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Madigan: Not enough

Tuesday, May 7, 2013

* The Sun-Times has a full react from House Speaker Michael Madigan’s spokesman to the new union-backed pension reform bill

A Madigan aide stopped short of shooting down Cullerton’s plan entirely but repeatedly emphasized that it doesn’t carry the same financial impact as the plan the House passed.

Madigan spokesman Steve Brown told the Chicago Sun-Times he had seen fact sheets about Cullerton’s proposal, and they “frankly don’t seem like they save much money. We’ll have to take a hard look at that. The idea is to try to save some money and get the pension systems out of the plight they’re in.

Asked if the union plan would pass the House if it emerges from the Senate, Brown said, “I have no way of knowing. It doesn’t look like it saves money.”

* The comparison

Cullerton’s proposal would wipe out about $10 billion of the nearly $100 billion pension shortfall, compared to about $30 billion under the House version.

The Senate Democratic plan also would save the state nearly $46 billion in pension payments over the next 30 years while the House plan would save about $140 billion.

More

The Madigan plan would fully fund the pensions in 30 years; the Cullerton plan would fund the pensions at 90 percent, the targeted level of the current law. The differences fall within a major debate over the need to be fully funded or whether 90 percent is good enough to weather economic storms.

More

Madigan last week didn’t show signs of backing down.

“The state’s fiscal problems are so bad that they require radical surgery,” Madigan said. “And this is the first step.”

More

Madigan took a firm stance on the House floor last week, vowing to do all he could to get SB 1 through the process. He said of the union negotiations: “I don’t expect that they’ll be able to come to an agreement such that people will be prepared to back away from this bill. There’s two chambers here, and both chambers have to pass the same bill. The House has passed a bill, and so whatever the Senate does, I don’t think it would achieve the cost savings that the House bill does.”

* The Senate GOP kept its powder dry

Senate Republicans are wary until they see legislation rather than the outline Cullerton presented as he emerged from a closed-door meeting with fellow Democrats.

No comment from the governor’s office as of yet.

* A look ahead

Cullerton said he plans to meet with Madigan on the union-backed measure, which will be heard in the Senate Executive Committee on Wednesday. He also said his chamber would hold off on considering Madigan’s pension bill until senators can take up the new measure.

* Reboot Illinois, which is owned by a kabillionaire pension reformer, cries for the children

None of us willingly takes any solace in cutting the income of retirees, but we are in a crisis in Illinois. We understand fully the motivation of state workers who believe they have been victimized by politicians who skipped payments when they insist that cutting benefits is unconstitutional.

But where is the outcry on behalf of our children? Their education benefits have been cut since 2009, also violating the state constitution. Will no one sue on behalf of our children?

People have sued multiple times over many decades. The Illinois Supreme Court has rejected all education funding lawsuits and I’m pretty certain that the Reboot folks know that. There simply is no constitutional mandate for state education funding as far as the courts are concerned.

Oppose whatever you want, but at least be honest when you try to hide behind the kids.

* The SJ-R’s outline of the proposal

Senate Bill 2404 contains numerous options. Here’s how they break down

Active employees

Choice A: Lower COLA

*Agree to a 3 percent simple COLA with a two-year delay.

*Continue state-subsidized health insurance at retirement.

*Future salary increases count toward pensions.

*May enroll in an optional cash balance retirement plan.

*Eligibility for early retirement option for downstate teachers only.

Choice B: Keep the current 3 percent compounded COLA.

Option 1

*Keep the current COLA.

*Give up state-subsidized health insurance at retirement.

*Future salary increases do not count toward a pension.

Option 2

*Keep the current COLA.

*Continue state-subsidized health insurance at retirement.

*Future salary increases count toward retirement.

*A three-year delay in the COLA.

*Workers pay an additional 2 percent of salary toward their pensions.

Retired workers would also have to make a choice.

Choice A

*Keep the current COLA, but it would be subject to a two-year freeze.

*Continue state-subsidized health insurance.

Choice B

*Keep the current COLA.

*Give up state-subsidized health insurance.

* Related…

* House pension proposal flops in Senate, new version on way

* Cullerton’s outline

* We Are One Illinois’ outline

* VIDEO: Cullerton talks to the media

- Posted by Rich Miller        

34 Comments
  1. - Tsavo - Tuesday, May 7, 13 @ 9:38 am:

    Choice B

    *Keep the current COLA.

    *Give up state-subsidized health insurance

    Please correct me if I am wrong, but wasn’t AFSCME screaming last May when Senator Cullerton tried to pass this bill last May as being unconstitutional. I seem to remember phrases like “Hobson’s choice” and “Morton’s fork” being thrown about.


  2. - Pick2 - Tuesday, May 7, 13 @ 9:46 am:

    so Dem Leaders have had arguably 3 years to work out a plan on pensions and this is now where we are at. Stalemate with competing plans and competing egos 3 weeks from adjournment. Everyone keeps talking about how Rod was the problem, but there is a more apparent common denominator here in Illinois’ inability to find solutions.


  3. - RNUG Fan - Tuesday, May 7, 13 @ 10:04 am:

    Does not look good for the conspiracy theorists


  4. - Abe the Babe - Tuesday, May 7, 13 @ 10:07 am:

    This seems to be playing out how the budget has played out over the last few years. Madigan strikes a deal with HGOP or SGOP and sends over a take it or leave it proposition at just the right time.

    The Senate D caucus hems and haws about not being dictated to by “that little irishman in the lower chamber”. They get courage for 36 hours and pass some dead on arrival bill to appease various parts of their caucus.

    Then they begrudgingly come to the realization that they have to pass the madigan budget or threaten a summer session and ruin all those picnics and parades.

    This is a much bigger issue with slightly more complex political dynamics but they way i see this is the same as the budget deal making.


  5. - Cassiopeia - Tuesday, May 7, 13 @ 10:08 am:

    It is time for Madigan to retire. Perhaps some house democrats are ready to help him do that by supporting the Senate pension plan when it comes over and give him an embarrassing rebuke.


  6. - soccermom - Tuesday, May 7, 13 @ 10:08 am:

    90 percent is adequate.


  7. - cassandra - Tuesday, May 7, 13 @ 10:14 am:

    As others have mentioned, I’d take a close look at that “access to health care” language if I were an affected employee. I know corporate retirees who have access to the company’s health care when they retire early. But they pay the full freight. It’s expensive. Might want to narrow that down a bit. And access to health care will become less critical when ACA is implemented in less than a year as all will have access, although we don’t yet know at what price.


  8. - Anonymous - Tuesday, May 7, 13 @ 10:21 am:

    Do we know if the new Union plan includes changes to the retirement age (like the Madigan plan did)?


  9. - wordslinger - Tuesday, May 7, 13 @ 10:21 am:

    John Geoghan, your chosen handle and comment are beyond creepy. What’s your problem, man? Do you think you’re amusing? You need a shrink.


  10. - Rich Miller - Tuesday, May 7, 13 @ 10:21 am:

    ===90 percent is adequate. ===

    Heck, I’d settle for 70.


  11. - Norseman - Tuesday, May 7, 13 @ 10:25 am:

    We’ll see if Cullerton let’s Madigan roll him again. IMHO Cullerton has been more deferential to the Speaker than what he is getting in return.


  12. - Rich Miller - Tuesday, May 7, 13 @ 10:26 am:

    word is right. Dude, you’re banned for life.


  13. - cunobarragan - Tuesday, May 7, 13 @ 10:35 am:

    what does 2 year COLA freeze mean? Does that mean no COLA for the first 2 years after effective date. That is probably why the proposal doesnt’t cut very many $’s.


  14. - walkinfool - Tuesday, May 7, 13 @ 10:46 am:

    This isn’t an ego-driven dispute, but one of approach to problem-solving.

    One is the traditional Dem approach to dealing with a serious problem: an “agreed bill” with unions, the other a truly bi-partisan plan, with big political and legal risks, that actually comes closer to fixing it.


  15. - WOW - Tuesday, May 7, 13 @ 10:50 am:

    Just wait until the Tier 2 people start running things. Eventually they will be in charge and we’ll all be too old to defend ourselves. Then we will be shafted.


  16. - Curmudgeon - Tuesday, May 7, 13 @ 11:07 am:

    Tsavo - “wasn’t AFSCME screaming last May when Senator Cullerton tried to pass this bill” - the options with insurance proposed then reduced pensions substantially more than the current proposal - 3 to 4 times as much in my calculation.

    Cassandra - “access to health care will become less critical when ACA is implemented in less than a year as all will have access, although we don’t yet know at what price.” Everything I’ve seen concerning price projections and the various gotchas hidden in the bill, clearly indicate that “access” will be meaningless as insurance will be unaffordable for many more households.

    Sadly, I’m afraid Abe’s prediction seems likely — I don’t see much willpower in the Senate.


  17. - Captain Illini - Tuesday, May 7, 13 @ 11:16 am:

    I truely think MM is wanting to push through his plan, which is constitutionally suspect in order to force a lawsuit. This way he passes legislation that in the end, results in the status quo. The payoff is his daughter runs on a platform to fix the mess wrought by the GA and makes good with the unions…or maybe not. (Sorry too much viewing Defiance …)


  18. - Personally... - Tuesday, May 7, 13 @ 11:19 am:

    I like Cullerton’s bill, but if I want to have any pension in 20 years, Madigan’s bill is the way to go.


  19. - Rich Miller - Tuesday, May 7, 13 @ 11:19 am:

    ===This way he passes legislation that in the end, results in the status quo. The payoff is his daughter runs on a platform to fix the mess===

    People who want to believe something will look or any excuse to believe it.

    Try removing your tinfoil hat.


  20. - dupage dan - Tuesday, May 7, 13 @ 11:20 am:

    === “The state’s fiscal problems are so bad that they require radical surgery,” Madigan said ===

    I won’t say it. I’m gonna think it but I won’t say it.


  21. - Tim Snopes - Tuesday, May 7, 13 @ 11:21 am:

    What is the monthly benefit for insurance that a retiree would be asked to give up in exchange for keeping the full COLA? No one ever talks about that.


  22. - okayjoe - Tuesday, May 7, 13 @ 11:23 am:

    I am wondering how this would affect retirees whose costs for state-subsidized heath insurance are picked up by the school district through a local contract. If those workers choose to keep the COLA, then doesn’t this law diminish that local contract?


  23. - kimocat - Tuesday, May 7, 13 @ 11:30 am:

    Tim - Good question. I think we know what it will be for a couple of years (see union agreement with Quinn), but after that, I wouldn’t count on anything, especially since Cullerton’s bill doesn’t save as much. Would it terribly surprising if MJM decided to fund the retiree healthcare appropriation in the future at about $1?


  24. - okayjoe - Tuesday, May 7, 13 @ 11:38 am:

    cunobarragan - “The first year, they would have their COLA frozen; year two, the COLA would be back in there; year three, the COLA would be frozen; and then the COLA would go on as it should from then on,” said Aurora Democratic Sen. Linda Holmes, who sponsors the bill with Cullerton.

    This quote is from Illinois Issues Blog.


  25. - GA Watcher - Tuesday, May 7, 13 @ 2:30 pm:

    Has anyone heard about the haring Speaker Madigan is planning for Thursday morning at which he is to introduce a TRS cost shift amendment?


  26. - wishbone - Tuesday, May 7, 13 @ 4:13 pm:

    Would some public union supporter explain to me how they plan to extract from a typical family of four their $40,000 share of the $100 billion pension backlog? In the end this unreasonable burden must be reduced, and it will be reduced constitutional guarantee or no guarantee.


  27. - funny guy - Tuesday, May 7, 13 @ 4:43 pm:

    90% funded by the Cullerton Plan? If so, that’s plenty. 80% funded is minimum–look at Mayor Daley’s task force report–let’s get some experts to opine–these politicians are not to be trusted


  28. - Bill White - Tuesday, May 7, 13 @ 4:50 pm:

    Re: “$100 billion pension backlog”

    What percentage of the unfunded total is needed in cash in order to be actuarially sound? 90% as proposed by soccermom or 70% as proposed by Rich Miller? Or maybe less?

    My mortgage is unfunded in the sense that future paychecks are needed to make my payments. Doh!

    The CGFA June 30, 2012 report says all IL pension plans are ~40% funded. If SB1 reduces the unfunded portion by $30 billion (as reported) it looks to me that IL moves up to ~50% funded.

    60% or 70% would be better but 100% clearly is not necessary, to remain solvent. Future tax revenues pay for a portion of future benefits just as future paychecks pay my mortgage.

    Of course, 100% funding is a terrific target if your actual goal is to demonize the government workforce.


  29. - Andrew Szakmary - Tuesday, May 7, 13 @ 5:01 pm:

    Wishbone, you raise an interesting question although your math is a bit off. According to the the Census Bureau, Illinois’ population in 2012 was 12,875,000, so if the pensions are $100 Billion underfunded the per capita share is $7,767 or $31,068 for a family of four. To make up the $31,068 shortfall over a 40 year period, at a discount rate of 7.75% (which is what most of the pension systems assume they will earn on their investments) would require the state to make catch-up contributions of $2,536 per year per family of four.

    But the state is already making substantial catch-up contributions from taxes currently being collected. At least $4 Billion of the $6 Billion per year that is now being contributed to the pensions is not a normal cost currently incurred, but just such a catch-up contribution to make up for past underfunding. So by my reckoning catch-up contributions made from current taxes amount to roughly $1,243 annually per family of four, implying the need for an additional $1,293 per year, per family, in some combination of tax increases and spending cuts to eliminate the underfunding of the pensions without reducing benefits.

    Is this painful for Illinois taxpayers? Most certainly. But it is not economically impossible. And why is it a nonstarter to ask taxpayers to sacrifice $1,293, but acceptable to ask a retired public employee with a $40,000 pension to effectively sacrifice $8,000 annually, as the Madigan legislation would require? By the way, this is why I support Cullerton’s legislation, which would ask that retiree to sacrifice about $2,000 per year. I have no major problems with fair, balanced legislation that asks retirees to chip in some, but I strongly resist the impetus to put the entire adjustment burden on the backs of state employees and retirees.


  30. - Bill White - Tuesday, May 7, 13 @ 5:03 pm:

    Elsewhere, I see that 70% is considered by Morningstar to be a benchmark for a sufficiently funded public pension plan.

    CGFA June 2012 page 24 reports

    $158 billion in liabilities and
    $ 64 billion in assets

    $ 94 billion in unfunded liabilities

    70% of ~$158 billion is ~$110 billion and therefore $44 billion rather than $94 billion is needed to reach an acturially sound funding level.

    If SB1 reduces that number by $30 billion, as reported then another $14 billion is needed, which is $5,600 per family rather than $40,000 per family as asserted by wishbone, above

    If SB1 reduces the unfunded by $30 billion


  31. - funny guy - Tuesday, May 7, 13 @ 5:04 pm:

    And where is it written that it has to be done in 30 years? Again, look at Mayor Daley’s task force report–it can be done in 50 years. I don’t see how the Ill. Sup. Ct. approves (with a straight face)a reform plan that is MUCH MORE draconian than it needs to be.


  32. - wishbone - Tuesday, May 7, 13 @ 5:54 pm:

    Andrew Szakmary wrote: “To make up the $31,068 shortfall over a 40 year period, at a discount rate of 7.75% (which is what most of the pension systems assume they will earn on their investments) would require the state to make catch-up contributions of $2,536 per year per family of four.”

    Andrew: Good response, but a 7.75% return seems wildly optimistic to me. I personally think a 5% across the board cut (your $2000 cut on a $40,000 pension), and an equal percentage cut on other state programs seems reasonable.


  33. - tired of politics - Tuesday, May 7, 13 @ 6:12 pm:

    Why hasn’t Madigan asked the Attorney General for her legal expertise on his plan? Wouldn’t that fall within the scope of her duties?


  34. - RNUG - Tuesday, May 7, 13 @ 6:51 pm:

    funny guy @ 5:04 pm:

    I define an “optimal” payment schedule as being the lowest payment over the shortest period of time with the least amount of total outlay that is affordable. You’re never going to be able to achieve all three objectives, so you have to make some judgment calls.

    For the current situation of $100B, a lot of people would say between 30 and 40 years is probably the optimal point. Under 30, and the payment size ramps up fast. Going beyond 40 years doesn’t gain much reduction in annual payment size when compared to total outlay over the extra years. So the tradeoffs between 30 and 40 are what need to be discussed.


Sorry, comments for this post are now closed.


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