone else to figure out how to fund it. ===
Sorry to inform you that you live in a federalist society. Power flows downward from the state to local governments.
- Kerfuffle - Thursday, Jun 7, 12 @ 1:14 pm:
Very few private sector employers have defined benefit plans anymore. It appears they have become archaic. Freeze the current plans where they are now and adopt defined contribution plans going forward –just like the private sector has done. You still have to deal with the unfunded liability and I grant you that remains a big problem but at least it will not continue to grow exponentially. Divvy up that problem between the state and local school districts 50% each over the next thirty to forty years until it goes away. Is it fair? No! But then who said life was going to be.
- Responsa - Thursday, Jun 7, 12 @ 1:18 pm:
==You can’t screw me on both ends. I’m tired of the public whining about public sector workers. Bite me.==
Your pain is real and understandable, but your approach is not helping to solve the problem. Anyone who has ever lost a job, or lost a child, or has been diagnosed with a dread disease, or suffered a painful divorce knows that facts on the ground can change in a nanosecond– promises can be broken– dreams can be shattered–plans can be ruined. Facing and dealing and adapting and persevering while working to restore a semblance of normalcy are what people have to do in these situations in order to survive and thrive. Blaming others or claiming “It’s not fair” or, “You promised!” or “I didn’t deserve this” can be temporary salves, but in the long term do not change the facts on the ground which must still be realistically dealt with.
- Kerfuffle - Thursday, Jun 7, 12 @ 1:18 pm:
Oh yeah, and yes the S&P is clueless. They seem more interested lately in being news and flexing their muscles than being part of the solution - but then again their threats do seem to matter.
- steve schnorf - Thursday, Jun 7, 12 @ 1:25 pm:
Sue, future normal cost, phased in over 12-17 years, no cost first year, 1/2% of payroll each of the next 10 years, etc. I hear the colleges and community colleges agreed weeks ago, and the school boards and superintendents before adjournment also, ergo my question: who are we stopping this from happening to who haven’t already agreed to it?
Ker, what you say is true, bur very misleading. That data reflect the millions of small and medium size businesses that make up most of America. But if you ask the question as it applies to employers similar to the State of Illinois (very large employers, 10,00 or more employees, heavily unionized) defined benefit programs were and are the norm. Joe Bob’s bait shop never had a defined benefit program, and ACME Machine Tools, if they had one, has probably replaced it with a 401k or SEP, but those are apples and oranges.
- Jechislo - Thursday, Jun 7, 12 @ 1:53 pm:
I think we need more information; true information. Not piecemeal information 6 hours before the legislature votes on a bill that will affect over 120,000 peoples lives. For crying out loud, that’s how we got the ACA and look what’s happening to it. There’s a better than even chance it will be overturned by the SCOTUS this month. Then what? Start all over with health care? Yup.
This is what it appears both sides of the aisle did with pensions. I don’t think anyone believes any of the numbers anymore. I think the unfunded liability of $80+ million is wrong, but I can’t prove it. I can’t prove it is right either.
Flood everyone with information and determine what dollar amount is needed to fix the problem in the near and far term. Everyone I’ve talked to is willing to sacrifice something. We all know that the status quo is unsustainable. Just don’t try to take a disproportionate share from one group.
I’m waiting for accurate information please.
- titan - Thursday, Jun 7, 12 @ 2:15 pm:
Is the situation (bythe reckoning of the rating groups) so dire that waiting until June 1 of 2013 doesn’t cut it? If that is theri assessment, then no acceptable solution is available without the supermajority.
That would be not cluelessness, but not giving an explanation of an alternative that they’ve already deemed inadequate.
- Wensicia - Thursday, Jun 7, 12 @ 2:19 pm:
“My position on pension reform is that we have to eliminate the free lunch for local school districts,”
What would Madigan call the state’s ignoring of its pension obligation for decades? Free breakfast?
- Palos Park Bob - Thursday, Jun 7, 12 @ 2:25 pm:
What I’d like to know is how much cost would be shifted to local schools if they were made to pay the full costs of early retirement packages, pension contributions on salaries over $80K per year (nine months?), “spiking” costs to the penions program, and “inflators” like including “sick” days into the pension contribution plan.
These are things local districts can control, and perhaps should be responsible to fund resulting pension obligations.
I also wonder how much could be saved by eliminating health insurance benefits for all “retirees” eligible for health insurance at their new employers, and eliminating COLAs for “retirees” working for government (or asa government consultants) after retirement or receiving multiple public pensions.
Repairing these abuses may not solve the whole problem, but they’re a heck of a lot fairer than hitting some poor 75 year old public retiree getting a $36K pension with loss of health care help of a reasonable COLA.
- Rich Miller - Thursday, Jun 7, 12 @ 2:33 pm:
===Is the situation (bythe reckoning of the rating groups) so dire that waiting until June 1 of 2013 doesn’t cut it?===
No. As long as it gets done, a delayed implementation is not that big of a deal. This is a longterm problem.
- Liberty_First - Thursday, Jun 7, 12 @ 2:39 pm:
Hey Responsa, I had to break up a knife fight when I taught high school. Does that meet your standard of pain for a teacher?
- Gov't worker - Thursday, Jun 7, 12 @ 2:50 pm:
I think it’s high time we should have a shift. Let’s demonize the greedy lazy slacking private sector workers. They hardly work and just whine whine whine like dogs in the manger whenever anyone else gets an earned and paid for benefit. Why don’t we raid their 401(k) accounts to pay off our government debt? If you can steal my money, I should be able to steal yours. And just you shut up, crybaby. Bad things happen to other people too! And why don’t we impose mandatory involuntary servitude so they can perform all of those government jobs? They can collect the garbage, teach the children, guard the jails, perform the autopsies and all of the other cushy jobs in their spare time.
- Anonymous - Thursday, Jun 7, 12 @ 2:51 pm:
“Very few private sector employers have defined benefit plans anymore.”
So if most private sector employers tell their employees to jump off a bridge, should the state do it too?
- Responsa - Thursday, Jun 7, 12 @ 2:53 pm:
I’m sorry, Liberty, I may be unusually dense this afternoon but I’m not registering how your question about a knife fight “standard” relates to my earlier comment about needing to solve the long term pension situation.
- Yellow Dog Democrat - Thursday, Jun 7, 12 @ 2:57 pm:
@Schnorf -
They aren’t protecting ANY school districts.
Cross is siding with extreme think tankers who:
1) Want to see workers squeezed even further;
2) Don’t want Democrats to get credit for solving the pension problem.
The argument that school districts in Tom Cross’ district will raise property taxes assumes that the school boards in Tom Cross’ district:
1) Don’t have any other options;
2) Don’t listen to their voters.
If it’ll make them happy, Madigan and Cullerton should guarantee that any funds saved by reducing the cost-shifting from local school districts to state taxpayers will be matched dollar-for-dollar by an increase in K-12 funding of the GSA.
- Liberty_First - Thursday, Jun 7, 12 @ 3:04 pm:
Responda, Your comment basically amounted to screw the teachers, everyone has to put up with a little pain so I thought I would share the pain I have already put up with as a teacher.
- Anonymous - Thursday, Jun 7, 12 @ 3:07 pm:
Responsa
Everyone should have a little bit of cancer by your reckoning.
- Rod - Thursday, Jun 7, 12 @ 3:22 pm:
The Speaker’s cost shift proposal was best explained at the May 29th House Personnel and Pensions Committee meeting. I thought Rep Biss’s comments at this hearing were helpful. I believe the hearing is still on the Blueroom site if you are a subscriber.
The actual property tax issue will be different for each school district and it will also depend on any reductions these school districts might make to free up money to pay these pensions as their responsibility increases over a long period of time.
- mark walker - Thursday, Jun 7, 12 @ 3:25 pm:
I think it’s even simpler politically. GOP candidates could simply go back to their districts and tell voters “See, Democrats raised your income tax, and now they want to raise your property taxes too. We have to stop them.”
They wouldn’t have to prove it, time it, quantify it, or explain it beyond a general statement about “shifting costs to your pocketbook.” Simplification will sell, especally when taxes might be involved.
The question is how many will step up and do the responsible thing, and how many will be attracted to the easiest path to stay in office. I am betting most legislators will be responsible.
- Steamer - Thursday, Jun 7, 12 @ 3:26 pm:
Shared sacrifice? Everyone can feel pain of our GA’s ineptness !!
- otownie - Thursday, Jun 7, 12 @ 3:42 pm:
Gov’t worker - I think you’re on to something.
- Archimedes - Thursday, Jun 7, 12 @ 3:48 pm:
A few thoughts. The COGFA report, Table 5, lists the causes in the increase in unfunded liability for TRS from 1995 to 2011 - it increased from $11.6 billion to $32.2 billion. “Salary increases” caused $205 million or 0.6% of the increase. At first blush - it doesn’t seem that school districts giving out raises has made things worse over the last 16 years - despite the headline news.
As far as schools (and univesities) taking on the employer Normal Cost. At 1% per year, it will be about 2019 or so before it is fully absorbed - relieving the State of about $1 billion.
- Sue - Thursday, Jun 7, 12 @ 4:04 pm:
Rod- you just identified the problem in terms of other cost cuts- the entire State financial system is being forced to divert money from critically important programs in order to pay the pension costs and health care benefits demanded by the public sector work force- I for one don’t see the benefit of paying more and more taxes in order to fund an overly rich program where there is no effort being made to curtail costs in a meaningful way- so now you are suggesting that the school districts can fire their teachers or layoff other personnel in order to make what will be ever increasing pension donations- makes a lot of sense
- RNUG - Thursday, Jun 7, 12 @ 5:17 pm:
Sue,
Normal pension costs are affordable; they are a small part of the payment. It’s that unfunded liability (from the State not paying in over the past 30 plus years) that is driving the increasing pension costs.
- Charlie Wheeler - Thursday, Jun 7, 12 @ 5:48 pm:
–the entire State financial system is being forced to divert money from critically important programs in order to pay the pension costs and health care benefits demanded by the public sector work force–
Perhaps another perspective might be,
“For decades the state diverted money needed to cover the future pension costs and health care benefits promised to the public sector work force, in order to spend more on critically important programs (e.g., education, health care, human services, etc.) than the state’s existing revenue structure could support.”
- Anonymous - Thursday, Jun 7, 12 @ 7:45 pm:
To Wheeler 5:48
Very well stated
- RNUG - Thursday, Jun 7, 12 @ 8:54 pm:
Wheeler,
Very good rephrasing … and it accurately reflects the truth.
- Michelle Flaherty - Thursday, Jun 7, 12 @ 9:39 pm:
If people had only listened to and read Schnorf and Wheeler the last 5 to 50 years we wouldn’t have to waste our time scrolling through the “what?! pension reform?! you mean my benefits?! How dare they?!” commentary.
Big picture people.
These will be the same whiners who, if pension reform doesn’t pass, won’t be able to figure out why a boatload of state jobs and programs evaporate next year in order to cover the annually soaring pension payment.
- PublicServant - Friday, Jun 8, 12 @ 6:42 am:
Big Picture Michele.
Perhaps if right wingers like you had only listened to and read Schnorf and Wheeler the last 5 to 50 years, we wouldn’t have to waste our time with the right wing whiners who normally cloak themselves in the Constitution, sovreign state’s rights (including the inability to declare bankruptcy), and the rule of law (i.e. Contract Law), conveniently line up behind unconstitutional solutions when it suits their ideological viewpoint. Pay your bills now, or pay your much higher bills later.
- PublicServant - Friday, Jun 8, 12 @ 7:52 am:
And dump the unsustainable pension ramp law, whose backloaded payments are the real cause of the strain on the state’s budget, and not pension costs. You now are trying to hoodwink the public into believing that rising pension costs are to blame when it’s really just the ridiculous payment structure of the pension ramp. Stop lying.
- the Cardinal - Friday, Jun 8, 12 @ 8:20 am:
A shift of the long agreed to pension sharing will make districts dump some teachers. Eliminate the golden buyouts and final escalators that add 40% the last three years as they retire. That is what the State should be going after. What other constitutionally mandated education funding does the state provide anyway? The foundation $5700 per student a year only goes to poor districts.
Suburban districts probably only average $1500-2500 per kid. Most of the rank and file in springpatch don’t even know that.
- PublicServant - Friday, Jun 8, 12 @ 8:35 am:
Chicago taxpayers pay for their teacher’s pensions. Suburban and Downstate districts should pay for theirs.