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Quinn: Act now “or else”

Thursday, Jun 27, 2013

* Or else what?

Illinois Governor Pat Quinn is taking a hard line when it comes to pension reform and refusing to budge from the deadline he set.

The Governor tells CBS 2 Chief Correspondent Jay Levine that the bill better be on his desk July 9 or else. […]

“It’s disappointing. It’s time for the legislators all 10 of them to get to work,” said Quinn. “I’ve seen conference committees in the past the moment they were appointed they got to work. We’ve passed eight days and tomorrow I guess they are meeting for the first time. I think that have to be put on notice that they people of Illinois expect them by July 9 to have a plan that the members of both house can vote on to reform the pensions.”

“It’s disappointing. It’s time for the legislators all 10 of them to get to work,” said Quinn. “I’ve seen conference committees in the past the moment they were appointed they got to work. We’ve passed eight days and tomorrow I guess they are meeting for the first time. I think that have to be put on notice that they people of Illinois expect them by July 9 to have a plan that the members of both house can vote on to reform the pensions.”

Quinn could hold up capital projects in retaliation, but he’s consistently refused to do that in the past. I asked a top aide months ago whether the governor would be willing to kill construction projects until the GA approved pension reform. I was told Quinn didn’t want to hurt Illinois’ economy further. Not to mention that doing so would deprive a governor in reelection mode an opportunity to cut ribbons.

Could he call them back for more special sessions? Sure. That would be “punishment,” but it would likely be as futile as Rod Blagojevich’s endless summers and probably backfire on him.

* The Tribune agrees with Quinn that the conference committee is moving too slowly

This committee was supposed to be different. It is the first conference committee, with members from both chambers, formed to address pension reform. The idea behind it was a good one. Get House Speaker Michael Madigan and Senate President John Cullerton out of the room, and let reform-minded rank-and-file legislators find common ground on the No. 1 issue strangling taxpayers and state budgets.

But Madigan and Cullerton have never been in a rush. It’s clear their appointees aren’t either.

Never mind that the testimony the committee will hear Thursday is the same information lawmakers have been hearing for years. Henry Bayer, executive director of the American Federation of State, County and Municipal Employees, doesn’t need to dust off his speech. It’s still fresh from the testimony he gave in May, and before that in March and before that at, literally, dozens of meetings and committee hearings on pensions during the last decade.

Cullerton chose state Sen. Kwame Raoul, Democrat of Chicago, to chair the committee. He’s a smart guy who’s been involved in pension negotiations for months. But he’s a can-kicker. Big foot. Long, sailing punt. Raoul voted against the only bills that would have begun to substantially rescue the retirement funds. And now he’s allowing his committee to meet weekly, or less, based on an opinion from Democratic staff that the committee must give six days’ notice between hearings.

Most public committee hearings mean little to nothing. All the best lobbyists and legislators know this. You do your work behind the scenes and then let the show play out at the hearing.

But these guys just have to scream about something, so here we go again.

* Let’s look at some facts. This paper was written by Marc Joffe of Public Sector Credit Solutions

When considering the impact of underfunded pensions on Illinois’s solvency, it is worth evaluating the implications of the extreme case, in which the assets of all five systems are exhausted. If that were to happen, the state government would have to cover all benefit payments and administrative expenses from revenues on a pay-as-you-go basis. Offsetting these annual costs would be the contributions withheld from the salaries of current employees and (in the case of the Teacher’s Retirement Fund) school district contributions.

In 2012, the state contributed $4.9 billion to its various pension funds, but it would have been compelled to contribute $6.7 billion if it had been operating on a pay-as-you-go basis… By 2045, the state’s potential burden almost quintuples to $24.6 billion.

It is important to place these numbers into the context of the overall budget picture. According to figures provided to the author by the Institute of Government and Public Affairs (IGPA) Fiscal Futures project, the state’s consolidated revenue was $66.4 billion in fiscal year (FY) 2012 (IGPA, personal communication). The state’s actual pension contributions totaled 7.3 percent of revenue, and would have been 10.0 percent in the absence of pension funding. Thus the debate over pension funding revolves around $1.8 billion, or 2.7 percent, of state revenue—a substantial amount, but not one that would likely trigger insolvency.

Projecting into the future shows some surprising results. While pension costs are expected to increase, state revenues will also rise. In the 31 fiscal years from 1981 to 2012, appropriated state revenues (which approximate consolidated revenue4) increased at an annualized rate of 6.32 percent. This is somewhat higher than the 4.82 percent yearly growth in nominal personal income over the same period, with the difference largely explained by tax hikes imposed during the period. Although revenue growth may be slower over the next three decades (due to lower fertility rates, population aging, and disincentives arising from higher income taxes), it is still likely to be substantial—if for no other reason than simple inflation. Moody’s Analytics (2013) projects that Illinois’s annual personal-income growth will average roughly 4.5 percent through 2021. […]

These revenue growth rates are plausible without further tax increases, since they bracket the Moody’s Analytics forecast of personal-income growth. [Emphasis added.]

It’s more than 2.7 percent of state revenues, because basing this projection on all revenue is misleading. You can’t use Medicaid dollars for pension funding, for instance. You can’t use FOID card application fees for pension funding, either.

But you get the idea.

Joffe also writes convincingly that “Illinois bonds carry very little credit risk.”

- Posted by Rich Miller        

  1. - Liberty First - Thursday, Jun 27, 13 @ 10:43 am:

    Nice to seem some rational thought about pensons.

  2. - Formerly Known As... - Thursday, Jun 27, 13 @ 10:48 am:

    === We’ve passed eight days ===


    Perhaps if he and his fellow leaders had not abdicated leadership for so long he wouldn’t need a conference committee to solve his problems for him.

    This is an issue that developed over 30+ years or so.

    One that Quinn, Cullerton and Madigan had more that a few months and sessions of their own to address.

    But he’s throwing a hissy fit, “or else”, because the conference committee has passed the 8 day mark?

    OK, Governor. If you say so.

  3. - central illinois - Thursday, Jun 27, 13 @ 10:49 am:

    if this pension mess had been addressed 7 years ago when first discussed can you imagine how much money could have been saved - it very sad that the legislature and state officials have chosen to do everything but make a difference in this matter

  4. - Empty Chair - Thursday, Jun 27, 13 @ 10:51 am:

    Is the “or else” a quote from Quinn, or Levine? Doesn’t seem like an accurate headline.

  5. - dupage dan - Thursday, Jun 27, 13 @ 10:52 am:

    ===This committee was supposed to be different===

    The Tribune has truly lost it’s collective editorial mind.

  6. - Bill White - Thursday, Jun 27, 13 @ 10:53 am:

    From the Joffe piece:

    === Rather than estimate the probability of a default or the expected loss on a credit instruments, rating agencies still provide their assessments in the form of letter grades that have imprecise definitions and can easily be misinterpreted by market participants. ===

    Bond ratings based on imprecise definitions and misinterpretations of the data, allow bond holders to extract above market interest rates from Illinois taxpayers by playing on emotions using words such as “toxic”

    In the singles scene, this reprehensible practice is called “negging”

  7. - walkinfool - Thursday, Jun 27, 13 @ 11:05 am:

    If the best work will be done “behind closed doors”, who cares when the committee formally meets, or hears from the same witnesses again and again, or that they claim they have to give six days notice of each meeting?

    A Conference Committee is rarely called, and now only when the regular processes of the legislature failed to act on a major issue. Do we really think that it would be better to fail than to adjust normal procedural and transparency practices.

    Nothing to be discussed would not have already been considered, probably multiple times. It is now a matter of coming to agreement.

    Get the job done! For this CC now, forget the niceties that make the goo-goos comfy.

    And consider replacing any announced candidate for higher office, on the committee. That’s an invitation for avoidance and distraction. That might be unfair, but this is not the time to risk it.

  8. - Jaded - Thursday, Jun 27, 13 @ 11:09 am:

    Negging huh? The only verb I remember when I said something less than flattering to a girl was “slapping”!

  9. - Archimedes - Thursday, Jun 27, 13 @ 11:12 am:

    I think the whole thing boils down to “never let a good crisis go to waste.”

    With the 1995 Ramp, we were on schedule to see dramatic increases in pension payments through 2010 (our own deliberate creation). With the 2008 financial crash revenue tanked, pension assets eroded, and - at the same time - the 1995 Ramp was escalating.

    That all added up to a crisis. Not a pension crisis - a financial crisis. Pensions are a convenient blame since the cost goes up dramatically - not because of benefits, but because of the loss in assets and the Ramp.

    Now - we are through the steep slope of that curve. The costs are no longer increasing dramatically.

    But - we have set ourselves up for another crisis in 2015 when we allow the income tax to go down to 3.75% from 5%.

    The heat is on to act now, while the crisis is fresh.

  10. - Norseman - Thursday, Jun 27, 13 @ 11:13 am:

    Quinn quote: “We’ll have consequences, but it’s important for the legislators to know now that they’ve got to do their job.”

    The consequence is that he’ll unleash Squeezy.

  11. - sal-says - Thursday, Jun 27, 13 @ 11:26 am:

    “or else”

    5 year old’s temper tantrum at recess?

  12. - Robert the Bruce - Thursday, Jun 27, 13 @ 11:26 am:

    Good to hear Quinn on record a few months ago that he won’t hold up capital projects…that means it is about time for him to change his position, right?

    Part of me says he should hold up only the capitol projects that affect Raoul’s district if the foot-dragging continues.

    But our hamfisted governor would probably be better served just to refrain from interfering.

  13. - RNUG - Thursday, Jun 27, 13 @ 11:32 am:

    If they are looking to kick the can down the road a ways, the committee should propose resetting the ramp, reassigning pension bond payments as they expire, and making the temp income tax permanent. Add in a gradual cost shift for TRS / SURS, a bit of normal revenue growth, a bit of spending restraint and the State should be able to muddle on for a number of years.

    And EVERY one of those proposals is 100% constiutional.

  14. - 47th Ward - Thursday, Jun 27, 13 @ 11:32 am:

    Cover of my favorite National Lampoon:

    Buy this magazine or we’ll shoot this dog.

  15. - Grandson of Man - Thursday, Jun 27, 13 @ 11:40 am:

    “disincentives arising from higher income taxes”

    There are different theories or schools of thought on how higher income taxes influence behavior. I read that the opposite behavior happens. When taxes are higher, business owners/managers are willing to bargain better with employees and pay more, because they have less net profits and thus less incentive to be tougher on wages and benefits. Today, wealthy corporations are making huge profits at the expense of wages, and there is a push to erode the strength of labor. Also, business owners look to invest their profits in their companies rather than having to pay higher taxes. Then there is the marginal propensity to save, in which the more money is made, the less it’s spent, proportionally.

    On a side note, I’m glad to learn this morning that my state rep (Toni Berrios) became a sponsor of SB 2404. She voted for SB 1. I don’t know how the conflict between the two bills can be resolved in the special session, except for maybe pairing them up with the anticipation that the court might strike down SB 1.

  16. - kerfuffle - Thursday, Jun 27, 13 @ 11:45 am:

    What’s he going to do, hold his breath?

  17. - Grandson of Man - Thursday, Jun 27, 13 @ 11:49 am:

    “or else”
    “What’s he going to do, hold his breath?”

    I just learned that Quinn threatened to run for reelection if pension reform is not passed.

  18. - wordslinger - Thursday, Jun 27, 13 @ 11:52 am:

    Excellent analysis by Joffe, except for his use of all-funds revenues.

    One hopes that it is read far and wide and helps tamp down the general hysteria regarding pensions and bonds.

  19. - RetiredStateEmployee - Thursday, Jun 27, 13 @ 12:02 pm:

    When the governor creates a “crisis” where there is none, we pay the price and he blames everyone else. The real crisis in Illinois is the unpaid bills and unbalanced budgets. Ask the vendors whether the pension or their delayed payments are a bigger problem. Not saying that the pension systems don’t have a problem, just that it is a manufactured crisis.

    And by the way, who believes the bond rating agencies anyway. They gave triple A status to junk. Way to go to even listen to them.

  20. - Leatherneck - Thursday, Jun 27, 13 @ 12:05 pm:

    Would any of you be surprised if the “or else” on July 9 mean that the Governor may hold off on the signing of the FY14 budget bills until that date–and if there’s no pension bill at his desk he will impose draconian cuts (closures, layoffs, etc.) and perhaps veto the entire capitol bill in its entirety? (Meaning the choice for state workers will come down to pensions or jobs).

  21. - Old and In The Way - Thursday, Jun 27, 13 @ 12:42 pm:

    Leatherneck-Not going to happen. The fallout for PQ would be disastrous both with the public and the GA. The state employees would be the least of his problems. Couple this fallout with the financial consequences and there just might be a crowd with pitch forks and torches at the Governors Mansion. No, even Governor Dufus isn’t that dumb.

  22. - Andrew Szakmary - Thursday, Jun 27, 13 @ 2:31 pm:

    So the absolute worst case scenario is that the annual pension payment by the state increases from $4.9 to $24.6 Billion over 33 years, which constitutes a 5% annual growth rate - isn’t this pretty much the expected long-run growth rate of nominal GDP, at which Illinois’ revenues should grow provided you don’t reduce taxes? So the burden of the pensions in 2045, even in a worst case scenario, will be no greater than currently.

    By the way, regarding the extra $130 million in interest Illinois will have to pay on its recent bond issue over 25 years (vs. if the state were rated AAA): this works out to about $5 million per year. If we conservatively assume that Illinois State general revenues are $30 Billion annually (I think they are somewhat higher), then this represents about 0.0167% of annual revenue, and has the same proportional impact as a $1.40 per month increase in a cable TV bill on someone earning $100,000 per year. But never mind elementary math and basic common sense; Pat Quinn, Mike Madigan, Ty Fahner, Meredith Whitney et. al. tell us we are all doomed, so surely it must be so.

  23. - New Thought - Thursday, Jun 27, 13 @ 2:45 pm:

    We have more than the GRF fund. I would like to see the math if we changed the law to allow 10-15% of all of the other State only funds to be used along with 10-15% of the GRF to pay towards the unfunded liability. Since we are in a ‘Crisis’ and the Politicians say everyone needs to contribute, this might be a workable solution or at least part of one.
    It would not require a tax hike, it helps the Agencies that are funded by the GRF (i.e. Education, Public Safety), it would have a minimal impact of the other funds, it would make Wall Street happy due to us have a workable solution and most of all it would be 100% constitutional.
    Additionally, if the GA still feels that State Employees are getting too much, they can change the law for new hires. They could also still pass a cost shift for the education issue if they want too.
    The only problem, it is common sense and may not be politically acceptable.

  24. - RNUG - Thursday, Jun 27, 13 @ 3:18 pm:

    They’ve already changed th ela for new hires … that was Tier 2 which is expected to run afoul of the SS rules in about 8 - 10 years.

  25. - reformer - Thursday, Jun 27, 13 @ 3:29 pm:


    You make specific and constructive suggestions about how to reduce state liability. Unfortunately, the Tribsters won’t like most of them since they don’t require a pound of flesh from public employees and retirees.

  26. - RNUG - Thursday, Jun 27, 13 @ 3:47 pm:

    reformer @ 3:29 pm:

    For what it is worth, Rep. Lang’s proposals today in committee pretty much reflected my list earlier in this post … so the suggestions are at least getting some attention.

  27. - fake county chairman - Thursday, Jun 27, 13 @ 8:30 pm:

    IS it not age discrimination if they adjust your pension and your are over the age of forty with out offering you a cash incentive when you retire per federal law.

Sorry, comments for this post are now closed.

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