“Frankly, I’m not sure they want it,” Illinois Senate Minority Leader Christine Radogno (R-Lemont) said Tuesday about Democratic legislative leaders and state pension reform.
It sure looked liked she was right last week, at least in the House, where Speaker Michael Madigan (D-Chicago) barely lifted a finger for any of the pension reform bills that were on the table.
His top aides insist that Madigan does want pension reform. Madigan has said he wants a bill to pass. So, what will it take to get him off the dime and start pushing for a solution?
Madigan’s members almost always take their cues from their leader on the big stuff. When he says “this is the bill I want right now,” they tend to go along. Until they get that message, House Democrats hold back and wait.
For his part, the conservative Madigan doesn’t usually get too far ahead of his members. He polls his caucus regularly, and if he sees major resistance to an issue, he’s almost always reluctant to push it. Unlike Gov. Pat Quinn, Madigan understands that defeat makes you look weak, and Madigan is obsessed with projecting an image of power.
And sometimes, especially when Madigan wants something big, he’s willing to wait and wait, and then wait some more, until the time is right before he makes his move.
So, let’s take him at his word that he realized the need for pension reform. What’s he waiting for?
The most obvious answer is the pension payment cost shift, which he strongly favors along with Senate President John Cullerton (D-Chicago) and Chicago Mayor Rahm Emanuel.
The controversial plan would shift pension bills for suburban and downstate teachers from the state to local school districts, forcing districts to be much more cautious in granting pay raises that lead to bigger pensions.
Republicans and plenty of suburban and downstate Democrats oppose the cost shift, claiming it would lead to substantial property tax increases because the public schools are largely financed via that tax. Chicago has a separate teachers retirement system, which is why Emanuel supports the idea.
But proponents of the cost shift point to a recent pension plan as having a workable framework. That proposal would raise the employer’s pension costs by half a percentage point of payroll per year. If school districts and universities can’t absorb such an increase each year without a big tax or tuition hike, proponents say, then they need to send their leaders back to management school.
When Madigan dropped the cost shift as a “must have” in the days leading up to the recent lame-duck session, Quinn trumpeted the move as a major breakthrough that would lead to a pension reform deal.
But the lame-duck session turned out to be very much like last May, when Madigan agreed to back off the cost shift and handed a pension bill to House Minority Leader Tom Cross (R-Oswego). Quinn also hailed that decision as progress, but Madigan’s members quickly realized that no Madigan sponsorship meant no Madigan support, and the bill crashed and burned.
So, how the heck is this cost-shift thing ever going to pass? If the Republicans and lots of members are against it, fearing a voter revolt over higher tax bills, how does Madigan find the votes and persuade the GOP to climb aboard?
Madigan’s people won’t say, but a major crisis would be the most obvious avenue.
If the state’s credit rating is seriously downgraded, tons of pressure will be put on the General Assembly to act and restore some credibility to state finances. The Republicans might be more willing to sign on if their nervous big-business allies/donors insist that they participate in a solution.
Barring that, the only other way forward in the interim might be to do some small things toward pension reform that Madigan’s caucus could agree to. But even that might not go anywhere if Madigan decides to continue withholding support until he reaches his ultimate goal.
- Billy - Monday, Jan 14, 13 @ 9:44 am:
More of the same to come. With nobody willing to commit to a solution, a big court challenge, and likley loss. Nobody wanting to lose and look bad. Illinois politics!
- geronimo - Monday, Jan 14, 13 @ 9:52 am:
http://teacherpoetmusicianglenbrown.blogspot.com/
- western illinois - Monday, Jan 14, 13 @ 9:55 am:
The big business types never brought any money to the table on this The civic club sepnt around 500,000 on a bunch of losing candidates. There have been ratings downgrades and the market reaction has been ho hum to say the least.
The house is right Cullertons bill would save little money because it cant apply to the teachers and nkrtiz -Quinnis blatantly unconstitional.
Finally I just cant see who the unions can klook at the last election and think GEE The big GOP donors massivly underperformed and we really did perform and yet see the GOP obeiendly follwoing the NRA down teh path to irrlevancy.
I would say its time we have some more loyal donees.
Does Madiagn want to make Illinois the national testing ground for a wave of primaries with unimited money and organization coming at his soon to be ex members?
- wordslinger - Monday, Jan 14, 13 @ 9:56 am:
Madigan loves Springfield in the Spring. He can’t bear the idea of leaving before the end of May.
Given Fitch’s big, bad ultimatum for a solution before sundown in six months, I’d suggest to pass the time that the GA invite directors from the three rating agencies to testify before relevant committees on their processes in general and as they relate to Illinois debt in particular.
The state pays for those ratings. There’s no reason lawmakers can’t get a better idea of the work product.
Back when I was in that biz, I can recall a couple of times where rating agency directors testified in Minnesota and Michigan.
Transparency is an awesome thing.
- dupage dan - Monday, Jan 14, 13 @ 9:58 am:
Illinois is motionless @ the cliff. Is it a wall or chasm? Only MJM knows what to do and when to do it. And the lemmings wait for their order - jump or climb.
- Madison - Monday, Jan 14, 13 @ 10:03 am:
Everybody wants to demonize Mike Madigan, but consider that actions speak louder than words. I believe that Mike Madigan is a good man, he understands that the promises made should be kept, and that this is a revenue problem. When his caucus realizes that things may change.
All this crying “wolf” by beginners like the hapless Quinnn and Irrelevent GOP members about the coming economic free fall is simply hogwash. I hope the credit rating is lowered on Illinois tax free bonds. I’m a buyer
- Cook County Commoner - Monday, Jan 14, 13 @ 10:05 am:
The tax shift is going to be a tough sell.
Voters are busy and won’t notice a school district doing business as usual until the dirty deed is done. The pols know this, and they know they’ll take the flack for an increase and an aleady way too high reliance by public education on the proerty tax.
Also, there is another cost shift going into the property tax that no one is talking about.
As the population ages, more and more seniors are signing on for the senior property tax exemption, the senior prpoerty assessment freeze and the senior tax deferral. These decreases result in increased property taxes for everyone else because the bucket must be filled by some one. failure to discuss these shifts in the same breath as the pension cost shift is just further evidence that the proponents continue to represent the government employee lobby, especially the teachers.
- thechampaignlife - Monday, Jan 14, 13 @ 10:11 am:
If the cost shift isn’t pegged to the individual school district but rather shared across all districts, I’m not sure how effective it will be. It’s a form of economic game theory. If I’m a school, I know I can give out 6% raises as a retirement perk knowing that the increase to my pension costs are negligible because the costs are spread out over all schools. Conversely, if I don’t give out the 6% raises but other schools do, I’m effectively subsidizing pension perks for their employees. So the only reasonable solution is for everyone to pay the perk. A better solution would be to make the cost shift specific to each district but that makes a lot more work for TRS. Ultimately, the fairest way to implement the cost shift would be to use some sort of a baseline that the state pays, perhaps 100% of pension cost on existing salaries but only 50% on raises and new hires. That gives the district the ability to factor in the additional expense when setting the raise % or new hire salary with no need for a local tax increase.
- Cassiopeia - Monday, Jan 14, 13 @ 10:15 am:
I think there is a clever strategy evolving that allows the state’s financial system to get to the point that a new revenue stream will be dedicated solely to pensions. That most likely vehicle could be the often discussed concept of a services tax.
This would allow the Democratic majority to satisfy the public sector unions and “solve” the pension problem without touching existing benefits. They would need to balance the plan with some increase in public employees contribution levels.
- Langhorne - Monday, Jan 14, 13 @ 10:35 am:
There are two basic questions in govt — who pays? and who benefits? Madigan is playing hardball, while everyone else is playing whiffle ball. Last session he started the ball rolling on retiree health insurance. Savings to state — $400 mil if they take half of it out of retirees. Cost shift — fairness to Chgo while nailing downstate, eventually worth $800 mil per year. He won’t give up on the cost shift,. Pension reform is a matter of who takes how much pain.
- Scott Herr - Monday, Jan 14, 13 @ 10:52 am:
One of the main reasons for the cost shift is increasing local accountability for end-of-career “pension spiking,” or as Rich described it “forcing districts to be much more cautious in granting pay raises that lead to bigger pensions.”
Rather than the cost shift, a far simpler solution would be to change the current 6% salary increase threshold. This could be changed to a lower percentage or be based on CPI.
The current 6% threshold is in 40 ILCS 5/15-155 Employer Contributions: “If the amount of a participant’s earnings for any academic year used to determine the final rate of earnings, determined on a full-time equivalent basis, exceeds the amount of his or her earnings with the same employer for the previous academic year, determined on a full-time equivalent basis, by more than 6%, the participant’s employer shall pay to the System, in addition to all other payments required under this Section and in accordance with guidelines established by the System, the present value of the increase in benefits resulting from the portion of the increase in earnings that is in excess of 6%….”
- walkinfool - Monday, Jan 14, 13 @ 11:42 am:
Rich: You nailed it.
Madigan wants the comprehensive long-term solution, which includes some modest cost shifting. I cringed when the Governor announced that Madigan (supposedly) gave that up. The Dupage GOP confab with the Governor, which he touted as an advance, turned out to be bill killer.
- RNUG - Monday, Jan 14, 13 @ 11:46 am:
Cassiopeia @ 10:15 am said:
“clever strategy evolving … new revenue stream will be dedicated solely to pensions.”
If set the same as the sales tax, a service tax would bring in a huge amount of money, maybe as much as $9B - $10B plus it would free up the current $4B coming out of GRF. If they went all the way, they could even shift the current pension bond costs (over $1B) off to the new revenue source.
$5B in GRF to spend … happy days again in the legislature
- RNUG - Monday, Jan 14, 13 @ 11:46 am:
Langhorne @ 10:35 am:
He’s got to win the Maag lawsuit first. We’ll know more about that later today …
- Crime Fighter - Monday, Jan 14, 13 @ 11:47 am:
- Cassiopeia - Monday, Jan 14, 13 @ 10:15 am:
=”I think there is a clever strategy evolving that allows the state’s financial system to get to the point that a new revenue stream will be dedicated solely to pensions. That most likely vehicle could be the often discussed concept of a services tax”=
Thank You C!
- Crime Fighter - Monday, Jan 14, 13 @ 11:57 am:
- geronimo - Monday, Jan 14, 13 @ 9:52 am:
Thanks for the link, the first article holds true. Unfortunately, once ripping-off pensions is equated with “reform” the battle was largely lost.
It did give me another idea:
LOTTERY REFORM - we’ll just stop paying out on the lottery. The state could eliminate its lottery debt and put the money into services.
Those no good gamblers shouldn’t be entitled to a fat payday at taxpayer expense anyway. I think Andy Shaw and other “reformers” will love it!
- Meaningless - Monday, Jan 14, 13 @ 12:00 pm:
Some great ideas already posted about new revenue streams, especially the “services” tax that has been proposed by “revenue” proponents that keep saying … “Illinois doesn’t have a pension problem, it has a revenue problem.” Another thought … When is the cost-shift discussion going to put on the table the outrageous difference in the assessed property tax multiplier used by Chicago compared to the suburbs and the rest of the date?
- RNUG - Monday, Jan 14, 13 @ 12:13 pm:
Meaningless @ 12:00 pm:
and the school aid formula difference …
- Madison - Monday, Jan 14, 13 @ 12:20 pm:
The speaker and chairman caries DuPage after tax increase, GOP chairman promises massive retaliation and tea party led reform will bury Democratic party.
Next election, we promise.
- BMAN - Monday, Jan 14, 13 @ 1:03 pm:
Maybe MJM is waiting for Sears, Motorola, CME, and other big corporations to begin paying their share of taxes.
It is easy to pick on public employees, but they have been paying their share all along. Quit giving Illinois away to the money grubbers.
- rusty618 - Monday, Jan 14, 13 @ 1:06 pm:
I am wrong that Chicago real estate taxes are figured on 1/6 the assessed value of the house/property and the rest of the state is based on 1/3 the value? If that is true, it seems like downstate taxpayers could take a hit if the cost shift is passed down to the smaller, poorer school districts.
- Liberty_First - Monday, Jan 14, 13 @ 1:20 pm:
Great column Rich…
- Scott Herr - Monday, Jan 14, 13 @ 1:28 pm:
rusty618, following is how the $2,103 property taxes paid in 2012 are calculated for a $150,000 house in Chicago:
$150,000 Market Value
x 10% Assessment Level
= $15,000 Assessed Value
x 2.9706 Cook County Equalization Factor
= $44,559 Equalized Assessed Value
- $6,000 Standard Homeowner Exemption
= $38,559 Final EAV after Exemptions
x 5.455 Chicago Property Tax Rate per $100 EAV
= $2,103 Property Tax Total
The cost shift wouldn’t increase Chicago property taxes since it only applies to suburban and downstate districts.
- Anonymous - Monday, Jan 14, 13 @ 1:30 pm:
- rusty618 -
What is agricultural land taxed at in IL?
- Loop Lady - Monday, Jan 14, 13 @ 2:12 pm:
BMAN: I totally agree…why isn’t looking at fair corporate taxation a part of the conversation?…they can afford it way more than IL taxpayers and /or State employees…it’s one thing to be business friendly and another thing entirely to pass up revenue from the private sector making profits in your State…
- wordslinger - Monday, Jan 14, 13 @ 2:12 pm:
Some of the Red States are looking to replace income taxes with service and sales taxes.
I don’t see adding to sales taxes in Illinois, but if there’s any success in an income-for-service tax trade in GOP states, I wouldn’t be surprised to see it here when the income tax increases expire.
Finally, an issue that personal injury lawyers and plastic surgeons can unite!
http://www.reuters.com/article/2013/01/13/us-usa-tax-states-idUSBRE90C08C20130113
- Rusty618 - Monday, Jan 14, 13 @ 2:41 pm:
Thanks Scott. I need to move to Chicago. I would only be paying $3557 there instead of $6500 in a southern Illinois county. I would hate to see what a cost shift is going to do to my property taxes!
- circularfiringsquad - Monday, Jan 14, 13 @ 3:05 pm:
Guessing Madigan wants a bill that gets all the way to the court, better it is upheld and does some good and makes issue go away fof another 40 years.
Not all that complicated
- capncrunch - Monday, Jan 14, 13 @ 3:10 pm:
“So, how the heck is this cost-shift thing ever going to pass? If the Republicans and lots of members are against it, fearing a voter revolt over higher tax bills, how does Madigan find the votes and persuade the GOP to climb aboard?”
Well, he can start by twisting some arms and pointing out that one way or another we are going to be paying higher taxes, be they income or property taxes. They must increase if we are to meet our obligations. Trying to pass legislation and hoping it will meet constitutional muster is not an intelligent strategy. We have legal and moral financial obligations. Failure to meet the former would lead to a constitutional crisis; failure to meet the latter would lead to social unrest. I doubt that he wants either outcome, although both would provide the metaphorical “2×4” to get our attention. Madigan is correct on the cost shift. If conservatives truly believe in personal responsibility, why are they opposed to paying for benefits they created and instead asking others to pay the bill? That is a criticism normally directed at liberals. When Rich says (Madigan’s) plan would force “… districts to be much more cautious in granting pay raises that lead to bigger pensions”, he should have used the adjective responsible.
- capncrunch - Monday, Jan 14, 13 @ 3:19 pm:
rusty618 That $150,000 house in Urbana would pay $3,538 tax of which $1,839 goes to fund schools. The cost shift would likely increase our taxes but I’m willing to pay the increase to protect retirees’ pensions.
- Sgtstu - Monday, Jan 14, 13 @ 3:45 pm:
RNUG - Any word on the Maag case yet ?
- Ruby - Monday, Jan 14, 13 @ 3:49 pm:
What does Madigan want? He probably wants the same thing most of us want - an improved economy. The S&P 500 closed at another five-year high after the stock market got a boost from reports suggesting the outlook for economic growth may be improving. With some of the gloom and doom predictions on the economy starting to dissipate, perhaps commonsense will prevail and Madigan will be able to pass the fair and constitutional pension reform bill that may have always been his goal.
- RNUG - Monday, Jan 14, 13 @ 3:59 pm:
Stgstu
I know nothing. Been busy finding a new printing service for a quarterly newsletter.
A quick public search of the clerk’s web site didn’t show anything yet.
- Rusty618 - Monday, Jan 14, 13 @ 4:03 pm:
Capn, the taxes on a $150,000 house in my area would be $4023. I also would be willing to take on a cost shift to save my pension and my wife’s job. She teaches music at an elementary school. They already cut the art program to save money and music could be next if the school district would have to cover the cost shift.
- RNUG - Monday, Jan 14, 13 @ 4:06 pm:
In FY2012, the State took in the following revenues (rounded):
Individual Income - $17B
Corporate Income - $3B
Motor Fuel - $1B
Assorted Excise - $2.5B
Sales - $9.9B
Misc - about $2B
http://www.revenue.state.il.us/Publications/AnnualReport/Annual-Report-2012-Table-1.pdf
If service is estimated the same as sales, it isn’t going to replace the income tax.
- Scott Herr - Monday, Jan 14, 13 @ 4:07 pm:
capncrunch, Urbana SD 116 received $3,617 per pupil from the state compared to $5,435 for Chicago even though Chicago’s property value per student is higher ($241,123 for Chicago, $185,669 for Urbana). This affects local revenue per pupil, which is $10,189 for Urbana and $7,151 for Chicago.
Are you OK with Chicago receiving more money from the state than Urbana, thereby giving Chicago property taxpayers a break?
- Makandadawg - Monday, Jan 14, 13 @ 4:23 pm:
Rich, I see your link to this article by Sara Burnett of AP about “other programs suffer”. This article has been reprinted by most all the newspapers in Illinois as news. Help me out with this one. Is my pension really to blame for the hardship of these other people?
- Old and In the Way - Monday, Jan 14, 13 @ 5:20 pm:
Makandadawg
Education and social services have been underfunded long before there was the current uproar about unfounded pension debt. That said I would suggest the most direct cost squeeze is on the cost of debt (bonds etc.). To say there is no impact would be just as disingenuous as saying that the pension debt directly led to the underfunding of education and social services. In other words its complicated, which explains why the newspapers for the most part don’t get it and there are no simple solutions.
- thunder - Monday, Jan 14, 13 @ 5:52 pm:
So balance the state on the back of the state employees. They are the ones that will ultimately pay the price because the elected leaders didn’t pay there payments when do, yet the state employee pays for there retirement every payday!!!!!!!!!!!!!!!!!!!!!!!!!!!!
- Old and In the Way - Monday, Jan 14, 13 @ 6:09 pm:
Agreed. Just sayin there is a cost to this situation.
- Just The Way It Is One - Monday, Jan 14, 13 @ 7:33 pm:
Bottom line is that your Headline says it all, but I’d add with a slightly different emphasis… “What DOES Madigan want???”
- capncrunch - Monday, Jan 14, 13 @ 7:45 pm:
Scott
I am less concerned about whether Chicago, Champaign, or any other city may get more state money relative to Urbana than I am about fixing our state’s fiscal mess. I believe that fixing our problem will ultimately require raising additional tax revenue. I prefer to pay higher property taxes than income taxes because the money is less likely to be spent foolishly. (BTW, I think Chicago will have to find more money to fix their pension problem.) If the cost shift is gradual we can get control of the problem.
- Scott Herr - Monday, Jan 14, 13 @ 8:15 pm:
capncrunch, I agree with the importance of fixing our state’s fiscal mess. As I noted recently in emails to local legislators, Illinois has an amazing potential to attract business and jobs from other states. The longer this fiscal instability lasts the greater the damage to our state’s economy.
School funding reform including the pension cost shift and other changes to school funding can be a significant part of the solution.
To give an idea of the size of the Chicago school funding disparity… if Chicago received the same $1,800 per pupil as other districts with similar property values, this would save Illinois over $1.2 billion per year.
- fultonfarm - Monday, Jan 14, 13 @ 8:53 pm:
Is there anybody out there who does not seriously beleive that trying to change pensions and health insurance benefits is Unconstitutional. Yes, I said health insurance also.
I t was promised upon employment and when one retired until (last year). It is a retirement ‘benefit and that language is in the Constitution.
This might take several years for the courts to rule. I would assume that injunctions would be filed until a final decision9s) by the courts.
- wordslinger - Monday, Jan 14, 13 @ 8:55 pm:
–As I noted recently in emails to local legislators, Illinois has an amazing potential to attract business and jobs from other states. The longer this fiscal instability lasts the greater the damage to our state’s economy.–
What exactly are you talking about? We’re the regional powerhouse. We build business for other states. Even Scotty Walker has acknowledged that.
Under Illinois tax code, if you’re a national or multi-national corporation, you’re not paying oogats in income taxes except on what you sell within the state of Illinois.
If you’re a local small business owner, a plumber, or a painter, or a restaurant owner, or a contractor drawing on your community for business, what’s your reason to relocate, unless you think a new Illinois market is ripe? It may be, but it has nothing to do with tax code.
Seriously, have any of these experts ever had a job? If you’re a working schmuck, do you turn down work because of marginal tax rates? If you’re a businessman with investors and a good business plan are you waived off by marginal tax rates? The idea is insane.
And if you’re a big corporation, not paying taxes, what does the state’s “fiscal instability” have to do with anything? Not your problem. You’re not on the hook.
And what kind of huckleberry thinks any business wants to come to Illinois if they spend less on education? If they didn’t care about education, they’d go to Indiana, Missouri or Kentucky.
Indiana shares the same geographic characteristics as Illinois — lake access, central location, agriculture, interstates and railroads, airports — but Indiana is still a weak sister.
Seriously, Chicago Metro, Indy Metro?
Illinois’ GDP is more than twice that of Indiana. Why? It ain’t state or local income taxes, which are higher in Indy.
It always fascinates me that some “business expert” can talk about state or local taxes like they’re some uber-thermostat that you can adjust to make economies grow or die.
If that were the case, I’d guess New York, London, Los Angeles, Tokyo and Chicago would be ghosttowns, the taxes are so high.
The BS about local taxes is a great cottage industry. But it produces nothing of value.
- western illinois - Monday, Jan 14, 13 @ 9:24 pm:
Pension debt plus bond debt is 120 billion or about 18% of GDP Hardly a crisis figure. Its just that illinois has been providing Calif serivices at Iowa Tax rates and we may need a serices tax because we want to have a lot of cash in the GF(as analyzed by RNUG)
- Joe M - Monday, Jan 14, 13 @ 9:44 pm:
western illinois, Iowa individual tax rates are nothing to sneeze at. One could definitely pay for “Calif services” with their Iowa’s rates. If Illinois had Iowa’s progressive individual tax rates, we could solve our pension problem and pay off our vendors.
Illinois: 5% (after being 3% for 20 years)
Iowa:
– 0.36 percent on the first $1,428 of taxable income.
– 0.72 percent on taxable income between $1,429 and $2,856.
– 2.43 percent on taxable income between $2,857 and $5,712.
– 4.50 percent on taxable income between $5,713 and $12,852.
– 6.12 percent on taxable income between $12,853 and $21,420.
– 6.48 percent on taxable income between $21,421 and $28,560.
– 6.80 percent on taxable income between $28,561 and $42,840.
– 7.92 percent on taxable income between $42,841 and $64,260.
– 8.98 percent on taxable income of $64,261 and above.
- RNUG - Monday, Jan 14, 13 @ 10:16 pm:
Not quite as much as it would appear.
For the mythical average person making $50,000 and taking no deductions of any kind (to make the math simple), Iowa would collect $2,931 versus Illinois at $2,500.
In this example, the effective Iowa rate is 5.86% versus Illinois at 5.0%