Tribune proposes cost-shift compromise
Monday, Sep 17, 2012 - Posted by Rich Miller
* The Tribune editorial board claims it has researched the proposed pension “cost shift” to local schools and has come to believe that it won’t increase property taxes. A phased-in cost shift coupled with reforms in the current proposal make the plan “affordable” for school districts, the paper claims. It also has what it calls a compromise solution…
We’ve been shopping a compromise solution to some smart Republicans and Democrats, with nobody screaming, “No!” Today we humbly take it public:
Legislators, pass pension reform with the cost shift plus language that would render moot the local distrust of Springfield. How so? By giving local districts and other governments not only the responsibility to fund pensions, but the freedom to negotiate benefits with their employees — just as they negotiate wages. Springfield still could maintain its pension investment pools and make sure local governments pay into them. In rough terms, then, we’re suggesting a model that borrows from, and adds to, protocols under which the Illinois Municipal Retirement Fund successfully operates.
Republicans, the party of grass-roots government, should like this expanded local control. Local districts and other governments should be thrilled to have not just responsibility for, but control over, their compensation packages. The best question we’ve heard: Won’t this create a gap between pensions offered by have and have-not governments? Maybe or maybe not; governments already can tweak pay and other compensation components to fit their needs and resources.
That actually sounds pretty decent to me. You?
* Related…
* Closer Look: Illinois’ credit crunch
* US funds fall out of love with commodities: A brief love affair with commodities is over at the $36bn Illinois Teachers’ Retirement System, one of the biggest public pension funds in America. Four years after hiring managers to make new commodities investments, the pension fund has scrapped the strategy and shuffled money into a portfolio it says “better reflects conditions in the world economy”.
* AFSCME under siege - Union faces unprecedented challenges, even from allies
* Republicans Warn of Shifting Pension Burden to Schools
* Finke: Pension reform? See you in January
* SJ-R Editorial: Next to be reformed: Illinois prisons
* Andy Shaw: End pension scams for clout crowd: Will this solve the state’s giant pension problem? No. But a crackdown sends an important grass-roots message: Governments of all sizes have to stabilize public pensions for the hardworking rank-and-file workers — not the insiders who use power, clout and cunning to game the system.
* Change state Constitution? Voters asked
- Chicago - Monday, Sep 17, 12 @ 9:43 am:
Did Rich actually just seem OK with an idea from Mother Tribune?!
- western illinois - Monday, Sep 17, 12 @ 9:43 am:
Read the”crdit crunch” The only estimate so far is 25-30 million extra…hardly the end of the world we have been warned about.
There is more nonsense about Illinois bad place for business-you mean compared to the one percents fav China where they are vandalizing Japaneese factories and retailers as we speak?
- walkinfool - Monday, Sep 17, 12 @ 9:44 am:
It took the Trib months to look closely and realize that this idea is not so bad after all, and is actually Conservative in its roots — as many of Mike Madigan’s best proposals actually are.
The best responsible Republicans know this is part of a real long-term solution, and they will come around when it loses its appeal as an attack ad piece. The resistance to pension reform, and its eventual approval, will both be bi-partisan.
Nekritz still has the best bill for the long-term, even though it is painful for almost everyone involved.
- Lobo Y Olla - Monday, Sep 17, 12 @ 9:50 am:
Transfer responsibility to local governments? Which ones? Rosemont? Cicero? Bridgeview? I thought the Trib blasted those kinds of powers on last Sunday’s front page. What am I missing?
- Sue - Monday, Sep 17, 12 @ 9:58 am:
Rich- your little TRS blurb on commodities is the bigger story and maybe you can ask them where the June 30 results are- Large Public Pension funds are notorious at buying high and selling low-apparently TRS comes late to a party and then based on results bails out just when commodities are once again exploding thanks to QE3- Can’t wait to see how the recent big move to hedge funds is working- The Stock markets are booming and TRS has recently downsized its allocation to equities and increased the allocation to hedge funds at the very moment hedge fund returns are laggging- if the State wants to improve upon its pension funding- in addition to any reforms it imposes- it will need to better supervise the investment programs or everything else won’t matter
- wordslinger - Monday, Sep 17, 12 @ 10:01 am:
Seems reasonable. It could actually help top teachers as district compete not only with wages but benefit packages.
It’s certainly turned up the heat on GOPers in the GA to get on board something.
- Suburban Resident - Monday, Sep 17, 12 @ 10:02 am:
How so? By giving local districts and other governments not only the responsibility to fund pensions, but the freedom to negotiate benefits with their employees — just as they negotiate wages
____
This sounds like it would lead to the same issues that Wisconsin had with Collective Bargaining.
Also, wouldn’t this approach lead to more consolidation of power and abuse on the local level? People like Roy McCampbell would be responsible for policing themselves.
- geronimo - Monday, Sep 17, 12 @ 10:02 am:
There was/is nothing wrong with the pension plan as it is today. What went wrong was grand theft of pensioners money. How to prevent that in the future?
- Wonderboy - Monday, Sep 17, 12 @ 10:07 am:
Honest question…what happens when the local unit/governing body bargain pension benefits to a point where they don’t meet “safe harbor” exemptions?
- Judgment Day - Monday, Sep 17, 12 @ 10:13 am:
Well, IMRF (the proposed model) is currently 83% funded (actually, 86% funded if using the proposed GASB Statement 67 effective 06.15.2013), but I’m also seeing IMRF non-SLEP employer contribution rates around 11.86% for this next 2012-2013 year. That’s a good chunk of change to have to budget for each year out of local property tax revenues.
I’d be very surprised (happily) if local school districts could move to this environment without having to increase local property taxes. If they could, it likely means that the State of IL has been hideously sloppy in managing the TRS investment portfolio, or else the State is still kicking in some dollar through a different funding mechanism.
I also think you will see the local school districts holding out for more autonomy from the State of IL on any number of operational issues, so to free up more local tax dollars.
Implementation of this proposal will probably have some unforeseen consequences regarding school consolidations (make things far more difficult), and I would really be concerned about how local tax district bankruptcies would play out.
- Fight for Cicero - Monday, Sep 17, 12 @ 10:17 am:
I’d support transferring pension responsibility to Cicero. Then we can see Proft on TV explaining why the school district building he represents is going bankrupt because they can’t soak the state anymore.
Let the bad actors down in their own filth.
- Foxfire - Monday, Sep 17, 12 @ 10:17 am:
It’s a great idea, but does anyone really believe that the state legislature is going to give away the keys to the candy store, particularly for police and fire employees? Right now, they can demonstrate their “support” for these employees by granting pension benefits that the State of IL doesn’t have to pay for. They write the check and the locals cash it.
I don’t see it happening.
- Rich Miller - Monday, Sep 17, 12 @ 10:20 am:
Foxfire, you misread it. Try again, please. Slowly, this time.
- Anonymous - Monday, Sep 17, 12 @ 10:23 am:
There is already a great disparity in salaries between the wealthy school districts and poorer ones. At least up until now, the pension system was equal. This proposal would exacerbate the inequality.
- areopagetica - Monday, Sep 17, 12 @ 10:35 am:
The Tribune’s “analysis” had more blanks than Ryan’s budget “plan.” Passing the buck to the locals has no effect unless accompanied by broad authority to make the radical changes necessary. Springfield won’t let them do that, and instead loads the locals with unending, unfunded mandates. The real numbers are insurmountable, and everybody remains in denial about that.
- nieva - Monday, Sep 17, 12 @ 10:48 am:
A small population county like Gallatin would not be able to make this change without a tax increase. That being said we paid for most of our new county K-12 while the state and feds were pouring money into the Chicago system. When the school was paid off the board wanted to keep the tax increase but the voters said no.I also remember the funding cost to the county for the local office holders to get IMRF to its great financal condition.There was hardly enough left to gravel the roads.
- TJ - Monday, Sep 17, 12 @ 10:51 am:
Seems like an idea that state legislators would absolutely adore. They’d have essentially none of the responsibility and be able to pass off on any pension funding snafus on the locals that were in charge of putting funds into it, and yet they’d still have access to said funds when push comes to shove.
It’s like the cuts to government programs from the last coule years. They just tossed the “small” pile of money meant to fund everything at Quinn, said, “here, you do it,” and then were able to point and complain about the cuts that they gave Quinn the responisibility and ability to make.
- Ahoy! - Monday, Sep 17, 12 @ 10:59 am:
It sounds decent; I think the only way the cost shift works is if you allow the employer to control the pension benefits (retirement age, COLA, Etc.). Otherwise you re-create the police and fire pension issue that is crippling our cities. I do wonder if the State giving up the benefit decisions starts a constitutional question?
If the State wants to keep control of the benefits they should do a 50/50 split, that way both the employer and the State has skin in the game.
- Ahoy! - Monday, Sep 17, 12 @ 11:05 am:
–Honest question…what happens when the local unit/governing body bargain pension benefits to a point where they don’t meet “safe harbor” exemptions?–
Great question by wonder boy, I would assume that the employer and the employee would have to assume paying social security taxes, but I’m sure there is more to it. So we have safe harbor (which the GA still has to fix the Tier 2 pensions) and the constitutionality issue regarding pensions.
- Sue - Monday, Sep 17, 12 @ 11:43 am:
This proposal is useless absent the abolition of the statutory framework creating the pension systems- how can you transfer control of the pension programs to the local school districts and not have impairment issues as soon as they start playing around with the benfits for existing employees? This is a state problem requiring a state fix
- Hoping for Rational Thought - Monday, Sep 17, 12 @ 11:53 am:
I’m on a small district school board. My concern all along with the cost shift to districts has been putting districts on the hook for costs when (not if) State decides in the future to win teachers’ votes by passing pension sweeteners and the district gets stuck with the bill. Our district has avoided giving these huge (now capped at 6%) raises in the last years of a teacher’s service to give them a better pension. We’ve taken the hard stand but get cast in the same light as districts who have passed the buck on to the State.
As a small district and someone who supports local control I am concerned how this may take us out of competition for the best teachers. We already face compete on uneven ground with salaries and health benefits so then add pension benefits…I just don’t know where we would be.
Also we have struggled with the idea of consolidation. Ultimately it is the future for our district but it has been hard to accomplish. Aligning two district’s salary schedules is trouble anyway, can you imagine what it would take to align different pension plans? Ugh it makes my head hurt just thinking of it.
I’m ok shifting to districts if the benefits are locked at a specified level and if in the future the State increased benefits then the State should cover those costs. As part of that shift it would end the practice of districts paying the teachers’ pension payment so everyone truly has skin in the game.
- Foxfire - Monday, Sep 17, 12 @ 12:17 pm:
Rich - I’m not sure I misread it. The proposal is for the state to forfeit it’s ability to set pension benefit levels in exchange for locals assuming the cost of the pension benefits that are granted. There are a lot of local elected officials that would agree to that. I just don’t know why the state legislators (politically speaking) would agree to it. They lose big time.
- John Galt - Monday, Sep 17, 12 @ 1:17 pm:
I’ve gotta say–
I’m a conservative suburbanite, and I’d actuall be on board w/ the shifting of the pension costs as described by the Tribune. That assumes a few caveats:
1) Along w/ the responsibilty to pay the pensions, the local units also have full control in terms of contract negotiations, etc. If they pay the full freight, they ought to be master of their domain as well.
2) A gradual phase-in.
3) A property tax cap, at least temporary in nature, that extends a few years beyond the year in which the pensions are shifted 100% to the local units. Local school boards, etc. will gripe about the added costs and scream for higher property taxes. I want them to first adjust to the new reality for a few years without increasing property taxes. It can & should be done without boosting taxes. Then, after successfully doing it for 2-4 years after everything has shifted 100%, let them try to make the argument that it’s impossible to do without more money.
In the end, the reason it’s a conservative idea is it vests more decisions at the most local level. By internalizing the costs of the packages 100% at the local level, it will force the local school boards to face the consequences of their decisions rather than outsourcing the consequences to other levels of government.
- RMD - Monday, Sep 17, 12 @ 1:58 pm:
It would be better if district voters would have to approve the teachers contract and the district budget for final approval.
- Yellow Dog Democrat - Monday, Sep 17, 12 @ 2:17 pm:
I think its a great idea and will result in most teachers getting better benefits than they currently have.
As for the “inequality” argument, I’ve always understood that pension reform would result in a significant infusion of cash into school funding. Any inequalities can and should be addressed by the school funding formula.
- reformer - Monday, Sep 17, 12 @ 3:40 pm:
ANON
Currently, the affluent school districts paying six-figure salaries to PE and driver ed teachers passes on the resulting pension liability to state taxpayers, most of whom live in districts that pay teachers a whole lot less than Lake Forest. It seems to me it’s more equitable to make Lake Forest mansion owners pay for their teachers’ pensions.
- Anonymous - Monday, Sep 17, 12 @ 4:05 pm:
Ok I want to get this right, many of you people believe the cure for the Pension system is an idea put forth by The Tribune editorial board ? Why do we need any one to be part of the Ga ? Lets just let the Tribune run the state ! Really ?
- geronimo - Monday, Sep 17, 12 @ 5:48 pm:
I don’t think many people consider the Tribune a quality professional newspaper anymore. It screams sensationalistic headlines the likes of the Enquirer. What ever happened to reporting factual occurances without (God forbid) editorializing on every single thing? Maybe their drop in readership bears me out. As a former subscriber I often wondered what I was reading because what I was reading was incorrect or at least seriously slanted against the factual information I knew and could prove to be true. God help the people who subscribe to this as the gospel. Has the intelligence of readers gone down that much?
- Liberty_First - Monday, Sep 17, 12 @ 6:33 pm:
Each school district manages pension benefits? I can’t think of a more unworkable or impractical change. This seems like the worst pension “solution” yet.
- thechampaignlife - Monday, Sep 17, 12 @ 8:28 pm:
It’s an idea worth considering. I’m not sure how it’ll measure up constitutionally, though. I don’t think the state can get the pension debt off its books by shifting the costs since the state still ultimately is on the hook for the money. The locals aren’t going to be able to change benefit levels via collective bargaining so it’ll still be a person-by-person agreement. I suppose the locals could write the contract to say those that don’t agree to pension changes get 1/2 the salary of those that agree.