*** UPDATE *** From the Civic Federation…
Rich,
The Civic Federation supports the override of the Governor’s veto, because there is no other budget plan in place. Without a budget, downgrades are imminent. It remains to be seen how the ratings agencies will reaction even if we do pass a budget.
While the current plan is not a panacea, it is a building block to move the state forward.
See: our recent tweet.
Here’s another quote from a WSJ article this morning:
“It would be a great improvement to have any type of budget framework,” Mr. Msall said. “However that will not be the end of Illinois’ financial crisis.”
Please let me or Laurence know if you have any questions.
Katy
Katy Broom | Communications Director
The Civic Federation
[ *** End Of Update *** ]
* Reuters…
Moody’s Investors Service issued a warning on Wednesday that even if the House follows identical Senate action Monday and overrides Rauner’s vetoes, the nation’s fifth-largest state risks a credit rating downgrade to junk because of unaddressed fiscal woes.
Moody’s said the budget plan falls short of adequately addressing pensions and the backlog of unpaid bills. “It’s not clear to me that they won’t quickly find themselves with a comparable backlog and more long-term bonded debt,” said Moody’s analyst Ted Hampton.
Laurence Msall, president of the Civic Federation, a Chicago-based government finance watchdog, said the bill does not provide stability. “What rating agencies are pointing to, even with the tax increase if the General Assembly overrides the governor and with the spending plan as approved, the state still has severe financial challenges going forward,” he said. […]
The budget also purports to save $500 million from pension changes, although there were slim details on how those savings would be realized.
“The pension reform in (the legislation) doesn’t look like it’s really revolutionary or will move the needle in any big way,” Hampton said.
* From the BIMP analysis on pensions…
Requires contributions from the State Pensions Fund to SURS to be a portion of the certified contributions, rather than being in addition to the certified contribution.
Authorizes the GRF share of SERS contributions to be appropriated directly to SERS.
Provides 5 year actuarial assumption smoothing that affects GARS, JRS, SERS, SURS and TRS, identical to language from the House Republican plan and is similar to the Governor’s proposal from his FY 17 and FY 18 pension reform measures. Estimated reduction to the pension funds is $892.1 million.
Contains a limited cost shift for high salaried employees under SURS and TRS. Employers within TRS and SURS will contribute an amount for the normal cost portion of salary that exceeds the Governor’s salary and the state would continue to contribute on salaries below the Governor’s.
Requires a recertification of the state contribution to reflect the changes to GARS, JRS, SERS, SURS, TRS on November 1, 2017.
Contains changes to the Chicago Municipal and Laborers pension reform proposal. It is nearly identical to SB 14, which passed the House in April of 2017. The only change is a date that was moved 6 months from June 1, 2017 to July 15, 2017 to October 1, 2017 through November 15, 2017.
Provides language that is meant to clarify that all members of the Chicago Fireman’s Annuity and Benefit Fund born in or after 1955 through 1965 are entitled to a 3% simple COLA as required by statute.
Implements a Tier 3 defined benefit and defined contribution pension plan for current Tier 2 members (if they elect to participate) and future hires within SERS (only non-covered employees), SURS, and TRS. The normal cost of the benefits are shifted to the local school districts, community colleges and universities. The state will make a 2% contribution of Tier 3 payroll to the systems in FY 18, FY 19 and FY 20. This Tier 3 plan is very similar to the House Republicans and the Governor’s Tier 3 plan. HFA #1 allows the systems to establish by board resolution an implementation date for Tier 3. The Governor’s Office projects Tier 3 will save $500 million in FY 18.
- Gman - Thursday, Jul 6, 17 @ 12:09 pm:
Can anyone explain this wording?
“Provides 5 year actuarial assumption smoothing that affects GARS, JRS, SERS, SURS and TRS,…”
Gman
- 47th Ward - Thursday, Jul 6, 17 @ 12:09 pm:
Let’s try to remember two very important things:
First, this is essentially the budget Rauner introduced. The tax rate is 4.95% because that is the tax rate Rauner asked for. The most significant difference between this budget and the budget Rauner introduced? This budget cuts more spending than Rauner’s proposed budget.
- Perrid - Thursday, Jul 6, 17 @ 12:10 pm:
Sorry if I missed this, but the “considerations” thing Cullerton was pushing, for current Tier 1 employees, wasn’t in the current budget plan? I thought that was where the pension savings was coming from.
- Archiesmom - Thursday, Jul 6, 17 @ 12:12 pm:
Cullerton is right - this budget and all that goes with it is only the beginning. There’s a lot of ugly work to do down the road if the state is to thrive again.
- Montrose - Thursday, Jul 6, 17 @ 12:14 pm:
I think folks often get so caught up in the moment, they forget the bigger picture. The bigger picture, which we are all well aware of, is that our problems are not going to be fixed by simply passing this budget. We need to pass this budget. And then we need to do a bunch of other things. This will take years to fix.
Also, we have set the bar so low, we all have forgotten that passing a budget should be a fairly routine thing that we do, oh, every year.
- Norseman - Thursday, Jul 6, 17 @ 12:16 pm:
=== “The pension reform in (the legislation) doesn’t look like it’s really revolutionary or will move the needle in any big way,” Hampton said. ===
Any suggestions on what you consider to be revolutionary and constitutional Mr. Hampton.
- Rogue ROni - Thursday, Jul 6, 17 @ 12:18 pm:
Here’s a thought. Legalize cannabis. Tax cannabis. It hasn’t led the breakdown of society in any other state that’s passed full legalization. Let’s end the prohibition.
- Anonymous - Thursday, Jul 6, 17 @ 12:19 pm:
So did they close GARS?
- ChitownOpine - Thursday, Jul 6, 17 @ 12:21 pm:
=This will take years to fix.=
I wish it were only years to be fixed. I imagine the damage will take a generation to fix. We’re only lucky in that a recent tech boom has happened in Chicago bringing in some good companies and jobs. Doesn’t do much for boondocks. Maybe take some tax burden off them? This corporate income tax increase could reverse that boom. We’ll have to wait and see if they flee to the Racine, WI border like Amazon did with its fulfillment center.
- Davos Seaworth - Thursday, Jul 6, 17 @ 12:22 pm:
=“Provides 5 year actuarial assumption smoothing that affects GARS, JRS, SERS, SURS and TRS,…=
The intent is to spread out the financial impact to the state’s contribution associated with any change in actuarial assumption over a 5 year period. This provision is similar to what was done with investment performance smoothing about 8 years ago.
Recent changes to State System actuarial assumptions had noticeable increases to the FY 18 contribution (mortality table, investment, etc).
- Just Sayin' - Thursday, Jul 6, 17 @ 12:25 pm:
===Any suggestions on what you consider to be revolutionary and constitutional Mr. Hampton.===
It’s not Mr. Hampton’s job to “make suggestions” on how to fix, just to analyze (he’s an analyst). It’s the Governor and Legislature’s responsibility to come up with a solution.
- Anonymous - Thursday, Jul 6, 17 @ 12:26 pm:
==Any suggestions on what you consider to be revolutionary and constitutional Mr. Hampton.===
I don’t think the ratings agencies much care what the state constitution says. And I don’t think they will be as patient with Illinois as the IMF has been with Greece. Their credibility is badly damaged especially from the ratings debacle uncovered after the 2007-08 meltdown. And Illinois does not want to be their poster child for how they now get it right.
- Mr. RJG - Thursday, Jul 6, 17 @ 12:26 pm:
Can you please post the BIMP analysis?
- Anonymous - Thursday, Jul 6, 17 @ 12:32 pm:
I don’t think the ratings agencies much care what the state constitution says.
Some of their more astute analysts are probably aware of the constraints the state has on providing a solution. We have lost 5 or 6 years in coming up with a long term plan to pay down the accrued debt, when we were testing solutions in the GA and then in court that tried to make part of the debt go away. It was a gamble that didn’t pay off.
- winners and losers - Thursday, Jul 6, 17 @ 12:37 pm:
Does this mean that for new teachers just hired, the local school district (rather than the State) must pay the pension cost?
- Ron - Thursday, Jul 6, 17 @ 12:38 pm:
- Rogue ROni - Thursday, Jul 6, 17 @ 12:18 pm:
Here’s a thought. Legalize cannabis. Tax cannabis. It hasn’t led the breakdown of society in any other state that’s passed full legalization. Let’s end the prohibition.”
We have some of the worst politicians in the country. Our state is billions upon billions in debt and something so simple and legalization and regulation of pot won’t be done. Don’t you think $400,000,000/year in taxes would help just a little?
- AnonymousOne - Thursday, Jul 6, 17 @ 12:39 pm:
The ratings agencies should care what our state constitution says. It does affect things a bit, wouldn’t you think?
- Lake Wolf - Thursday, Jul 6, 17 @ 12:39 pm:
And much of it probably will not pass constitutional muster…………….so what are we really accomplishing except more political nonsense.
The sad part is the people who drafted all this and clearly understand it are going to make it happen to just delay the inevitable. It appears Moody’s has had enough of brinkmanship and nonsense.
The dems are going to look pretty bad revenue bill, an even worse spending bill bill and then getting junk status.
Keep in mind the spending bill appropriates the money it doesn’t spend it. The Governor has the word on spending much of it.
Which is why they have tried to transfer the Governor’s duties to the comptroller which opens another constitutional question.
All in all about typical for our politicians, make no mistyake about it, the dems or no better or worse then the GOP on this one
Who is really to blame all of us voters for voting the party ticket, por believing, for trusting these people and most importantly for not voting.
- Anonymous - Thursday, Jul 6, 17 @ 12:43 pm:
One “revolutionary” idea they would probably like is for the state to lower the liability by contributing more. Now where that “more” comes from, on the other hand,…
- Dr X - Thursday, Jul 6, 17 @ 12:47 pm:
Apologies if I missed this - but did any of Rauner’s pet projects like workman’s comp, property tax, etc make into this budget? IF so, any particulars? Just curious.
- Thoughts Matter - Thursday, Jul 6, 17 @ 12:50 pm:
We probably do need to do more, but the bare minimum involves a budget and revenue to pay for it. Which means, we need the House override to happen. That way we can function. Then we can determine what more will meet our needs, Moody’s needs, and so forth.
- Suzathustra - Thursday, Jul 6, 17 @ 12:57 pm:
I am enrolled in a double-degree (Philosophy and History) program at EIU. I will graduate in May of 2018, but not without a budget. Universities are essential to not only a thriving state, but a healthy culture. The House must override the Governor’s veto, get a budget in place, and go to work on viable funding mechanisms. It’s not a question of Democrat vs. Republican, or taxation vs. x anti-taxation. As with any crisis, recovery isn’t going to be painless. But let’s think about the consequences of not addressing the issues. “If the state’s existence is no longer to be preserved in such a way that great individuals can live within it, what will then arise is the terrifying state filled with misery, the pirate state in which the strongest individuals take the place of the best … The task of the state is to make it generally possible for one to live well and beautifully therein. Its task is to furnish the basis of a culture. In short, a nobler humanity is the goal of the state. It’s goal lies outside of itself. The state is a means.” Taken from ‘Philosophy and Truth: Selections from Friedrich Nietzsche’s Notebooks of the Early 1870’s’, edited and translated by Daniel Breazeale.
- TastyGrouper - Thursday, Jul 6, 17 @ 12:57 pm:
So basically Moody’s is saying that we can’t tax and cut our way out of the mess? Real structural reforms are needed in areas to allow for continued growth? Gee, I think I heard someone saying this for the last two years. I think his name starts with Governor but I could be wrong.
- RNUG - Thursday, Jul 6, 17 @ 1:03 pm:
== Sorry if I missed this, but the “considerations” thing Cullerton was pushing, for current Tier 1 employees, wasn’t in the current budget plan? ==
Nope. Got left out because they didn’t want the inevitable court challenge and one more nail in the coffin of pension debt negation.
- ArchPundit - Thursday, Jul 6, 17 @ 1:04 pm:
===I think his name starts with Governor but I could be wrong.
He never offered any structural reforms that both were constitutional and save much money. Wishing away the Illinois Constitution on pensions isn’t a reform, it’s a fantasy. 1.4% isn’t a solution to the actual problem.
- Dublin - Thursday, Jul 6, 17 @ 1:07 pm:
Here’s a $2 Billion idea. Tax retirement like all of our neighbours. Then enact a progressive income tax (like most of our neighbours), which could add up to an additional $2 Billion.
AAA Status here we come…
- Norseman - Thursday, Jul 6, 17 @ 1:11 pm:
=== It’s not Mr. Hampton’s job to “make suggestions” on how to fix, just to analyze (he’s an analyst). ===
The decision of this and other analysts with Moody’s can have hundreds of million dollars impact on the citizens of this state. The General Assembly has already taken actions that have been held unconstitutional. They have now taken additional action upon the completion of the override that is intended to help the situation.
Sadly, Rauner’s impasse has brought us to a point where we don’t any room for error. We are now at looking at rock bottom of the ratings spectrum. Moody’s analysts may not appreciate or care the heavy lift it took to get us to this point, but they should. So now they threaten that we’ve not done enough and expect “revolutionary” solutions, I say we have a right to know what their expectations are to assess whether they have reasonable expectations.
- Demoralized - Thursday, Jul 6, 17 @ 1:16 pm:
==Legalize cannabis. ==
Probably make everyone’s mood better too, Ron. lol
- RNUG - Thursday, Jul 6, 17 @ 1:18 pm:
== Does this mean that for new teachers just hired, the local school district (rather than the State) must pay the pension cost? ==
Only if the new hire’s salary exceeds a certain high amount, and then only on the “overage”.
- Rich Miller - Thursday, Jul 6, 17 @ 1:24 pm:
===Can you please post the BIMP analysis? ===
Can’t. Sorry. I would if I could.
- RNUG - Thursday, Jul 6, 17 @ 1:27 pm:
== Sorry if I missed this, but the “considerations” thing Cullerton was pushing, for current Tier 1 employees, wasn’t in the current budget plan? ==
Need to clarify a bit. I assumed you were referring to the forced AAI/raise choice. That did get left out for the reason I stated.
There are a couple of voluntary choices in what was passed that would be qualified as a “consideration” modification of the pension. Letting Tier 2 switch to Tier 3. Letting Tier 1 opt for an immediate cash payment (technically, partial refund of employee contributions) if they agree to take the Tier 2 level AAI.
So it just depends on which “consideration” stuff you were referring to.
I’m starting to feel sorry for the SERS, TRS, etc. administrators. At this rate, if the GA keeps changing things, they are going to need a road map to keep track of who qualifies for what.
- CapnCrunch - Thursday, Jul 6, 17 @ 2:01 pm:
“Provides 5 year actuarial assumption smoothing that affects [the pension funds]……….. Estimated reduction to the pension funds is $892.1 million.”
When politicians use the word “smoothing ” while speaking about pensions they are trying to conceal something. See the last sentence above.
- Norseman - Thursday, Jul 6, 17 @ 2:23 pm:
To the update: Exactly.
- Oswego Willy - Thursday, Jul 6, 17 @ 2:27 pm:
To the update….
A budget is a critical first step.
No budget isn’t a step towards anything.
Glad they support the override.
- Fox River - Thursday, Jul 6, 17 @ 2:32 pm:
Lake Wolf @ 12:39pm
=Which is why they have tried to transfer the Governor’s duties to the comptroller which opens another constitutional question.=
Who exactly is “they”, and how do “they” exercise this power and influence over the Governor, as to convince him to abdicate?
- Joshua Norris - Thursday, Jul 6, 17 @ 2:40 pm:
One way to achieve structural, and Constitutional, pension reform would be to pass Constitutional Amendments to allow the reform.
There is no way to fix this state without stopping the growth of, and removing some of, the burden of existing pension liability. You could tax 100% of every citizens income and still not bring in enough to pay the $251 billion owed.
Though I’m not surprised no politician is throwing it out there… the public unions in the state would come out swinging hard against them.
- Ron - Thursday, Jul 6, 17 @ 2:43 pm:
The state will eventually default on the pensions, then it will be up to the courts to decide what happens.
Constitutions don’t pay bills.
- Chicago Cynic - Thursday, Jul 6, 17 @ 3:19 pm:
Msall is right. First, stop the bleeding. First, stop digging. First, stop making the situation worse.
Why is this so difficult for our GOP friends to understand????
- RNUG - Thursday, Jul 6, 17 @ 3:30 pm:
== would be to pass Constitutional Amendments to allow the reform. ==
Do tell, what reform would that allow (that doesn’t violate contract law) to the existing pension and employees …
- Anotherretiree - Thursday, Jul 6, 17 @ 3:32 pm:
-Dublin-
I could go along with taxing retirement income. The $25,000 exclusion that is mentioned may be too high however. I would go along if it is part of a graduated income tax and Taxing services. We need the multi pronged approach.
-Ron- It isn’t pensions that would be defaulted on its all debt in the event things collapse as Rauner wants to do. Yes the courts would have to sort it out along with Congress. The haircuts would be shared.
- Original Rambler - Thursday, Jul 6, 17 @ 3:33 pm:
Hey Ron, here’s a crazy idea; how about we come up with a plan to just pay what we owe? I mean, we’ve taken the first step (Tier 2) so let’s figure out the rest of it.
Default is far from a foregone conclusion.
- GetPastIT - Thursday, Jul 6, 17 @ 3:38 pm:
“Up to the courts to decide”. The courts have already decided. The pension debt must be paid. Get past it.
- Hit or Miss - Thursday, Jul 6, 17 @ 3:44 pm:
=“Provides 5 year actuarial assumption smoothing that affects GARS, JRS, SERS, SURS and TRS,…=
This is yet another attempt to put off into the future paying the full amount of what is required to fund the pension plans. To reduce the unfunded pension liabilities Illinois needs to front load payments and not put off paying what is due.
- Ron - Thursday, Jul 6, 17 @ 4:50 pm:
Hey Original Rambler, how about taxpayers not be in the business of guaranteeing the market returns of public workers?
- Ron - Thursday, Jul 6, 17 @ 4:51 pm:
This is yet another attempt to put off into the future paying the full amount of what is required to fund the pension plans. To reduce the unfunded pension liabilities Illinois needs to front load payments and not put off paying what is due.
Bye, bye Illinois.
- Morty - Thursday, Jul 6, 17 @ 8:10 pm:
Ron- try not to trample the women and children on your way to the lifeboats…
Why do I have a suspicion that we will be seeing Ron’s ‘insights’ for years to come?
- Morty - Thursday, Jul 6, 17 @ 8:12 pm:
Hey Original Rambler, how about taxpayers be in the business of paying what’s owed for services rendered by public workers?
Fixed it for ya Ron
- LIberty - Thursday, Jul 6, 17 @ 8:41 pm:
== Anonymous - Thursday, Jul 6, 17 @ 12:26 pm: I don’t think the ratings agencies much care what the state constitution says.==
“The state also faces intensifying pressure to fund retiree benefits, which account for roughly 24% of its current general fund expenditures. The pension funding situation is compounded by retiree healthcare benefits costs, which are growing at about 6.5% a year.
“The state’s ability to manage these pressures will be a primary determinant of future rating actions. Given the state’s ironclad protection of benefits for current workers and retirees, Illinois requires a long-term plan to ensure it can at least comply with statutory funding requirements,” Hampton says. ” https://www.moodys.com/research/Moodys-Illinois-budget-impasse-secondary-to-intensifying-pension-and-revenue–PR_333606