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Unclear on the concept
Tuesday, Mar 19, 2013 - Posted by Rich Miller * It really is amazing how little the editorial page pontificators know about pension reform proposals. Yesterday, the Chicago Tribune demanded that the state be given the flexibility to skip pension payments. Today, the Sun-Times doesn’t seem to understand what’s in Senate President John Cullerton’s pension reform bill…
Um, Cullerton’s bill actually includes Biss’ language. His own proposal doesn’t kick in unless and/or until the Biss language is declared unconstitutional. I went to dinner with some friends last night and we were marveling at how ill-informed some legislators are about this pension reform issue, even after years of debate. They ain’t alone.
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- wordslinger - Tuesday, Mar 19, 13 @ 10:29 am:
Big scary numbers and formulas can lead some just to wing it, cop an attitude rather than develop a position.
- langhorne - Tuesday, Mar 19, 13 @ 10:37 am:
there are those who do the work and know the subject matter. and there are those who watch what others do, and play follow the leader. their depth of understanding does not extend beyond the staff talking points. (i almost typed “talking pints”, but that is something different)
- thechampaignlife - Tuesday, Mar 19, 13 @ 10:37 am:
I still would like to know why a simple reamortization isn’t considered. Refinance the $97B at 5% for 40 years. Start the payments at $5.9B/yr, increasing 2%/yr for inflation. Under this plan, the annual cost is fixed (in today’s dollars) and the entire amount is paid off in 40 years. The first few years will rack up the unfunded liability back from $0B to $4B but then compounding interest makes the 2%/yr increases on the $5.9B annual payments overtake the interest costs, even factoring in the interest costs on the additional $4B and inflation increasing the $1.7B/yr normal cost. And these numbers only look better when you can introduce new revenue sources such as an increase in employee contribution, taxes on marijuana, wage freezes, cost shifts, etc. I can provide my amortization schedule if anyone cares to double-check my math.
- titan - Tuesday, Mar 19, 13 @ 10:37 am:
If the Biss bill doesn’t hold up in court, it will cost money while saving none.
- Bush Twins - Tuesday, Mar 19, 13 @ 10:38 am:
I found it strange that the SunTimes would urge everyone to join the “real world” by backing a bill that, the paper acknowledges, has a questionable legal basis. The worst thing that can happen is to pass something that is unlikely to hold up in court. We will be back to square one, or worse since (after spending time in court) we will have foregone other opportunities to fix the problem. The “real world” includes a constitution that must be followed.
- Norseman - Tuesday, Mar 19, 13 @ 10:39 am:
It’s too much work for the editorial board folks to research the issues. They take superficial info from their reporters’ stories regarding portions of the issue and then formulate it into an uninformed opinion which then is taken as gospel by the uninformed.
What we need is a Rich primer or FAQ to show these yahoos. Maybe a post could solicit suggestions on FAQs.
- dupage dan - Tuesday, Mar 19, 13 @ 10:45 am:
Could someone please point out the adults in the room?
- Kasich Walker, Jr. - Tuesday, Mar 19, 13 @ 10:46 am:
I find it strange that anyone attempts to distinguish between something they call “the real world” and their imagined alternative that evidently consists of everything they don’t like.
- unbiased observer - Tuesday, Mar 19, 13 @ 10:48 am:
the reason why people are arguing for passage of a bill with questionable legal status is that only bills with “questionable legal status” (pension reform) will make significant progress towards solving the problem.
i honestly wish it werent that way, but it is reality.
we are really in a tough spot here. but i agree with rich that most people are highly uninformed about this issue, including most of the legislatures who were on duty when this stuff was developing over literally decades. there were always some people who understood the situation, but not the vast majority.
wow, this is a very challenging situation with no really good answers.
- nobody - Tuesday, Mar 19, 13 @ 10:49 am:
Many legislators have no idea how school funding works either. They don’t understand the relationship between the Foundation Level and local taxes in the General State Aid formula. They pass budgets that prorate the General State Aid and undercut the very purpose of the formula. The disproportionately impact poor districts and poor kids and very few people have any idea of what is going on. Where is the outrage at Government policy designed to hurt poor kids? Too many people either don’t know or don’t care.
- nobody - Tuesday, Mar 19, 13 @ 10:52 am:
The Champaign Life: Check out the Martire Plan. It has some similar proposals in it that seem to make a lot of sense.
- unbiased observer - Tuesday, Mar 19, 13 @ 10:52 am:
nobody:
you are exactly right. and the the pension reform bills inevitably coming our way will make it worse for the school systems as the state forces the tax burden back to local districts to pay for the pensions. many of these school districts will not be able to politically raise taxes to the level needed to continue current services and these school districts will be hurt badly.
- Calhoun Native - Tuesday, Mar 19, 13 @ 10:54 am:
On the anniversary of the invasion of Iraq that was a result of groupthink, I’m concerned that the same sort of thought process is going on within the these editorial boards and in the GA concerning pension solutions.
As we saw 10 years ago, the sky is not falling today and a deep breath would be a good idea right now before voting on something that, in retrospect, may be a terrible idea.
- Anonymous - Tuesday, Mar 19, 13 @ 10:56 am:
Magic Beans may be back in fashion soon.
- facts are stubborn things - Tuesday, Mar 19, 13 @ 10:58 am:
unbiased observer
I respectufully disagree. There are many alternatives that are legal — we must be a land of laws — that solve the problem. Perhaps our disagreement lies in the definition of what we mean when we say solve the “problem”. For me, the problem is making sure that those who are entitled to a binifit under the pension clause of the Illinois Constituion recieve that benift. If for others the “problem” is how do we do that with as little as we can from the citizens and busines of illios as a whole, then you are correct — it will take an illegal solution. All the citizens and busineses have benfited for 40 years with pension dollars funding state services instead of raising taxes or reducing those services. Why should those who are entitled to a legal benifit have to put that money back in? State employees are willing to contribute more money and I beleive most retirees ( I am one ) would be ok with a 1 or 2% tax on pensions. Not sure if that is good public policy but I would legaly contribute towards a solution.
- Bush Twins - Tuesday, Mar 19, 13 @ 10:59 am:
No, unbiased observer. There are legally permissible ways to fix this. The problem is that nobody has the testicular fortitude to do it.
- unbiased observer - Tuesday, Mar 19, 13 @ 11:06 am:
facts and bush,
i reall see where your coming from. i totally get it and agree with you on the importance and laws and constitutionality. i really get that.
i just see this situation as a terrible bind….i really cant see a way out of it that will be acceptable to the stateworkers, and still solve the problem. also, taxes will have to be raised. i cant see a solution that doesnt incorporate both of those.
if the supreme were to rule that unconstitutional (which i dont know will happen, give how dire the situation is), i honestly dont know if there would be ANY POSSIBLE solutions to the problem.
its just a really bad situation.
- PublicServant - Tuesday, Mar 19, 13 @ 11:09 am:
Have you actually looked into the Martire Pension reamortization “unbiased”, or are you just choosing to ignore it?
- facts are stubborn things - Tuesday, Mar 19, 13 @ 11:09 am:
The unfunded liability today is very close to what it was in the early 1970’s when the constitution was amended to make sure that state workers would receive their promised pensions. The pension was changed from a “gift” to a “contactual relationship”. The sponsers of the pension clause rejected any amendments that would allow the state to renig on their obligations in time of financial crisis….of course this situation today is a crisis of the GA own making. The very reason for the Constitution being dchanges was becaue in the early 70’s the pension system was so underfunded that state workers/retirees petitioned to have thir benifits protected.
- Arthur Andersen - Tuesday, Mar 19, 13 @ 11:12 am:
Unfortunate but not surprising. Big disconnect between the Ed boards and the guys/ladies on the beat these days.
AA suspects that a plurality of the GA, including a couple of prominent bill sponsors, would fail a knowledge and comprehension test on the Illinois pension problem. Sad.
Time to resurrect the Pension Laws Commission?
- Excessively Rabid - Tuesday, Mar 19, 13 @ 11:19 am:
If only Illinois were run as successfully as the newspapers. Oh, wait….
- RNUG - Tuesday, Mar 19, 13 @ 11:33 am:
In some of the conversations I have had with our “representatives”, I was extremely shocked to find they didn’t seem to know even the basics of how much the pensions were costing, what taxes were possible, or even what solutions might be constitutional. Numbers I could rattle off the top of my head just envoked a blank stare. Given the level of noise on this issue, a voter might think our representatives would become informed on the issues. But, with one or two exceptions, all I heard were uninformed talking points.
Sheesh, most of them probably don’t even understand there are 5 different systems with quite a bit different rules. I’ll bet only one or two of them could even tell you which systems have funds specifically designated to pay for the COLA or insurance … on second thought, if they read my comments yesterday, maybe a handful might still remember that.
Before you can start to solve the problem, first you have to understand it.
Before taking another vote or introducing another bill, the GA should be locked in their chambers, forced to read Madiar’s analysis, and then forced to read every comment on Rich’s site about the pensions the past six months.
/end of rant
- Arthur Andersen - Tuesday, Mar 19, 13 @ 11:40 am:
RNUG, right on!
- facts are stubborn things - Tuesday, Mar 19, 13 @ 11:40 am:
RNUG
I do beleive Madiar’s 80 page analysis should be required reading for every member that sets on a pension committee. I also beleive that reading much of the 70’s constitutional convention transcripts of the sponsers of the “pension clause” should be required as well. I think it important for all members to understand that the sponsers specificaly spoke to the intent of the pension clause as it relates to these “police powers” arguments.
- Meaningless - Tuesday, Mar 19, 13 @ 11:51 am:
Once people understand what the pension “crisis” is really all about, the crystal ball becomes much clearer. It really doesn’t matter how educated most legislators are on pension issues because the political leadership could care less about our constitution and the “reform” movement is all about protecting the special interests of the wealthy and shifting the blame to the pension recipients. For awhile it seemed like Cullerton was trying to work within the Constitution, but now seems to be caving in. Madigan’s disregard for the Constitution is clearly evident when he says … “For certain people who retire early and live a long life, they may actually make more in retirement than they did on active status. That’s why there is this strong effort to move legislation that would reduce the benefit level.” Illinois Constitution: Article XIII - Section 5 (Pension and Retirement Rights) “Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.” What part of this does Madigan not understand?
- Calhoun Native - Tuesday, Mar 19, 13 @ 11:56 am:
RNUG:
Exactly. What’s missing is a grasp of the numbers, rational thinking about the solutions and the political will to do the right thing.
- LIberty_First - Tuesday, Mar 19, 13 @ 11:59 am:
While to a certain degree I agree with RNUG but I note (not knowing the insider politics) the rank and file are voting no. Since the leadership of the parties (including committee members) seem to be the ones pushing everything, the members don’t seem to be buying it.
- unbiased observer - Tuesday, Mar 19, 13 @ 12:03 pm:
this is good stuff…
i couldnt agree more on the players becoming more knowledgable on these issues. we can disagree about how to solve a problem, but as a starting point for change, we all have to be on the same page as to what the problem actually is.
further, i suspect that as people become more informed on these fiscal issues, the differences of opinion regarding solutions would become somewhat less divergent.
most of these pols have been in over their heads for years…..but the same applies to the citizens of illinois, both stateworkers and private, and “non workers”. most of them have no real clue still that there is a real problem looming, what is causing the problem, and the possiblities out there to try to solve.
- Math is hard - Tuesday, Mar 19, 13 @ 12:39 pm:
The vast majority of Americans are “numerically challenged” so why wouldn’t we expect the same from our legislators?
It’s hard for anyone to put their head around $100 billion and it’ll only get worse the higher that debt spirals upward at an increasing rate, especially after the courts almost assuredly strike down any of the proposed legislation.
Our state is way beyond other’s in the game. We need to pass something so my union can begin participating in some “real” pension reform negotiations.
The longer we wait, the less benefits retirees will see 10-20 years down the road.
- CST editorial board - Tuesday, Mar 19, 13 @ 12:45 pm:
The sun-times editorial page has said repeatedly in other editorials that Cullerton’s pension bill (SB1) includes Cullerton’s bill as well as the Biss/Nekritz bill. When today’s editorial mentioned “Cullerton’s bill,” that was referring to the bill he drafted (part B). It was short hand in a tight space, not ignorance.
- Rich Miller - Tuesday, Mar 19, 13 @ 12:46 pm:
===When today’s editorial mentioned “Cullerton’s bill,” that was referring to the bill he drafted (part B). It was short hand in a tight space===
But that’s not his bill. His bill is both Part A and Part B. There are no bills out there right now with just the Part B language in it.
- thechampaignlife - Tuesday, Mar 19, 13 @ 1:09 pm:
nobody @ 10:52 am:
The flaw with Martire’s plan is that it requires an initial increase of 35% ($1.8B) in annual contributions and then maintains that level payment for some 43 years. Rather than this huge flat payment level (effectively declining when adjusted for inflation), why not set a payment level and then adjust it each year so that it is level in real dollars across the 40 years? By doing that, you only need an increase of 16% ($0.8B) for the first year and that is more easily obtained through increased employee contributions. And in 2054 after the last payment is made, the annual pension payment will drop from $5.9B to $1.7B in today’s dollars.
Given this, I struggle to understand why divisive and likely unconstitutional cuts are under consideration at all. It certainly seems like an argument against the claim that the constitutional provision can be ignored due to the extreme circumstance faced because $5.9B compared to the $5.1B we’re paying today really isn’t that extreme.
- RNUG - Tuesday, Mar 19, 13 @ 1:18 pm:
Liberty_First,
I think a significant number of the members of the GA feel it is unfair to the state workers and retirees, but that feeling may be just based on a sense of fairness as opposed to understanding the actual facts and legal restraints. I do respect and appreciate those who feel in their gut that they should honor the State’s commitments.
… and I did say it was a rant based on a few encounters as opposed to my normally more fact based comments.
- geronimo - Tuesday, Mar 19, 13 @ 1:30 pm:
Not really sure where fairness comes into play with regard to upholding the constitution of the state of Illinois. They all did take an oath to uphold it. I don’t get how changing the tax structure of our state would be way too big to even approach since it would require a constitutional amendment but changing the constitution regarding pension? Easy, some think.
If we are so financially incapable of honoring pensions, why is the state financially capable of spending the state’s money on court battles?
- Ready To Get Out - Tuesday, Mar 19, 13 @ 1:32 pm:
RNUG
I guess I am naive, but do the legislators need to understand it? I thought the four leaders came up with the plans and then told their flocks how to vote? (snark intended)
- dupage dan - Tuesday, Mar 19, 13 @ 1:35 pm:
=== Before you can start to solve the problem, first you have to understand it ===
Or at least you have to understand which way you are supposed to vote on it. Isn’t that easier?
- iThink - Tuesday, Mar 19, 13 @ 1:47 pm:
== this is a very challenging situation with no really good answers. ==
Answers (really good ones):
1. Re-amortize debt to make it flat over a longer period of time. The Tier II folks are already paying more than their pension will be worth, and as their becomes more of them the normal cost of the pensions will be actually going down. No joke.
2. Over 60% of the modern Illinois economy is services. We need to tax them as any growth in the economy through services (the largest part) the state can’t capitalize on. We have an old tax structure that doesn’t and won’t work in the modern market. This needs to be fixed, we will never get enough revenue if they don’t.
3. Harder answer, but move to a progressive income tax structure like the surrounding states.
Is there political will for these really good answers? Probably not, but without these we will never be able to cut enough from the budget to get the ship upright.
- Bush Twins - Tuesday, Mar 19, 13 @ 1:57 pm:
Holy cow! I keep hearing this notion that the courts will let the constitutional problems slide because of “the circumstances.” The constitution is what it is. It says nothing about “the circumstances” (which we created, by the way). How on earth can someone think an unconstitutional law will be upheld?
- Fed up - Tuesday, Mar 19, 13 @ 2:13 pm:
ithink
I like your first two plans, the third means we start playing around with the state constitution. Two large revenue sources are out there waiting to be exploited. A casino in Chicago, possibly midway & Ohare video gaming, Internet gaming, and downstate increased energy production from fracking. Not an expert on the subject but supposedly we have a fracking bill the greens & the drillers both can live with. Seems like the state is delaying bringing new revenue sources online until after they screw the state workers and retirees.
- Charlie Wheeler - Tuesday, Mar 19, 13 @ 2:15 pm:
Points of information:
– In fact, pro-rating general state aid actually results in more dollars available for tax-base poor districts than reducing the foundation level to reflect the GSA appropriation. That’s because a relative handful of school districts (72 in FY13, according to ISBE) are so property-wealthy they qualify only for a flat grant of $218 per student, which is pro-rated to roughly $194 this year. Were the foundation level reduced to match the appropriation, however, the flat-grant districts would still get $218, unless that portion of the formula were revised as well, meaning less total dollars available for everyone else.
– As mentioned in a previous post, normal costs for all five systems are projected to decline in coming years as an ever-growing percentage of covered employees fall under Tier II. In fact, by FY 2038, the employer’s (state and/or local SDs) share of the TRS normal cost is a negative number, meaning that teacher payroll deductions will exceed the total cost of benefits earned that year. See Table 10, page 43, of COGFA’s latest report on the pension systems financial condition, available at http://www.ilga.gov/commission/cgfa2006/Upload/FinCondILStateRetirementSysFY2012Feb2013.pdf
- unbiased observer - Tuesday, Mar 19, 13 @ 3:00 pm:
charlie,
our local school district has not received the full appropriation the last couple years (we are tax base poor). the state simply did not pay the final installment, and just said “sorry we dont have enough money.” we have been told we will be getting even less money this year and the coming years.
in the area we live in, it may not be politically possible to raise property taxes enough to make up the difference, although i personally would support that. folks around here just dont think that way. i have real concern with how these schools are going to do.
also, in 2018 over 30% of the annual state budget will be going to pension obligations, from my understanding. that percentage is expected to grow annually. i have read this in a couple of different places. if this is true, it just doesn’t seem sustainable.
fed up: both revenue ideas sound good. but i dont think the chicago casino would bring in enough to really be a game changer by itself.
fracking has a huge potential, but it is still merely a potential……i live in that part of the state. but it is only a potential at this point and cant be counted on to bail us out. it would be phenomenal if it did work out though.
- Tribune Editorial Board - Tuesday, Mar 19, 13 @ 3:00 pm:
Echoing our comrades at Sun-Times. We aren’t ignorant of the structure of SB1. In fact, we’ve had sit-down conversations with President Cullerton, read his bill, read Eric Madiar’s white paper. We prefer SB35, so we devoted more space to it in our editorial and tried to simplify the details. We have advocated for a court ruling — however that shakes out — on a pure bill, not the hybrid of SB1.
- Rich Miller - Tuesday, Mar 19, 13 @ 3:02 pm:
===on a pure bill===
Never heard of one of those.
- anon for a reason - Tuesday, Mar 19, 13 @ 3:15 pm:
Right on Rich ..
- Norseman - Tuesday, Mar 19, 13 @ 3:25 pm:
I take from their responses that the Sun Times was being lazy in explaining the choices and the Tribune doesn’t care about “reform,” they simply want to cut state spending regardless of it’s legality, morality and effectiveness in correcting the under-funding of the pension system.
This is so sad.
- Jake - Tuesday, Mar 19, 13 @ 3:29 pm:
I am baffled by what is going on. There are three things that could be done right away: 1) Make pension income be subject to state income tax, 2) Make retires pick up part of their health care insurance, with that being a larger share for e larger pensions, and 3) Increas employee contributions to the pension fund. All constitutional, almost certainly. Not enough to fully solve problem, but definitely steps toward it. Finally, for the longer run, get HJRCA1 on the ballot in 2014 and passed, so the state can levy a progressive personal income tax. Most people don’t realize how unequal our income distribution is. the top 1% makes more than the bottom 60%. The top 5% makes more than the bottom 60%. If we applied the Iowa tax rates (range from less than 1% to just under 9% at the top end).we would raise more tha $6 billion more per year than the present 5% flat tax—and reduce taxes for most people.
- Anonymous - Tuesday, Mar 19, 13 @ 4:13 pm:
Charlie, You misunderstand “disproportionate impact.” Rich schools lose less of their resources because they are not dependent on state aid while poor districts lose more of their resources because they are very dependent on state aid. You example shows that poor schools would lose even more with a reduction of the foundation level. In other words, more pain would be inflicted on the poor schools and poor kids while wealthy districts and wealthy kids would have no pain. Either way, poor kids are the victims and we should be morally outraged at a state that hurt the most vulnerable of our citizens.
- the Dark Horse - Tuesday, Mar 19, 13 @ 6:24 pm:
Is that really someone from the Tribune editorial board? If so, can they please explain why–in light of their supposed understanding that “pension holidays” are largely responsible for this mess–they believe the IL GA should have the legal right to continue this crazy practice?
- Quinn T. Sential - Tuesday, Mar 19, 13 @ 7:06 pm:
“I went to dinner with some friends last night and we were marveling at how ill-informed some legislators are about this pension reform issue”
You could say that about a wide range of issues; many of them quite important, just not to them.
As an adult you spend time on; and learn about things that you are interested in as opposed to when you are a child where you are directed to spend time learning things that someone tells you you need to know.
Most legislators have a limited background, narrow experience, and a focused personal agenda, and the rest of what goes on around them is background noise.
- reformedformerlibertarian - Tuesday, Mar 19, 13 @ 8:44 pm:
thechampaignlife,
The trouble with that is that 97B is the present value of what the pension funds needs if they get 8% rate of return. For a 5% rate of return it would be much higher than 97B.
- Snucka - Tuesday, Mar 19, 13 @ 10:27 pm:
Speaking of pensions, it seems that Squeezy has family in Washington.
http://politi.co/Y2usvN
- thechampaignlife - Wednesday, Mar 20, 13 @ 11:29 am:
I don’t know about the other systems but SURS has had an 8.1% average annual return over the past 25 years, 6.8% over the past 10 years, and 12.7% over the past 3 years. For a 40+ year period, 8% may not be that unreasonable. Yes, a 6% return would make the UAAL more like $170B, I think, but that is going to be a problem regardless of how the current shortfall is addressed. I think all of the proposals currently under consideration are targeting at most the $97B if not 90% or 80% of that.