The first step
Friday, May 17, 2013 - Posted by Rich Miller
* The truly big state money is spent on employer pension costs at the Teachers Retirement System. Higher education pension costs are a relative drop in the bucket…
Illinois’ public colleges and universities will gradually begin picking up the costs of their employees’ pensions starting next year under an agreed plan announced Thursday by House Speaker Michael Madigan and higher-education representatives.
“It’s only the right thing to do,” Madigan (D-Chicago) told reporters after the open meeting. “Whenever one person spends money and another person pays the bill it’s a bad policy, especially for government.”
Madigan’s long-sought pension ‘cost-shift’ bargain - an idea not contained in either of the two major pension reform bills floating in the Legislature - comes in the second week of his formal discussions with higher education institutions.
Under the plan, the state’s public universities and community colleges would pay an additional one-half percent of payroll costs into the pension system each year starting in fiscal year 2015 until the colleges cover all costs. Madigan indicated similar changes to elementary and secondary school districts were coming but did not discuss details.
Universities and colleges privately signed on to this concept months ago. So this isn’t completely “new.”
* A very important point…
The proposal also allows community colleges and universities to opt out of future pension enhancements that might be approved by the General Assembly, since they would be responsible for picking up any additional costs associated with it.
* While this initial agreement won’t save a ton of money for the state, it will cost the colleges and universities a noticeable sum…
Republicans opposed to the change contend the move could drive up property taxes as community colleges seek to offset the extra burden. Representatives for the state’s universities and community colleges acknowledged they will have to reduce positions, cut programs, and raise tuition and fees to make ends meet.
Tuition across the state already has been on the rise in recent years. The base annual tuition for new students at the University of Illinois’ flagship Urbana-Champaign campus starts at $11,834 — a 112 percent increase from 10 years ago. With fees and housing costs, the yearly price tag grows to at least $24,729.
The pension shift will cost the U. of I. an estimated $5 million to $6 million each year, President Robert Easter said. Southern Illinois University would need to set aside a projected $3 million to $3.5 million each year, President Glenn Poshard said.
But the two leaders contended that they would rather be forced to make tough spending decisions than face additional cuts to general state spending. Those cutbacks have been the norm in recent years as the state struggles to get its finances in order.
* And with higher ed in the bag, the next target is TRS…
Rep. Elaine Nekritz, D-Northbrook, said the plan for universities and community colleges will be discussed with public school districts.
“We want to have a discussion with the local districts and those representing the local districts here to see whether this program works for them, doesn’t work for them,” Nekritz said.
- PublicServant - Friday, May 17, 13 @ 10:44 am:
The “cost” shift is fine as long as a “resonsibility for paying the benefits” shift is not included.
- thechampaignlife - Friday, May 17, 13 @ 10:52 am:
So the shift will be complete in 200 years? Too bad, we could’ve used another ramp. What will the drama be 50 years from now!?!
- Happy Returns - Friday, May 17, 13 @ 10:58 am:
Champaign, where are you getting 200 years from?
- Joe M. - Friday, May 17, 13 @ 10:58 am:
==Illinois’ public colleges and universities will gradually begin picking up the costs of their employees’ pensions==
It should be pointed out that they are only talking about picking up the employer’s contributions.
State university and community college employees are, and always have contributed 8% out of their paychecks into the pension systems. Some of those in the general public don’t realize that.
- Chavez-respecting Obamist - Friday, May 17, 13 @ 11:13 am:
Eight per cent? That’s high. I work for a private university which kicks in 6 to my 4 to make it 10% of my salary every month.
- drew - Friday, May 17, 13 @ 11:14 am:
If I recall correctly, the employer’s normal cost under SURS is something like 12% of payroll. So that would be a 24 year phase-in. Of course, as more and more of the employees are in Tier 2, the normal cost as a percentage of payroll will likely decrease over time.
- archimedes - Friday, May 17, 13 @ 11:16 am:
The K-12 schools is always a tougher discussion, since tuition cannot be increased (there is no tuition). The only offset to the pension cost shift is property taxes or local budget cuts.
- PAprof - Friday, May 17, 13 @ 11:18 am:
Chavez, The employee is contributing 8 percent. This year it will go to 9 and next year to 10 percent. Also, our employer does not pay into SS as does your employer. If you add the 6 percent your university kicks in plus the SS tax, your employer is putting in closer to 13 percent toward your retirement. So, the state of IL is getting off cheap.
- Pot calling kettle - Friday, May 17, 13 @ 11:18 am:
==Republicans opposed to the change contend the move could drive up property taxes as community colleges seek to offset the extra burden.==
Unless the GA includes the authority to levy in the uncapped “retirement fund,” a CC district will need to pass a referendum, which seems unlikely. This is unfortunate because the increased cost spread over a large number of property tax payers would be small (look at you property tax bill, the CC tax levy is not that big). I would estimate an increase of 5-8% added on to the current bill.
They can try to freeze employee pay (or cut back on raises), but the employees will now need a 2% pay increase just to see their paychecks hold steady. You could cut back on full-time faculty and hire more adjuncts, but the Affordable Care Act requirements are causing colleges to cut back on hours taught by each adjunct.
That leaves one way to make up the difference: tuition hikes.
The pension problem is a revenue problem. The complaints of the Republicans are disingenuous. They know the money will have to come from somewhere.
As a side note, if the CC’s had to pay into Social Security for their employees, it would come out of the uncapped fund.
- Joe M. - Friday, May 17, 13 @ 11:22 am:
==Eight per cent? That’s high. I work for a private university which kicks in 6 to my 4 to make it 10% of my salary every month.==
Are you and your employer each also contributing around 6.2% into Social Security? Just curious.
State University Retirement System employees do not pay into Social Security, nor does their employer contribute for them into SS. So they covered by Social Security as a result of their university employment.
- archimedes - Friday, May 17, 13 @ 11:27 am:
SURS total normal cost is 15.5%, of which employees pay 8%. So the cost shift (under the current system, for 2015) is 7.5%.
TRS Normal Cost for 2015 is 17.6%, of which teachers pay 9.4% - so the cost shift 8.2%.
Both of these are based on the current system - not the reduction in normal cost from either SB1 or SB2404.
In both cases, the normal cost goes down about .3% to .4% per year due to the Tier 2.
So - for SURS, the cost shift tops out around 4.5% after 9 years. For TRS, tops out about 5% after 10 years.
- Anonymous - Friday, May 17, 13 @ 11:29 am:
“Whenever one person spends money and another person pays the bill it’s a bad policy, especially for government.”
Now that the shoe is on the other foot, it’s bad policy. Where was that philosphy for the last four decades when he was leading the legislature? Madigan, you are the biggest hipocrite!
- One of Three Puppets - Friday, May 17, 13 @ 11:42 am:
If the Dems push this through they certainly will lose seats. Politically, does this make sense to anyone?
- Anonymous - Friday, May 17, 13 @ 11:43 am:
Community colleges are built upon the premise of cost sharing–1/3 from tuition, 1/3 from local property taxes, and 1/3 from the state. The state has reduced its third to the point that the other two are taking the hit. This will simply put more burden on students and property owners. I am sure they will appreciate the GA’s action on this.
- Fan of the Game - Friday, May 17, 13 @ 11:45 am:
Anonymous 11:43 am = Me.
- steve schnorf - Friday, May 17, 13 @ 12:11 pm:
shouldn’t the “savings” to the state be exactly the same number as the “cost” to the universities and community colleges?
- Anonymous - Friday, May 17, 13 @ 12:12 pm:
Using Madigan’s logic, Illinois should end income tax sharing with municipalities.
- SangamoGOP - Friday, May 17, 13 @ 12:12 pm:
“Whenever one person spends money and another person pays the bill it’s a bad policy, especially for government.”
So, does that mean that the Speaker will begin to shift cop and fire pension policy to the municipalities that are forced to pay the bill for the changes implemented by the GA?
- Makandadawg - Friday, May 17, 13 @ 12:14 pm:
OK, I understand the cost shift to the universities but how is it all going to fit together? If the legislature is not paying any more, shouldn’t they give up their control of pension to the Universities?
- reformer - Friday, May 17, 13 @ 12:25 pm:
== does it make any sense politically? ==
For Chicago legislators it sure does, since their constituents already pay for their teacher pensions, as well as for downstate teacher pensions.
- Anon. - Friday, May 17, 13 @ 1:06 pm:
==For Chicago legislators it sure does, since their constituents already pay for their teacher pensions, as well as for downstate teacher pensions.==
True, as long as the “Whenever one person spends money and another person pays the bill it’s a bad policy, especially for government” principle is applied only to pensions. If you apply it to all school expenditures, Chicago property taxpayers will be hurt, too.
- Pot calling kettle - Friday, May 17, 13 @ 1:14 pm:
“Whenever one person spends money and another person pays the bill it’s a bad policy, especially for government.”
So, who is “spending the money”? It seems to me that the answer is the State; the State created and administers the pension systems. The local units might very well have decided to go a different route, but this is a mandated system.
The Speaker grossly oversimplifies.
- thechampaignlife - Friday, May 17, 13 @ 2:02 pm:
Ah, I read it to be .5% of the total (100%), not .5% of the 7.5%. That makes more sense. Now, what do the universities negotiate for as consideration (other than maintaining funding, which seems questionable)? I’m thinking they should at least ask for some lightening of procurement, SOEEA, FOIA, SRA, or other burdens.
- Endangered Moderate Species - Friday, May 17, 13 @ 2:54 pm:
===If the Dems push this through they certainly will lose seats. Politically, does this make sense to anyone?===
The higher education vote will be much easier than the vote that will shift the costs to school districts.
Higher education has revenue options of tuition and fee increases. School districts only have the property tax option and that option is limited with caps.
- Rich Miller - Friday, May 17, 13 @ 3:04 pm:
===If the Dems push this through they certainly will lose seats.===
The Senate Democrats have 40 seats - 10 more than a majority.
The House Democrats have 71 seats - 11 more than a majority.
I think they can afford to lose some seats.
- Nickypiii - Friday, May 17, 13 @ 3:09 pm:
Let’s pass the cost shift now! Pension bills put forward so far are only destroying employee/retiree CONSTITUTIONAL RIGHTS. The TRS alone would save a ton of State money going forward and may allow the State to keep their promises to employees/retirees!