Capitol - Your Illinois News Radar » Falling into his own trap
SUBSCRIBE to Capitol Fax      Advertise Here      Mobile Version     Exclusive Subscriber Content     Updated Posts    Contact
To subscribe to Capitol Fax, click here.
Falling into his own trap

Monday, Aug 29, 2016

* Remember this Chicago police and fire pension bill that the General Assembly passed in the spring?

Over the short term, the bill would have reduced how much taxpayers contribute to the retirement funds by hundreds of millions of dollars a year. But that delay would come at a cost of billions of dollars over the long haul. By paying less upfront, the city would see its pension debt continue to grow.

* The governor vetoed that bill and was then overridden. Gov. Rauner was not amused

“Clearly, those who supported this measure haven’t recognized what happens when governments fail to promptly fund pension obligations,” [Gov. Bruce Rauner] said. “Instead of kicking the can down the road, local and state governments should instead focus on reforms that will grow our economy, create jobs and enable us live up to the promises we’ve made to police and firefighters.”

In vetoing the bill Friday afternoon, Rauner called the measure “irresponsible” and warned “the cost to Chicago taxpayers” in the long run is “truly staggering.”

The bill allowed the city to avoid a $300 million tax hike.

* Finke

And then we have last week. Gov. BRUCE RAUNER’s administration let it be known it didn’t want the Teachers’ Retirement System board to vote to lower the estimated rate of return it would get on its investments. Although that recommendation comes from actuaries not under anyone’s political control, the administration said the process needed more scrutiny and input before the decision was made.

It also made note that lowering investment returns would cost the state money that could not then go to education and other programs.

Fair enough, but the other point to remember is this. Overestimating investment returns would save the state money in the short term, but that doesn’t mean the bill goes away. It just shoves it off into the future. It’s sort of a variation on the old practice of simply shorting the money outright.

For Rauner, it would make budget life a little easier next year, not to mention possibly helping to hold down the size of the tax hike everyone seems to acknowledge is coming. As for making the pension systems any healthier, probably not so much.

Subscribers know more about the motivations here, but the governor clearly fell into his own rhetorical trap on this one.

I’m not sure who thought of it first, but it really doesn’t matter. Greg Hinz made the same comparison to the Chicago pension veto.

- Posted by Rich Miller        

  1. - Sir Reel - Monday, Aug 29, 16 @ 9:56 am:

    Our esteemed Governor never let’s logic get in the way of his message.

  2. - Anonymous - Monday, Aug 29, 16 @ 10:08 am:

    Extending the Chicago ramp and statutorily lowering the payments for 4 years is a lot different than the TRS Board changing the assumed interest rates returns.They really aren’t even comparable.

  3. - Whatever - Monday, Aug 29, 16 @ 10:09 am:

    Four legs good, two legs better.

  4. - facts are stubborn things - Monday, Aug 29, 16 @ 10:09 am:

    The one thing all well funded pension system have in common is that they have made their actuarially required payments. The Gov. should applaud lowering the estimated return on pension funds to reflect proper actuarial principles. The pension system has three elements to it. The employee contributions, the employer contributions,and the investment return on the pension funds. The employees make all payments 100% of the time and the employer has often skipped payments. It is critical for the investment returns to reflect reality(so that the employer contributions are proper) and for the employer to make the actuarially required payment.

  5. - Grandson of Man - Monday, Aug 29, 16 @ 10:14 am:

    “local and state governments should instead focus on reforms that will grow our economy, create jobs”

    If Rauner’s reform plans were so good, wouldn’t he have provided detailed estimates and projections by now?

    Rauner won’t do what others consider sound, which is move incrementally on reforms (until the partisan landscape changes in the GA).

  6. - Keyrock - Monday, Aug 29, 16 @ 10:17 am:

    Whatever is correct.
    For labor, the governor wants you to be like Boxer, and work harder.

  7. - Last Bull Moose - Monday, Aug 29, 16 @ 10:30 am:

    It is bad when the politicians ignore actuarial reality when writing pension laws and skipping payments. It is worse when the politicians try to change the actuarial calculations to suit political purposes. The Pension Board should be politically independent and actuarially sound.

    Political intervention is a form of corruption.

  8. - PublicServant - Monday, Aug 29, 16 @ 10:33 am:

    Governor Kick-the-Can…sounds catchy.

  9. - Shemp - Monday, Aug 29, 16 @ 10:34 am:

    Yes, the hypocrisy on this one is undeniably deep.

  10. - JS Mill - Monday, Aug 29, 16 @ 10:37 am:

    I think they call this double talk?

    I remember when the governor said he was going to be transparent and be honest and not use “budgetary gimmicks and tricks”.

    That does not seem to be panning out. Oh well..

    I am just waiting for that FY 2016 balanced budget the governor is supposed to submit for approval.

    Just waiting, and waiting, and……

  11. - SAP - Monday, Aug 29, 16 @ 10:44 am:

    Wait, are you trying to say that the recipe for goose sauce is exactly the same as the recipe for gander sauce? Who knew?

  12. - Anonymous - Monday, Aug 29, 16 @ 10:46 am:

    Hey, give the guy a break, he is still new at the job, remember?

  13. - DuPage - Monday, Aug 29, 16 @ 10:48 am:

    Rauner ran for governor saying he would eliminate fraud and thereby eliminate the need for a tax increase. Now he is urging TRS to commit what amounts to fraud for his political convenience. Even the TRS board members he appointed refused to go along with his demand.

  14. - Huh? - Monday, Aug 29, 16 @ 10:52 am:

    They are completely different. One bill helps Rahm, which even though they are wine club pals, everybody knows that 1.4% isn’t going to lift a finger for Chicago. The TRS vote the other day hits 1.4% exactly where it is going to hurt - his own balanced budget that he has yet to offer. He has to come up with another $400 million on top of the $8 billion in unpaid bills.

    Yes it is hypocrisy to veto one and plead for the other. But 1.4% was begging for the problem he has to solve. Other than wanting Chicago to go bankrupt, he doesn’t care about the city.

  15. - Sue - Monday, Aug 29, 16 @ 10:52 am:

    Folks- time to get serious- Friday’s TRS action is a come to Jesus moment. Does anyone think Illinois(forget Chicago) can survive as it starts paying 35 percent and more annually into the pension plans. Rauner may lack political finesse but you can’t argue that things need to change and quickly. The Dems belief that it can continue to spend at current levels as more tax revenue needs to pay the pension bill is utterly rediculous. It’s time to start a reform path that allows the State to survive because without sounding too alarmist that’s now what we are facing. Sure raise rates back to 5 and if any of you thinks that’s all that has to occur you are just utterly wrong.

  16. - Huh? - Monday, Aug 29, 16 @ 11:00 am:

    Sue - the come to jesus moment should have been the last time the ILSC shot down the pension reform law. What does it take for 1.4% and the GA to learn that the pensions are untouchable? Pay what is owed. The State employees had/have mandatory pension deductions from their paychecks. They paid what they owed. It is time for the State to pay what it owes.

  17. - Sue - Monday, Aug 29, 16 @ 11:04 am:

    Huh- missed my point entirely. Sure the S Ct has said pay the pensions. OK. But you don’t seem to recognize what that means for the rest of the State’s spending. Absent immediate reductions across the board- the tax rates you will need in years to come will make 5 percent seem like a dream

  18. - Sue - Monday, Aug 29, 16 @ 11:06 am:

    Oh let’s not forget that beginning on 2018 that’s to Ovamacare- the state’s on the hook for at least 800 million for Medicaid expansion. Obie and Quinn pegged the increase at 180. Guess they both failed at math class

  19. - Joe M - Monday, Aug 29, 16 @ 11:27 am:

    ==the tax rates you will need in years to come will make 5 percent seem like a dream==

    Yah, We may even need rates at or equal to those of our surrounding states! Iowa 8.98% — Wisconsin 7.65% — Missouri 6.0% — Kentucky 6.0%, etc, etc.

    Our rates were kept artificially low for decades by not paying the pension bill. That couldn’t go on forever.

  20. - The Dude Abides - Monday, Aug 29, 16 @ 11:27 am:

    @Sue, remember that under the unpopular Pat Quinn the state was at least able to make the required pension payments every year while also reducing the unpaid bill backlog from $10 billion to around $4 billion. Quinn was able to accomplish that because of the 5% income tax rate. Letting the tax rate expire, which both sides share the blame on, was the big mistake. I agree with you that 5% may not be enough now because for the last 19 months under the current administration expenses have been greatly exceeding revenue and we have quickly run up several more billion dollars of unpaid bills.

  21. - Whatever - Monday, Aug 29, 16 @ 11:35 am:

    Sue — Rauner’s attempt to get the TRS board to hold off on recognizing that its earnings assumptions are too high is playing right into the hands of people who claim that we can continue spending at current levels and pay down the pension debt, because overstating the expected returns understates the pension debt that has to be paid. Understating the cost of any program allows understating the tax increases and cost cuts that need to be made.

  22. - Chris - Monday, Aug 29, 16 @ 11:44 am:

    “overstating the expected returns understates the pension debt that has to be paid”

    The debt is the same either way.

    The return assumption just acts as a partial payment on the debt–lower assumed returns = higher ‘normal’ cost.

  23. - Juice - Monday, Aug 29, 16 @ 12:36 pm:

    Sue, that 800 million figure is just wrong. Not knowing entirely what it’s based off of, that figure is more than 25% of total ACA liability. And the most that the state has to cover, beginning in 2020, is 10%, which is less than the $800 million. So Quinn and Obie appear to be not the only ones bad at the maths.

  24. - Anonymous - Monday, Aug 29, 16 @ 1:00 pm:

    sue, actually if the state can achieve and sustain reasonable revenue growth, one of the Governor’s top goals, the percent of the budget going to pension payments will be on an inexorable downward slide.

  25. - Sue - Monday, Aug 29, 16 @ 1:01 pm:

    Juice- that number is the State’s reassessment of its 2018 Medicaid contribution due to the surge in enrollment

  26. - steve schnorf - Monday, Aug 29, 16 @ 1:01 pm:

    jeez, anon 1:00 is me

  27. - steve schnorf - Monday, Aug 29, 16 @ 1:02 pm:


  28. - Sue - Monday, Aug 29, 16 @ 1:48 pm:

    Be interested in Steve S assessment what the tax rate will need to be to fund State government including the pension payments and paying down the pile of bills Illinois has accrued.

  29. - Whatever - Monday, Aug 29, 16 @ 2:50 pm:

    Chris @ 11:44 ==The debt is the same either way.==

    The amount that gets paid to the retirees is the same either way; how much the state has to pay is greater if the return on investment goes down (assuming the state doesn’t switch to pure pas-as-you-go).

    ==The return assumption just acts as a partial payment on the debt–lower assumed returns = higher ‘normal’ cost.==

    In other words, lower return means the state has to pay more.

  30. - Arthur Andersen - Monday, Aug 29, 16 @ 2:58 pm:

    Whatever @2:50 is spot on and concise to boot.

    Flip back to Friday’s posts to see a chart from the actuaries that shows the real numbers involved here.

  31. - Trapped in the 'burbs - Monday, Aug 29, 16 @ 4:00 pm:

    The governor might want to do something other than veto and complain. He can start by presenting a balanced budget with a combination of spending cuts and tax increases to present a real budget. Standing on the sidelines and complaining (or complainin’ ?) isn’t getting us anywhere. Thompson, Edgar and Ryan all found a way to work with Madigan.

Sorry, comments for this post are now closed.

* Reader comments closed until Tuesday
* *** UPDATED x1 *** Tribune asked 16 mayoral candidates to release tax returns, 6 complied
* A rough idea of what they're looking at
* Question of the day: Golden Horseshoe Awards
* Rauner was wrong about "record levels" of unionization
* SUBSCRIBERS ONLY: Stava-Murray updates
* Pritzker's inauguration ball tix will benefit Cabrini Green Legal Aid Clinic and Illinois Fairgrounds Foundation
* Rauner claims he's been too busy to reflect on his term
* Pritzker's day in DC
* *** UPDATED x3 - Morrison wants emergency meeting of ILGOP - McConnaughay explains - Schneider responds *** Rauner says he tried to drop out of race after primary
* Feds re-raid Ald. Burke's office
* Yesterday's stories

Visit our advertisers...






Main Menu
Pundit rankings
Subscriber Content
Blagojevich Trial
Updated Posts

December 2018
November 2018
October 2018
September 2018
August 2018
July 2018
June 2018
May 2018
April 2018
March 2018
February 2018
January 2018
December 2017
November 2017
October 2017
September 2017
August 2017
July 2017
June 2017
May 2017
April 2017
March 2017
February 2017
January 2017
December 2016
November 2016
October 2016
September 2016
August 2016
July 2016
June 2016
May 2016
April 2016
March 2016
February 2016
January 2016
December 2015
November 2015
October 2015
September 2015
August 2015
July 2015
June 2015
May 2015
April 2015
March 2015
February 2015
January 2015
December 2014
November 2014
October 2014
September 2014
August 2014
July 2014
June 2014
May 2014
April 2014
March 2014
February 2014
January 2014
December 2013
November 2013
October 2013
September 2013
August 2013
July 2013
June 2013
May 2013
April 2013
March 2013
February 2013
January 2013
December 2012
November 2012
October 2012
September 2012
August 2012
July 2012
June 2012
May 2012
April 2012
March 2012
February 2012
January 2012
December 2011
November 2011
October 2011
September 2011
August 2011
July 2011
June 2011
May 2011
April 2011
March 2011
February 2011
January 2011
December 2010
November 2010
October 2010
September 2010
August 2010
July 2010
June 2010
May 2010
April 2010
March 2010
February 2010
January 2010
December 2009
November 2009
October 2009
September 2009
August 2009
July 2009
June 2009
May 2009
April 2009
March 2009
February 2009
January 2009
December 2008
November 2008
October 2008
September 2008
August 2008
July 2008
June 2008
May 2008
April 2008
March 2008
February 2008
January 2008
December 2007
November 2007
October 2007
September 2007
August 2007
July 2007
June 2007
May 2007
April 2007
March 2007
February 2007
January 2007
December 2006
November 2006
October 2006
September 2006
August 2006
July 2006
June 2006
May 2006
April 2006
March 2006
February 2006
January 2006
December 2005
April 2005
March 2005
February 2005
January 2005
December 2004
November 2004
October 2004

Blog*Spot Archives
November 2005
October 2005
September 2005
August 2005
July 2005
June 2005
May 2005


RSS Feed 2.0
Comments RSS 2.0

Hosted by MCS SUBSCRIBE to Capitol Fax Advertise Here Mobile Version Contact Rich Miller