* Alicia Munnell, the director of the Center for Retirement Research at Boston College, has written a new book called “State and Local Pensions: What Now?” Peter Orszag at Bloomberg takes a look…
Illinois, Kentucky and Pennsylvania face enormous gaps, while Delaware, Florida, North Carolina and Tennessee have managed their pension plans relatively well.
Why were some [pension] plans so badly underfunded and others not? Munnell’s answer is the biggest surprise in her analysis. She argues that neither the artificially high discount rate nor unions can explain the variation. As she concludes, “The poorly funded plans did not come close to surmounting the lower hurdle associated with a high discount rate; raising the hurdle is unlikely to have improved their behavior. And union strength simply did not show up as a statistically significant factor in any of the empirical analysis.”
The worst-funded plans were not especially generous in their benefits, Munnell found, which is consistent with her argument that union strength isn’t what matters. These plans, though, did tend to share two characteristics: They were disproportionately teachers’ plans, and they used a funding method (called the projected unit credit cost method) that is less stringent than those used by other plans.
The states with huge funding gaps have “behaved badly,” Munnell concludes. “They have either not made the required contributions or used inaccurate assumptions so that their contribution requirements are not meaningful.” She added, “Fiscal discipline simply appeared not to be part of the state’s culture.” [Emphasis added]
* That’s most certainly the case in Illinois, where adequate funding was never a serious concept.
Yet, you’d never know this by reading wannabe governor Bruce Rauner’s latest Tribune op-ed…
The most powerful political force in Illinois today, by far, is the government employee labor unions. They have contributed mightily to our state’s budgetary and economic chaos.
The bosses of American Federation of State, County and Municipal Employees; Service Employees International Union; and the Illinois Federation of Teachers/Illinois Education Association are in virtually every legislative meeting, every budget meeting, every policy meeting in Springfield. They take their taxpayer-funded, government-collected union dues and funnel them by the tens of millions to politicians in both political parties. They use their vast membership to supply patronage workers by the thousands for political campaigns throughout the state.
This has created a powerful closed-loop system, with these unions and politicians on the inside, and taxpayers and schoolchildren on the outside. It is a system that allows union bosses to bribe politicians with massive political support in exchange for salaries that are 23 percent higher than in our neighboring states, and even higher still than in the private sector, with stunningly generous pension benefits that allow government employees to retire with higher pay for the rest of their lives than they got while working.
Pensions aside, government salaries may be higher than neighboring states, but the cost of living here is also higher.
* Related…
* Lawsuit filed by Chicago Teachers Union, others seeks to overturn pension law: Pension reform in Illinois got a rare legislative victory when the General Assembly moved to close loopholes that allowed labor leaders to land six-figure public pensions based on their much higher union salaries. The measure, which deals with abuses exposed by the Tribune and WGN-TV, affects a small number of city workers on leaves of absence to work for their unions, and it passed with little dissent.
* Henry Bayer: Unions stand up for the middle class
- train111 - Thursday, Nov 1, 12 @ 2:04 pm:
“The most powerful political force in Illinois today, by far, is the government employee labor unions.” states Bruce Rauner as he and his wife dump about $330,000 into various GOP candidates and PACs trying to brandish up his bonifed GOP credentials prior to running for Governor.
Trying to buy good favor?
Takes one to know one I say.
train111
- Anonymous - Thursday, Nov 1, 12 @ 2:09 pm:
There are three pension options -
admit it and pay the bill;
steal it from the workers, which hurts those not politically connected or in a union the most;
or kick the can down the road and make it worse yet again….
- dave - Thursday, Nov 1, 12 @ 2:27 pm:
**The bosses of American Federation of State, County and Municipal Employees; Service Employees International Union; and the Illinois Federation of Teachers/Illinois Education Association are in virtually every legislative meeting, every budget meeting, every policy meeting in Springfield.**
LOL - something tells me that Rauner has never been any of these legislative meetings that the union leaders are allegeldy all in.
- Cincinnatus - Thursday, Nov 1, 12 @ 2:29 pm:
Even with pension increases in the late 1990’s, in 2000 the pensions systems were relatively sound. Since then, numerous recessions, pension holidays, sweeps and lack of contributions by the state have reduced the funds’s levels. In 2006 and 2007, the contributions were about half the “required” amount.
The State has relied on budget gimmickry and pension holidays to hide fiscal mismanagement.
Employees and taxpayers are not directly at fault, it is the profligate spending of the Democratic GA and Governors who never failed to fund someone’s good intention or pork barrel project, and couldn’t balance the budget of a one car funeral. The lack of discipline now find ourselves in a place where critical priorities, like education and infrastructure cannot be funded, we have increased taxes and fees, and regulations to the point where we are losing our competitive edge to other states, depleting our revenue strew beyond what any reasonable further tax increase can overcome.
A pox on all their houses.
- CircularFiringSquad - Thursday, Nov 1, 12 @ 2:32 pm:
Wonder if CounsinBrucey will look around at his hedge fund hustler buddies and their allies like the predatory lenders and ask if any of their antics that led to the collapse of the world economy which caused a drop in tax revenues, more demand for government assistance, demolition of pension assets and higher unemployment might have made an itsy bitsy chunk of the problem?
Just askin’
BTW we did not read anything that shared CousinBrucey’s vision for the future.
Please pass another bowl of derivatives!
- sal-says - Thursday, Nov 1, 12 @ 2:35 pm:
Paraphrasing from the Trib’s comments: ‘About the only things Rauner didn’t blame on unions was locusts, pestilence and plague’.
- Ahoy! - Thursday, Nov 1, 12 @ 2:38 pm:
–but the cost of living here is also higher.–
Maybe in the Chicago area, but Springfield is usually ranked in the top 10 most affordable cities (where a good chunk of State workers live) and most of Illinois is a very affordable place to live. Our government wage scales are probably on the high end which is obviously going to affect yearly budgets and annual pension payments. Cost of living in Springfield is probably less than our neighboring capitals. If I have time today, I’ll look up the cost of living statistics (this would obviously only account for State workers in Springfield).
- STP - Thursday, Nov 1, 12 @ 3:09 pm:
Chicago is an expensive commute - state workers do not get free parking in downtown - and many of us must have our cars - many of us also have gone many years without a raise - and those in the community based system of care (which I left) make more then we do - Illinois is going to run out of skilled and knowledgeable state workers soon
- walkinfool - Thursday, Nov 1, 12 @ 3:19 pm:
Bruce is dead wrong here, since the GA underfunding came despite the demands of the unions, not because of them. Another “business leader” blinded by comforting ideology.
- mokenavince - Thursday, Nov 1, 12 @ 3:21 pm:
This one way street was caused by gutless politicans. Don’t blame the unions for getting
what they could , that after all is their job.
It’s amazing how eazy the pols roll over when it’s
the taxpayers money.
The system in our State is broke and until the likes, of Madigan and his cronies are gone nothing
is going to change.
One more thing unionizing Government workers is
never a good idea.
Lets find a way to settle this mess once and for all ,and I don’t mean by thowing the workers who bargined for this in good faith under the bus.
- RNUG - Thursday, Nov 1, 12 @ 3:23 pm:
Ahoy @ 2:38 pm,
While you could be right about Springfield versus other state capitols, it’s been partially negated by the last two (one extended?) administrations. Ever since 2003 there has been a concerted effort, partially successful, to move a large amount of the state employee jobs to Chicago … which just increased the cost (office rental, higher service costs, salary and resulting pensions) because, as I noted in a another post a couple of days ago, it has been my experience that state workers in Chicago were generally in payroll titles two levels higher than their downstate equivalent to account for the Chicago/Springfield cost of living difference.
- wordslinger - Thursday, Nov 1, 12 @ 3:29 pm:
Did Brother Bruce set you all straight?
Teachers, cops, firemen, janitors, lunch ladies — all bad people, living large, bribing lawmakers with their overwhelming power.
I wonder where they all live? Seems to me I have a few public employees in my life. But I’ve never met any of these parasites that Brother Bruce describes.
What’s a poor hedgie to do?
Bruce — and Rahm — want to bust the public employee unions so the hedgies can come in, suck up taxpayer cash flow, take big tax breaks on old school buildings, and dole out publicly funded contracts without any transparency.
You want to talk about class war? Here it is.
Why don’t these guys open their own private schools? They’re Big Macher money-raisers — it’s been done. Why do they need public money for their non-union schools? They’re philanthropists, after all. Cowboy up.
I hope this jamoke runs for governor. It didn’t take a brain surgeon to violate your fiduciary duty and screw public employee pension funds while you bet the other way in the era of Irrational Exuberance.
And by the way, Bruce, read your FDR a little more closely. He was not opposed to public employee unions. He was opposed to strikes by public employee unions. Savvy?
Drop your millions for governor, Bruce. All the parasites are waiting.
- Montrose - Thursday, Nov 1, 12 @ 4:08 pm:
If we just stop listening, maybe Rauner will go away.
- Demoralized - Thursday, Nov 1, 12 @ 4:08 pm:
==it is the profligate spending of the Democratic GA and Governors==
Nice try but your partisan hackery is false. Did you forget who the Governor’s were in the decades before Blago and Quinn? To suggest this is a party-affiliated disaster is dishonest and ignorant.
- Demoralized - Thursday, Nov 1, 12 @ 4:11 pm:
==with stunningly generous pension benefits that allow government employees to retire with higher pay for the rest of their lives than they got while working.==
False. Except for a few higher-ups I know of NOBODY who is the average Joe worker who has a pension that is higher than their salary when they worked. I’m tired of all of these lies, especially by the likes of the uber-wealthy fatcats trying to denigrate state workers.
- soccermom - Thursday, Nov 1, 12 @ 4:21 pm:
This is just disgraceful. It is absolutely untrue, and the Tribune should be ashamed of printing this nonsense.
- cassandra - Thursday, Nov 1, 12 @ 4:23 pm:
If Rauner or someone like him runs (awfully early to say), this will, unfortunately, distract from the fact that we really need better governors than we’ve had over the last couple of decades of modern Illinois life–the corrupt Ryan, the corrupt and profligate Blago, and now the supremely ineffective Quinn. Were there better ones before that? Who knows, but it doesn’t matter at this point. If Rauner runs against Quinn, we’ll have months of screaming about the evils of unrestrained capitalism, Quinn will slip in again, and it’ll be back to normal, normal bad that is, in Illinois state government.
- Crime Fighter - Thursday, Nov 1, 12 @ 4:41 pm:
=”This is just disgraceful. It is absolutely untrue, and the Tribune should be ashamed of printing this nonsense.=” What soccermom said.
It’s incredible the way the tribbies and hedgies keep the vast union conspiracy delusion out front. They continue to do this in spite of the increasingly overwhelming evidence debunking their mantra. Dare I borrow from Krugman and call their irrational obsession against workers “pathological”?
- John Parnell - Thursday, Nov 1, 12 @ 4:45 pm:
Walkin Fool you don’t know what you are talking about. The unions never asked for money to go to their members pensions. Never! I was there.
The unions wanted all funds to go to their members in pay hikes or to the schools so they could negotiate for higher wages.
The unions are not innocent in this mess.
- Just the Facts - Thursday, Nov 1, 12 @ 5:08 pm:
Pure dreck from Rauner. Rauner’s screed is stunningly rife with misinformation and false assertions. I have been quite a few legislative, budget and policy meetings over the years and don’t recall ever seeing Mr. Bayer or the other union folks at the table. The assertion that employees receive “stunningly generous pension benefits” would be laughable, but for the fact that there are enough uninformed folks in the general public who may believe such nonsense. (My father was a public school teacher for 34 or so years. 26 years after his retirement, he reached the point where his pension reached the level of his final salary - which was the “huge” sum of 40,000/year. I suppose that is one of the stunningly generous pensions of which Mr. Rauner speaks.
We can only hope that Rauner goes the way of the prior rich guys who have decided they want to get into politics in Illinois. They spend a great deal of the money to pontificate about their “solutions”, but in the end the voters have enough sense to vote for someone else.
- Norseman - Thursday, Nov 1, 12 @ 5:11 pm:
===If we just stop listening, maybe Rauner will go away.===
I wish. Unfortunately, he’ll use his money to stick around despite the fact that most folks will stop listening. What he will accomplish is making the Illinois Republican Party a bigger joke than what it is now.
- RNUG - Thursday, Nov 1, 12 @ 5:22 pm:
John Parnell @ 4:45 pm:
Actually, the unions did ask for money to go in the pension funds … see the IFT lawsuit in the mid 1970’s. After that ruling (and two subsequent ones on the same topic), they quit asking because the court, in effect, told them the State didn’t have to fund it, the State just had to pay the pensions when due.
- Arthur Andersen - Thursday, Nov 1, 12 @ 5:23 pm:
Mr. Parnell is not incorrect here. Particularly under the miserable years of 40892-424, the unions were asked to make a “hypothetical choice” and the “hypothetical answer” was “put it in the check.”
As far as Rauner, this is the serial hypocrite who filled his money bin on the savings of all those parasite public employees whose pensions were fortunate enough to benefit from his stunning talents. What. A. Tool.
Also, If he’s elected Gov, he can sell the State plane, as he’s already got that covered. Newer, nicer, bigger, and no noisy propellers.
- RNUG - Thursday, Nov 1, 12 @ 5:27 pm:
cassandra @ 4:23 pm
Love him or hate him, Jim Thompson was an effective Gov; we can debate if he was good or bad but he got things done.
And Richard Ogilvie was, arguably, mostly a good governor who pretty much sacrificed any further political ambition to get the state income enacted.
That covers my adult lifetime … right now I’d settle for an effective administrator who knew how to twist arms in the GA …
- Smitty Irving - Thursday, Nov 1, 12 @ 5:56 pm:
RNUG -
Much of Thompson’s money to allow him “got things done” came from diversions of state pension contributions.
- RNUG - Thursday, Nov 1, 12 @ 6:11 pm:
Smitty Irving @ 5:56 pm,
I realize that. Notice I didn’t comment on whether Big Jim was good or bad, just that he was effective at getting things done.
- Mark - Thursday, Nov 1, 12 @ 6:21 pm:
The funding was unaffordable because the benefit increases and salary increases were unaffordable. The problem with the state pensions (TRS, SERS, SURS, JRS, GARS) is the benefit increases added to state law after the pension protection clause was added to the Illinois State Constitution at the 1970 Constitutional Convention. State Representatives and Senators passed House Bills and Senate Bills that were signed into law by Governors, increasing and adding to pension benefits, in exchange for campaign contributions and votes from public sector unions. In 38 of 40 years from 1971 - 2011, pension increases and additions were added to state pensions. The other problem with state pensions were generous pay raises for public sector union workers approved by elected officials as a result of collective bargaining, once again, in exchange for campaign contributions and votes from the public sector unions.
- Plutocrat03 - Thursday, Nov 1, 12 @ 6:59 pm:
While underfunding the pension, Madigan kept pushing all kinds of pension sweeteners.
Who is the fraudster here?
- CircularFiringSquad - Thursday, Nov 1, 12 @ 7:01 pm:
CounsinBrucey will tie all the Rerun GOPies in knots and pave the way for another PQ triumph unless Gags Brady mount another one of his brainstorm media campaigns
Here’s hoping
- Arthur Andersen - Thursday, Nov 1, 12 @ 7:03 pm:
Mark, you are way off base.
Study after study, expert after expert, including the one cited above, reveals past underfunding is the primary contributor to today’s problem, not salary decisions or benefit changes.
Loosen up that tinfoil hat and your thought process may improve.
- capncrunch - Thursday, Nov 1, 12 @ 7:26 pm:
“Fiscal discipline simply appeared not to be part of the state’s culture.”
Really! Fiscal discipline is not in the DNA of the political left?
- Demoralized - Thursday, Nov 1, 12 @ 7:57 pm:
@capncrunch:
Another phoney partisan shot. If you think this is political party specific you know absolutely nothing about Illinois.
- walkinfool - Thursday, Nov 1, 12 @ 8:37 pm:
@JohnParnell: Thanks for your comment.
I agree that the unions are not entirely blameless in this mess — noone is. But their part in the actual underfunding was relatively very small. I maintain that Rauner is dead wrong to focus the blame primarily on them.
- wishbone - Thursday, Nov 1, 12 @ 9:28 pm:
We are well past the point that placing blame is useful. We need to focus on solutions. Of course we should fix the pension system, but that is not enough. An across the board 4% spending cut (which would spread the pain of the cuts) followed by a 10 year spending freeze would save about $1.2 billion per year. Then raise the gasoline tax by 10 cents per gallon which would raise $500 million per year, and would be imperceptible to drivers in a time of falling gas prices. $1.7 billion per year would go a long way toward solving the state’s fiscal problems over time without crippling any program.
- The future - Friday, Nov 2, 12 @ 12:44 am:
When President Obama wins next week (which will include my vote) let’s hope there is much improvement in the economy. because if there is not… We will end up with a bozo like him.
- The future - Friday, Nov 2, 12 @ 12:46 am:
For governor in two years.