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I just don’t see it happening

Tuesday, Dec 18, 2018 - Posted by Rich Miller

* My weekly syndicated newspaper column

We’ve seen a big push over the past few weeks for an Arizona-style pension “fix” here. That state’s voters have twice approved constitutional amendments to limit future benefits for public employees – once in 2016 and then again last month.

If Arizona can do it, the logic goes, so can Illinois. The Illinois Policy Institute, the Chicago Tribune editorial board and a host of politicians and others on the right have been pushing this idea of late. Even Chicago Mayor Rahm Emanuel, who was once close pals with Gov. Bruce Rauner, now says he wants Illinois to amend its Constitution as Arizona did.

The state constitutions of Illinois and Arizona have very similar language prohibiting reductions to pension benefits and welding pensions to contract law.

But the two are very different states. In 2016, when Arizona’s legislature approved a pension reform bill to limit first responders’ pension benefits and then voters approved amending their constitution to match that legislation by a 70-30 margin, the Republican Party held the Arizona governor’s mansion and had super-majorities in both legislative chambers. The opposite will be true here starting in January.

This year, the Arizona legislature passed a bill to limit pension benefit increases for corrections employees and elected officials. You’d think the addition of politicians to the pension reform list would attract even more public backing, but you’d be wrong. Voters did approve the change, but with just 51.72 percent of the vote, signaling weakening popular support for the idea.

Arizona’s threshold for voter-approval of constitutional amendments is considerably lower than Illinois’. In that state, a simple majority of those voting on the amendment suffices. But Illinois requires approval from either three-fifths of those voting on the amendment or a simple majority of all those voting in the election. The “Yes” votes in Arizona amounted to just 47 percent of all ballots cast in the election. That wouldn’t have been enough to succeed in Illinois.

Arizona’s politicians brokered an agreement with unions before passing enabling legislation and sending the question to voters. Illinois unions, emerging victorious from a bitter four-year war with a doggedly anti-union Republican governor, are clearly in no mood for such talks.

The Illinois AFL-CIO and the Chicago Federation of Labor issued a joint statement after Mayor Emanuel backed an Arizona-style reform which began: “Too many politicians, including Mayor Rahm Emanuel himself, have wasted years pushing extreme, immoral and illegal schemes to slash pension benefits instead of working together to craft fair, sustainable and constitutional funding solutions.” Whew.

Gov. Rauner was asked earlier this year about amending the state’s Constitution to delete our strict pension language, but even he said he had doubts about its legality and didn’t believe Illinois voters would ever approve it.

Back in 2012, a proposed constitutional amendment to require three-fifths votes in the General Assembly to increase pension benefits received 56 percent of the popular vote and therefore failed.

The Arizona pension changes have yet to be challenged in court. So, even if you could somehow convince the Democratic supermajorities and a Democratic governor who ran on the slogan “Pensions are a promise” to flip on the unions and place the question on the ballot and then even if Illinois’ Democratic-leaning voters approved it, you’d undoubtedly see an immediate legal challenge here.

And despite all the recent hot talk, it does not appear that a pension payment “doomsday” is soon upon us which could force reluctant Democrats to take drastic action.

The General Assembly’s Commission on Governmental Forecasting and Accountability released a report last week projecting that annual state pension payments will increase an average of $300 million a year over the next 10 years. That’s a lot of money, but it’s still fiscally manageable.

And in just a few months, Illinois will make its last billion-dollar annual installment payment on bonds sold by then-Gov. Pat Quinn to make two yearly pension contributions, giving Illinois some fiscal breathing room.

The bond rating agencies might be a different story, however. If they threaten to push Illinois into junk bond status over the state’s huge unfunded pension liability, that might prod the Democrats into taking some action.

And a deep recession combined with more rounds of large and unfavorable actuarial readjustments by the state’s pension funds could combine to make the state’s annual payments impossible.

Pressure from local officials will also likely mount because lots of municipalities under-funded their public safety pension funds and are now in a world of hurt.

Even so, while I could be wrong, I just don’t see it happening yet.

       

91 Comments
  1. - Downstate - Tuesday, Dec 18, 18 @ 9:17 am:

    What about taxing pension income on an accelerated basis? Anything over $50,000 gets taxed at 25%, and on up from there.

    Do you think this would cause pensioners to leave the state? If you believe that would be the case, then the same logic holds true for taxation on job creators, as well.

    Illinois’ budget has grown dramatically over the past decade…far in excess of the CPI. We have a spending problem that needs to be addressed. Beyond that, we’re simply selecting which groups we want to drive out.


  2. - Jv77 - Tuesday, Dec 18, 18 @ 9:19 am:

    This is an honest question. If the legislature won’t back any real reform coupled that any amending of the constitution would be legally challenged on top of everyone hating everyone else’s idea, what kind of reform that is actuarially sound is really out there that wouldnt be struck down? Obviously the bill has to be paid matter what but as far as ANY reform it just sounds like it will never happen.

    I am very interested to hear what Rich and others have to say.


  3. - Anonymous - Tuesday, Dec 18, 18 @ 9:25 am:

    “You keep using that word (reform). I don’t think you know what it means.”


  4. - @misterjayem - Tuesday, Dec 18, 18 @ 9:25 am:

    “Illinois’ budget has grown dramatically over the past decade… We have a spending problem that needs to be addressed.”

    As Rich has said to others countless times before: Show us your cuts.

    – MrJM


  5. - oldhp - Tuesday, Dec 18, 18 @ 9:27 am:

    “If” the late politicians would have paid the pension bill when it was due we woundn’t have this mess we have now. But now we want to punish everyone who paid in fairly.


  6. - H L Mencken - Tuesday, Dec 18, 18 @ 9:29 am:

    How do you eat an elephant, one bite at a time. How about starting with some small steps. Step one, any pension proceeds received that exceed the amount paid in are taxable Illinois income. Step two, eliminate all pension gamesmanship. No one should receive extraordinary benefits for short term employment.

    START WITH THOSE.


  7. - Demoralized - Tuesday, Dec 18, 18 @ 9:29 am:

    ==that wouldnt be struck down==

    1. Any changes have to allow for a choice by those in the pension system.
    2. You cannot cut benefits without offering something in return.


  8. - chi - Tuesday, Dec 18, 18 @ 9:29 am:

    Offer Tier 1 retirees the choice of:
    1. Their current pension, or:
    2. A lump sum of 70%* of the actuarial value of their pension

    For all the benefits of a pension, you can’t bequeath it to loved ones. You can bequeath the lump sum. The lump sum also offers portability and the peace of mind that reactionaries will not ever successfully take your pension away from you.

    *Or whatever percentage achieves the goals of: 1. Being attractive to retirees and:
    2. Saving the funds money.


  9. - Demoralized - Tuesday, Dec 18, 18 @ 9:30 am:

    ==any pension proceeds received that exceed the amount paid in are taxable Illinois income==

    If you are talking about taking state pension recipients only that idea is unconstitutional


  10. - Anonymous - Tuesday, Dec 18, 18 @ 9:30 am:

    Another couple of cold winters in a row like back in 2014-2015 will drive a lot more people out of the state than any incremental tax changes


  11. - Collinsville Kevin - Tuesday, Dec 18, 18 @ 9:31 am:

    Something has got to be done, or we’re all going to be broke in the end. But you’re right, it’s easier to kick the can down the road.


  12. - Grandson of Man - Tuesday, Dec 18, 18 @ 9:37 am:

    There was already pension reform: Tier II. That was too much, in my opinion, because in hindsight Democrats should have got something in return, such as a progressive income tax CA on the ballot and commitment to support that campaign.

    Now is the time to push for a different kind of reform that is fairer and long overdue: the progressive income tax and more revenue from the wealthiest.

    The IPI, Trib and the rest of the right wingers are scared because a progressive income tax could work in Illinois. California reportedly has a historic budget surplus. Minnesota reportedly has a surplus. It’s time to undertake the daunting but necessary task of reforming our taxes.


  13. - A State Employee Guy - Tuesday, Dec 18, 18 @ 9:38 am:

    I agree with that analysis, Rich. I’d just point out two things:

    1) Do you think labor will ever be willing to have “the talk”? I just don’t see it happening.
    2) Are we really gonna wait until the “doomsday” is upon us to act? Now that, I see happening.


  14. - Perrid - Tuesday, Dec 18, 18 @ 9:39 am:

    Pushing back the 2045 date would help with the payments, and leveling the payments out like they always should have been will help in the long run but hurt in the short.

    The ratings agencies might throw a fit over pushing the date back, but those are the “safest” options, meaning the ones that the state actually has control over. Trying to take pensions away from workers is a gamble, at best. The odds are very much against it ever happening or being found legal, so why are we still wasting time on this pipe-dream of wishing away our debt?


  15. - Norseman - Tuesday, Dec 18, 18 @ 9:41 am:

    Great article Rich.

    Now back to the regular troll posts.


  16. - Jv77 - Tuesday, Dec 18, 18 @ 9:41 am:

    ANON…To your comment on reform requires an appropriate Shawshank quote: “It’s just a made up word…a politician’s word…”


  17. - Perrid - Tuesday, Dec 18, 18 @ 9:46 am:

    @Downstate, you’re hilarious. You make up and throw out a 25% tax to try to scare everyone, classic straw-man fallacy. No one, and I mean no one, would touch that suggestion with a 39 and-a-half foot pole. Even in California the effective tax rate for people making more than $1 million (20x your random cutoff) is “only” 12%.


  18. - Roman - Tuesday, Dec 18, 18 @ 9:50 am:

    == don’t see it happening ==

    Yep. I’m not sure what the bigger obstacle is: navigating the politics of amending the state constitution, or the legal difficulty of working around the federal constitution’s contract clause. Both are extremely high hurdles — and both have to be scaled.


  19. - Flapdoodle - Tuesday, Dec 18, 18 @ 9:52 am:

    “Step one, any pension proceeds received that exceed the amount paid in are taxable Illinois income.” So anyone in a self-managed plan (say, under SURS) whose investment returns exceed contributions would pay taxes. That’s sure a smart way to get people to opt for a defined contribution plan over a defined benefit plan.


  20. - Anonymous - Tuesday, Dec 18, 18 @ 9:53 am:

    If wishes were horses we all could ride… I would personally love to merge downstate IL to MS which is a much better fit than with the advanced upper part of IL but that isn’t happening either.


  21. - Honeybear - Tuesday, Dec 18, 18 @ 9:59 am:

    I have a challenge. I challenge everyone to add “Honeybear” or any other state worker on this blog or that you know (like Mike, or Mary) to your responses. Let’s personalize this so you keep in mind that you are talking about real people.

    Example
    “What about taxing Honeybears pension income on an accelerated basis?”
    “Do you think this would cause pensioners like Honeybear to leave the state?”

    sorry Downstate, I’m not trying to pick on you.

    I think that we must always keep in mind. It’s so easy to rationalize when we can keep specific people out of it. But good people, people like me are involved. Yes, hard decisions have to be made. And Yes, that decision may really affect me. But have the respect and courage to “look me in the eyes” as you sink the knife so to speak.

    And just as a reminder. As it stands now I’ll only have a pension of about 22k a year to live on in 2034. I’m not expecting Social Security to be there for me. So it will be poverty for me.
    For 20 years loyal service to the poor, disabled, and elderly of St. Clair County.


  22. - work in progress - Tuesday, Dec 18, 18 @ 10:03 am:

    The blueprint for solving the pension problem was put forth in 1976. Logan’s run.

    snark


  23. - jdcolombo - Tuesday, Dec 18, 18 @ 10:07 am:

    The pension “crisis” is a canard. It was literally created by accounting rules changes that bring public pension accounting into line with private pension accounting. But the two are vastly different, primarily because unlike private businesses, government cannot go out of business.

    Illinois pensions are about as well-funded now as they were in 1970, when the current constitution was passed (about 40%). So for the past almost 50 years, Illinois has had a pension funding “crisis.” Yet no fund has run out of money, no payments have been missed, no checks bounced.

    Why is this? The answer is that as long as contributions into the system (the state’s contribution, employee contributions and earnings on investments) at least equal the current payouts, the pension system is stable. That’s what has happened in Illinois over the past 50 years, at least long term.

    For those of you who are actually willing to think about pensions and why the “crisis” really isn’t one, I encourage you to read the following document, which lays it all out:

    http://haasinstitute.berkeley.edu/sites/default/files/funding_public_pensions_-_publish.pdf

    As this document indicates, 60% funding is probably sufficient for nearly all public pension plans. Moreover, liabilities probably should be amortized over 50 years, not 30 as the accounting rules require. Make these two changes to the underlying math, and you will find that Illinois’ pension funding problem largely goes away. Yes, 40% isn’t 60%, so we do need SOME attention to it, but the Chicken Little “sky is falling” doomsday projections are nothing more than political statements. The IPI, Tribune, etc. hate government and public employee unions. Unfortunately, the accounting industry gave them a sledgehammer to bludgeon public unions in the pension funding issue. But in reality, the issue is largely a non-issue.

    What WOULD create a true crisis is changing the system so that current employees no longer pay into the pension funds. Take that funding (and the state matching funding) away, and now you face a situation in which current inflows do not equal current outflows. In this scenario, the pension funds could eventually fail. That’s what the IPI, Tribune, and similar right-wing ideologues want.


  24. - Mockingjay - Tuesday, Dec 18, 18 @ 10:09 am:

    Who cares? It’s the right, sensible, common sense, ethical thing to do and we should do it.


  25. - Thomas Paine - Tuesday, Dec 18, 18 @ 10:10 am:

    @Downstate:

    So much trolling, so early in the morning!

    Why so much resentment of teachers, firefighters, police officers, and other public employees?

    Everyone, including Republicans, recognizes that our pension deficit is not the fault of public employees/retirees. It is the fault of the employer — you and me — who failed to make the actuarial required contribution for our share of employee retirement costs.

    As an aside, it’s important to keep in mind that the “job creators” are not job creators per se. They are Profit Creators. Creating jobs is not their goal or intention; in fact, any time they can figure out how to create profit without creating a job, they are inclined to do it.

    A better long term strategy to create jobs is to invest in our work force and our infrastructure, not tax breaks for businesses.

    Rich is right, the IPI trial balloon is a distraction at best, and at worst will be used as an excuse by the GOP to once again sit on the sidelines.

    I say “at worst” because while Democrats can certainly pass a capital bill, marijuana legalization, and a graduated income tax amendment without and GOP votes, I think a compromise that appeals to centrist Republicans will be better public policy than a plan that depends on a thumbs up from the far left.


  26. - Anonymous - Tuesday, Dec 18, 18 @ 10:19 am:

    Great satire, Downstate. Particularly loved the “job creator” throw-in.

    Thank goodness noone is listening to ILGOP anymore. The pie-in-the-sky fantasy of slashing pensions is just not going to happen.

    What will happen is a progressive income tax.

    JB won by over 700k votes, remember?

    Too often in this country we confuse campaigning with governing. Bruce just spent 6 years campaigning and tanked the state and got wiped out of office for it.

    Time to govern.


  27. - Southcounty - Tuesday, Dec 18, 18 @ 10:25 am:

    — I would personally love to merge downstate IL to MS which is a much better fit than with the advanced upper part of IL but that isn’t happening either. —

    Advanced in what way, crime and corruption?


  28. - Not a Billionaire - Tuesday, Dec 18, 18 @ 10:30 am:

    Great report columbo.


  29. - Downstate - Tuesday, Dec 18, 18 @ 10:31 am:

    Wow. Why does everyone assume that taxing of pensions is targeting state employees?

    Pensions are in the private sector as well. I’d suggest we look at taxing all retirement income over a certain income level.

    I also note that no one addressed the question of which group we want to drive from the state. Taxation is making that choice.

    Just as Blago found out….taxing commercial trailers caused the trucking firms to relocate their fleets to depart the state. The Democrat’s tax increase, in that case, actually REDUCED overall revenue from that taxation category.


  30. - Blue Dog Dem - Tuesday, Dec 18, 18 @ 10:31 am:

    …I just don’t see it happening yet. Neither do I. What I do see happening is a state income tax, perpetrated to be a ‘proggressive’ Tax, reach down to middle income families to rival that of California. It’s taken me a bit, but now I understand what progressive means.


  31. - Anonymous - Tuesday, Dec 18, 18 @ 10:38 am:

    Pension reform took place with Tier 2. The amount owed is the debt owed on funds never put into the system by the state, not the workers. We need to move along and start paying down that debt, not whining about it and watching it grow, pointing fingers on the servants who faithfully serve the public.


  32. - jdcolombo - Tuesday, Dec 18, 18 @ 10:39 am:

    -Downstate @ 10:31

    In fact, I do agree that pension income should be taxed (over a certain exclusion amount to protect retirees with relatively small pensions - I’ll throw out $60K per year, but that’s negotiable). Pension income is simply deferred compensation (wages). Wages are taxed. So pension income should be too - but at the exact same rates as all other ordinary income is taxed.

    And while we’re at it, capital gains also should be taxed at the same rate as wage income, with an adjustment to basis for inflation, so that one is not taxing mere inflationary gains. There is absolutely no reason, and no empirical evidence, that income from capital should not be taxed at the same rate as income from wages - and in fact, we actually HAD that system for a few years under none other than Ronald Reagan after the 1986 tax reform act. The economy hummed right along.

    I receive a state pension. Happy to pay tax on it under those rules, including the capital gains taxation change.


  33. - Anonymous - Tuesday, Dec 18, 18 @ 10:40 am:

    –“You keep using that word (reform). I don’t think you know what it means.”–

    “You keep using that word (reform). I do not think it means what you think it means.”

    fixed it


  34. - PublicServant - Tuesday, Dec 18, 18 @ 10:51 am:

    BDD, you’re gonna wear out that crystal ball of yours using it so much. Oh, and its purported.


  35. - dbk - Tuesday, Dec 18, 18 @ 10:52 am:

    jdcolomno @10:07: thanks for the link to the Haas Institute paper, much appreciated.

    And a ? Won’t the introduction of Tier II address some at least of the problem over time (I mean, in the next 20-40 years)?

    I am optimistic about the incoming governor’s being on board with resolving the pension debt issue through a combination of measures like those mentioned above (progressive income tax, legalization of rec. marijuana, extension of the payment period to 50 years, aiming for 60% funding, etc.)

    The toolkit for addressing this is available - and in a way it will be doing the IPI and their friends a favor by giving them the chance to jump on some other bandwagon.


  36. - Generic Drone - Tuesday, Dec 18, 18 @ 10:53 am:

    You are right Rich. We are not in the mood. After years of fighting with Rauner, being bashed in the press, by our very own legislators, and by the public, we want to be left alone to just go on with our lives. Why the state refused the 1% increase in employee contributions to the retirement fund offered by the union a few years back astounds me. The state should have taken the offer. But no. They wanted more. No I say just pay the tab already. I’m tired of it all and am not in the mood to negotiate anything.


  37. - PublicServant - Tuesday, Dec 18, 18 @ 10:54 am:

    jdcolumbo, thanks for providing two outstanding posts. I have one quibble. Let’s get that progressive tax passed before we start taxing grandma and grandpa.


  38. - wondering - Tuesday, Dec 18, 18 @ 10:58 am:

    My, my, my….no end to this. The Arizona constitution did not define pension promises as contracts…important distinction. The change in Az only reduces the payout on unearned benefits. Tier 2 already does that. Such a change would would hit a very narrow base of Tier 1 still working. Az was giving 4% annual increases, not 3% and now is tying increases to the CPi. I would imagine Illinois could get whipsawed with 3% during these low inflation times changing to CPI base just in time to eat a forthcoming high CPI….which appears in the cards


  39. - Anonymous - Tuesday, Dec 18, 18 @ 11:01 am:

    Those of us in tier 2 have no interest in increasing our contributions. We already have a raw deal.

    Please do not attack tier 2 workers.


  40. - Anonymous - Tuesday, Dec 18, 18 @ 11:02 am:

    Generic Drone you are right. Not only has this been one huge attack on public employees and retirees, but it has done great damage to those who might have considered public work, like teaching. We’re seeing shortages and people leaving the profession. Who would want the disrespect? How can you have generous feelings toward those who accuse you of stealing from their very own pockets? Not worth it one bit. Lasting damage has been done.


  41. - Anonymous - Tuesday, Dec 18, 18 @ 11:05 am:

    As our time of low inflation seems to be coming to an end, maybe the 3% AAI should be ditched in favor of tying in to CPI. Likely be more than 3%


  42. - BC - Tuesday, Dec 18, 18 @ 11:05 am:

    Excellent analysis by Rich. Reminds me of the Bismarck quote about politics being “the art of the possible.”

    Achieving a policy goal that requires changing or challenging established constitutional law on both the state and federal level really, really stretches what’s politically possible.


  43. - AndyIllini - Tuesday, Dec 18, 18 @ 11:06 am:

    Colombo - Capital gains are taxed the same as wages in Illinois. For federal purposes you have a good point, but in terms of IL they are already taxed the same.

    And I’m totally in favor of taxing retirement income. Personally I wouldn’t offer any higher exemption than anyone else gets (I realize this won’t happen).

    But I’ve been told that for decades IL residents have benefited from artificially low taxes to the detriment of the pensions. And now we have to raise taxes to make up for that. I find that profoundly unfair, since they people who have benefited for these many decades of low taxes, are now retired or soon to be retired and their income isn’t being taxed. We are punishing the young to make up for the misdeeds of their parents and grandparents generations, to pay for pensions benefits that their generation won’t get.


  44. - RNUG - Tuesday, Dec 18, 18 @ 11:06 am:

    == For all the benefits of a pension, you can’t bequeath it to loved ones. ==

    Admittedly, you can’t leave a government pension to your kids in a will. But minor children of retirees do receive payments as minors.

    Plus SERS pensions do provide for a spouse. The spouse of a deceased retired receives 50% of the retiree’s pension (minus any SS offset) plus the retiree’s health insurance.

    Not necessarily a bad deal.


  45. - City Zen - Tuesday, Dec 18, 18 @ 11:07 am:

    ==There was already pension reform: Tier II. That was too much, in my opinion, because in hindsight Democrats should have got something in return==

    Ummm…

    January 2011: Tier 2
    January 2011: income tax hike from 3% to 5%


  46. - Jocko - Tuesday, Dec 18, 18 @ 11:12 am:

    ==Trying to take pensions away from workers is a gamble, at best.==

    Not to mention craven and morally bankrupt.


  47. - Blue Dog Dem - Tuesday, Dec 18, 18 @ 11:13 am:

    PublicServant. I guess time will tell. Whats your thoughts on how JB gets us out if this mess?


  48. - jdcolombo - Tuesday, Dec 18, 18 @ 11:29 am:

    - AndyIllini@11:06

    Yep, you’re right about capital gains. My brain had defaulted to the federal rules, but since Illinois uses federal AGI as the tax base, there is no rate differential in Illinois. I hope such a differential does not creep into the Illinois system as we move toward a progressive rate structure.


  49. - RNUG - Tuesday, Dec 18, 18 @ 11:42 am:

    == Why the state refused the 1% increase in employee contributions to the retirement fund offered by the union a few years back astounds me. ==

    Well … for one thing, the union has zero, repeat, zero legal authority to negotiate pension changes … especially unilateral ones. The union can lobby for changes their members want, but that is as far as they can go.


  50. - No way - Tuesday, Dec 18, 18 @ 11:48 am:

    The bond rating agencies might be a different story, however. If they threaten to push Illinois into junk bond status over the state’s huge unfunded pension liability, that might prod the Democrats into taking some action.

    And a deep recession combined with more rounds of large and unfavorable actuarial readjustments by the state’s pension funds could combine to make the state’s annual payments impossible.

    Pressure from local officials will also likely mount because lots of municipalities under-funded their public safety pension funds and are now in a world of hurt.


  51. - Jibba - Tuesday, Dec 18, 18 @ 11:49 am:

    Jv77 asks a reasonable question. Exactly what can be done that is constitutional? Here are some things that have been suggested here before. I don’t necessarily support any of these, just reporting.

    1) Reduce state headcount. Already been done to great extent in many agencies, with Illinois having the lowest per capita workforce in the nation.
    2) Keep salaries low through low or no raises, because pensions are based on final salary calculations. This has already been de facto for nonunion staff.
    3) Tax all pension income (those who benefitted from the abnormally low tax rates of years past will now pay).
    4) Increase upfront payments so we don’t keep going into the red through 2028, extend date for achieving 90% funding to allow for a levelized payment that may not squeeze out services.
    5) Find a constitutional buyout that saves money yet provides a choice of keeping what you have.
    6) Return pensions of teachers to their local employing district (various options and limitations apply).
    7) Move to self managed (401K-type) systems, but those do not save money in the short term. Social security may come into play depending on how they are structured, which would be even more costly.

    Others exist, I’m sure, but these are what I could recall on the spur of the moment.


  52. - RNUG - Tuesday, Dec 18, 18 @ 12:02 pm:

    == As our time of low inflation seems to be coming to an end, maybe the 3% AAI should be ditched in favor of tying in to CPI. Likely be more than 3% ==

    History lesson on CPI-U …

    Years in excess of 3% since 1970

    1970 - 1985

    1987 - 1991

    2000

    2008

    2011

    Double digits years since 1970

    1974 - 11.0%
    1979 - 11.3%
    1980 - 13.5%
    1981 - 10.3%

    These are based on year over year percentage change from December to December. It was the easiest chart to pull the numbers from.

    Bottom line: about 1/2 the time since 1970, inflation has ran over 3.0% and about half the time it has been 3.0% or less, including one year of contraction, 2009 at -0.4%.


  53. - No Way - Tuesday, Dec 18, 18 @ 12:14 pm:

    Great writing Rich. I like that at the end you did say that there is a chance this all blows up and the pensions reach a point where they mathematically cannot be paid.

    The fact is IL is a high tax, low service state that people are starting to flee from. Combine that with no changes, the state getting worse, and a deep recession, and the pensions simply will not be able to be paid in full in any realistic manner at all. And no, taking from the general fund is NOT realistic at all. Mathematic reality is going to win, and anyone with a pension should be very, very worried right now in Illinois.


  54. - City Zen - Tuesday, Dec 18, 18 @ 12:23 pm:

    ==maybe the 3% AAI should be ditched in favor of tying in to CPI.==

    I’m not aware of any state pension system that bases their COLA calculations solely on CPI. Almost all that use it do so as a baseline and have a cap (ie COLA = 50% CPI up to 3%).

    Illinois would never go full CPI. This is a non-starter.


  55. - illinifan - Tuesday, Dec 18, 18 @ 12:28 pm:

    Also remember state employees paid .5% more into their pensions each year to help fund the 3% AAI so we have paid in advance for this increase


  56. - RNUG - Tuesday, Dec 18, 18 @ 12:29 pm:

    == Illinois would never go full CPI. This is a non-starter. ==

    And this retiree wouldn’t take anything less to give up the 3% AAI since, over the long run, CPI-U is around 3%.


  57. - wondering - Tuesday, Dec 18, 18 @ 12:30 pm:

    All this caterwauling about taxing pensions! Artificially low tax rates you say? Make up for it by taxing pensions you say? Want fair? I will give you fair, tax all income, the state does not tax distributions from defined-benefit pension plans, 401(k) accounts, IRAs, self-employed retirement savings, government employee pensions, military pensions, railroad retirement benefits, lump-sum distributions of retirement benefits, deferred compensation paid at retirement by a government employer or the federally taxable portion of Social Security benefits. Illinois also exempts from state tax early distributions you take from an IRA or 401(k) plan. Add in 100% of capital gains and disallow real estate depreciation. Now, how about artificially high real estate taxes? With that, exempt pensioners without children from school real estate tax. How is that for fair?


  58. - Grandson of Man - Tuesday, Dec 18, 18 @ 12:35 pm:

    Iowa’s top state income tax rate is almost 9%, and Minnesota’s is almost 10%. Illinois’ top rate should be around 9%. We really need the money, for pensions and other things. Equally if not more importantly, we need it for fairness, so workers dont keep getting trotted out for cuts, or the cuts are less harsh.


  59. - Jibba - Tuesday, Dec 18, 18 @ 12:36 pm:

    No Way, you don’t really have a grasp on the financial situation and how the obligations are structured. The state does not have funds that are for pensions and funds that are for other things (GRF). They simply have revenue and bills to pay, and bonds/pensions are at the front of the line for payment, whether from GRF or pension fund holdings. The pensions will be paid, but other services will decline, perhaps to the level of federal intervention that requires additional taxation. Not good for growth (above a certain level), but not enough to panic pensioners.

    You’re right that math will win, but it is more likely that pensions will be taxed and other things will happen as listed above. Even if new taxes are needed to pay pensions, it is likely that an increase of 1-2% will be needed (generating $5-10B). That is not good for growth but the sky will not fall (see CA, MN).


  60. - City Zen - Tuesday, Dec 18, 18 @ 12:49 pm:

    ==Also remember state employees paid .5% more into their pensions each year to help fund the 3% AAI ==

    Actually, state employees paid .5% more into their pensions each year to help fund the 1.5% simple interest AAI. That was the original deal.


  61. - thechampaignlife - Tuesday, Dec 18, 18 @ 1:08 pm:

    ===Let’s get that progressive tax passed before we start taxing grandma and grandpa.===

    Or before we start taxing single mothers. Widows. Widows of firefighters. Pick your heartstring to tug, then tell me why they get to be exempt while others do not and who is left to actually pay. Broaden the base, then everyone fairly contributes at a reasonable level.

    ===And a deep recession combined with more rounds of large and unfavorable actuarial readjustments by the state’s pension funds could combine to make the state’s annual payments impossible.===

    I think the recent impasse has shown that the state can manage to get by in tough times for at least a couple of years, so we have a long ways to go before we cannot make a bond payment. Heck, we never even had to pay employees or pensioners late, just vendors, social services, and universities.


  62. - jimmydean - Tuesday, Dec 18, 18 @ 1:48 pm:

    Arizona’s politicians brokered an agreement with unions before passing enabling legislation and sending the question to voters. Illinois unions, emerging victorious from a bitter four-year war with a doggedly anti-union Republican governor, are clearly in no mood for such talks……………..great ,but even with them on board they only speak for memebers.. retirees and non union workers can do as they want and sue,etc…


  63. - jimmydean - Tuesday, Dec 18, 18 @ 1:49 pm:

    since the dems now rule the state at ever level this is now their issue to deal with, even if they kick and scream. question is when the fail to address it will you keep voting blue? you get what you vote for.


  64. - Beth - Tuesday, Dec 18, 18 @ 1:58 pm:

    Why not try to entice the tier 1 members to keep working longer
    If they keep working they continued to pay into pension system
    They continue to pay income taxes. They continue to pay into health insurance
    Working longer on the front end means they collect for shorter time on the back end

    Most of them that retire early end up going to work somewhere anyway They may as well keep for the state


  65. - Jibba - Tuesday, Dec 18, 18 @ 2:20 pm:

    Jimmy dean, unions don’t even speak for their members when it comes to the pension benefit. It is an individual right.

    Beth, that’s a good idea, but it will require money. For good raises, rebuilding a staff decimated by cuts, better equipment, etc. And it will be harder to do after more that 4 years of outright hostility by Rauner and other politicians, and decades of derision by the public. Distrust of the motives of politicians is driving Tier 1 employees to jump ship as soon as their situations allow, even if they still love their jobs.


  66. - 17% Solution - Tuesday, Dec 18, 18 @ 3:08 pm:

    @South County “Advanced in what way, crime and corruption?”

    Seriously? Crime? Ever heard of East St. Louis?

    Corruption? Ever hear of Alexander Coubty Housing Authority’s grift of Elmwood and McBride housing complexes? Ever heard of Rita Cromwell?


  67. - Anonymous - Tuesday, Dec 18, 18 @ 3:32 pm:

    ==Distrust of politicians is driving Tier I employees to jump ship as soon as their situations allow, even if they love their jobs==

    Absolutely, 100% true. With the vile attacks coming not only from politicians, but from their neighbors and everyone else, they just want out. It’s mainly a financial decision but the venom drives them out as well.


  68. - A State Employee Guy - Tuesday, Dec 18, 18 @ 4:11 pm:

    I will take up Honeybear’s challenge:

    First, the State can tax Honeybear’s pension. The amount he or she receives as pension income may not be subject to change, but the tax we levy on that income sure is.

    Second, the State offer Honeybear incentives to voluntarily lower her pension benefits.

    Third, the voters can elect candidates who will put a constitutional amendment on the ballot to allow the state to diminish pension benefits in way that recognizes that our State’s spending and revenue curves have been bowing away from each other for some time now.

    Each one of these options will mean Honeybear’s take home-pay is going to be lower than it stands to be now, and that sucks. But he or she needs to understand there are millions of non-pensioners in our state, and we need to be out here doing the greatest good for the greatest number.


  69. - JS Mill - Tuesday, Dec 18, 18 @ 4:28 pm:

    =But he or she needs to understand there are millions of non-pensioners in our state, and we need to be out here doing the greatest good for the greatest number.=

    So, if someone is promised compensation (contractually) that can be reneged upon just to save someone else a few bucks and, in particular, after the work product is delivered.

    I hope that you will stand by that practice whether in public or private sector. Because there will be a lot of reneging going on.


  70. - A State Employee Guy - Tuesday, Dec 18, 18 @ 4:43 pm:

    Oh well in that case, please inform those folks who can’t afford to pay their mortgages, medical debt, or student loans that they contractually promised to do so, and to allow them to reneg on their promises just to save themselves a few bucks after the other side has performed its obligation just wouldn’t be fair. /s

    As a future pensioner who can do math, I see the meteor on its way so I say: some amount of reneging is both acceptable and reasonable.


  71. - Honeybear - Tuesday, Dec 18, 18 @ 4:44 pm:

    Thank you State Employee Guy- the points you bring up are of course the subject of debate but I appreciate your respect. It’s kinda like cleaning a fish, field dressing a dear, or wringing the neck of a chicken. It adds a whole new level onto it. I don’t know why but it actually makes me feel better about the whole debate when I know I’m more than a number or statistic. I’m a person with a spouse, two teen daughters, three cats, a dog named Steve.


  72. - TinyDancer(FKASue) - Tuesday, Dec 18, 18 @ 4:54 pm:

    @jdcolombo

    Thank you.
    That’s exact concept I’ve been trying to get across.
    The pension funds only need to be 100% funded today if everyone retires today.
    Worst case scenario - If they got to zero funding, it would be pay-as-you-go. Not in any way advocating for that, but there’s time to fix this.


  73. - Honeybear - Tuesday, Dec 18, 18 @ 4:55 pm:

    -I think the recent impasse has shown that the state can manage to get by in tough times for at least a couple of years-

    In the next 3-4 months the immense damage of the impasse is going to be made known. It is vast, pervasive and devastating in ways that we are just now coming to understand. What appalling is the complicity in the destruction by Republicans, The Trib and BND etc and even the private social service agencies (with a few exceptions, Emily Miller being one) who kept quiet while their own Non profits were being sacrificed on some kind of sick free market alter. Diana Rauner facilitated that. But anyway, it’s all gonna come out.

    What Rauner did


  74. - RNUG - Tuesday, Dec 18, 18 @ 4:55 pm:

    == Third, the voters can elect candidates who will put a constitutional amendment on the ballot to allow the state to diminish pension benefits in way that recognizes that our State’s spending and revenue curves have been bowing away from each other for some time now. ==

    This one won’t fly in terms of existing employees and retirees. It is, essentially, the “police powers” argument the General Assembly tried to use with the unconstitutional SB-1. The response of the IL SC then is still applicable: (to paraphrase some of the wtitings by the justices) Illinois has the ability to pay the pensions but doesn’t want to make the hard choices to cut programs or raise taxes.


  75. - Anonymous - Tuesday, Dec 18, 18 @ 5:02 pm:

    Non pensioners should take more personal responsibility for their own finances and not rely on Reneging someone else to fix their own misdeeds


  76. - City Zen - Tuesday, Dec 18, 18 @ 5:04 pm:

    ==The pension funds only need to be 100% funded today if everyone retires today.==

    Next event in the 2018 Pension Mental Gymnastics Championships: Pommel Horse


  77. - Anonymous - Tuesday, Dec 18, 18 @ 5:11 pm:

    I hear all the time how current employees are so fed up with all the bad mouthing, the insults and basically lack of respect from the administration and the general public; they cant’ wait to retire and start collecting their pensions. Cant say that I blame them. I’d get out as soon as I could and as fast as I could Put this state in the rear view window and spend my pension elsewhere.


  78. - Vitaman - Tuesday, Dec 18, 18 @ 5:12 pm:

    Tax my pension and I immediately become a resident of Florida. Any idea how easy it is to become a resident of Florida or Texas or any other state if you simply own an RV?


  79. - Justdoingtime - Tuesday, Dec 18, 18 @ 5:18 pm:

    Tier 2 was supposed to be the fix right. I’d like someone I. Plain English to explain tier 2 what it does and how long it takes to do it. I know at my workplace 3/4 of the employees are now tier 2 and tier 1 employees are becoming endangered species.


  80. - RNUG - Tuesday, Dec 18, 18 @ 5:38 pm:

    == Plain English to explain tier 2 what it does and how long it takes to do it ==

    In simple terms, Tier 2 costs the employee twice as much as Tier 1


  81. - hick - Tuesday, Dec 18, 18 @ 5:47 pm:

    “The Arizona pension changes have yet to be challenged in court”. Does anyone know why?


  82. - AnonymousOne - Tuesday, Dec 18, 18 @ 5:56 pm:

    Anonymous @ 5:02

    Ideally, non pensioners should take responsibility for their own retirement savings. However, in the absence of bonuses, yearly raises (for some), and a generally low salary, that’s what the pension hoped to compensate for. A pension was not intended, at least for public workers, to be one facet of the 3 pronged approach —- Personal savings, Social Security, employer based retirement program. Their pension was intended to be the source of retirement income. Period. Many public employees will not receive much, if any social security even when they paid into it with supplementary jobs. Personal savings? Pretty tough to amass any kind of investment plan with low salary. That leaves the pension. The state actually knew what it was doing by establishing pensions for public workers. THey just couldn’t make themselves follow through on it.


  83. - RNUG - Tuesday, Dec 18, 18 @ 6:04 pm:

    == “The Arizona pension changes have yet to be challenged in court”. Does anyone know why? ==

    I don’t know for sure but I have a guess. My guess is, since the unions were on board with the changes, there are no obvious deep pockets to fund a challenge.

    Remember, here the challenges to the health insurance diminishment were a group of non-union retirees (Ralph Kanerva et al self funded), a retired judge (self funded), and a couple of union retiree groups (union / group funded). I happen to know a touch about the internal funding of the Kanerva group and also that one of their lawyers pretty much took it on a contingency basis plus actual expenses. They were looking at adding plaintiffs to the Kanerva group to add a second round of self-funding (disclosure: I was asked to join in by one of the initial group).

    Appeals are expensive and I’m fairly certain that is why there has not been one in Arizona to date. Given what I know about how Kanerva and SB-1 got appealed, I think there would be a challenge here in Illinois.


  84. - RNUG - Tuesday, Dec 18, 18 @ 6:08 pm:

    Rich,

    Did the continuation of my 5:48pm answer get get hung up? Don’t see it on my phone. Didn’t think I used any banned words.


  85. - RNUG - Tuesday, Dec 18, 18 @ 7:22 pm:

    Trying again

    == Plain English to explain tier 2 what it does and how long it takes to do it ==

    In simple terms, Tier 2 costs the employee twice as much as Tier 1

    Tier 2 has to work longer before they can retire

    Tier 2 gets the lesser of 1.5% or 1/2 CPI instead of a fixed 3% compounded AAI

    Each of the 5 systems have different terms, and the Tier 2 details are slightly different, but the above is the broad strokes of the differences.

    As to timeline, either when the State finishes paying the Edgar “ramp” or most the Tier 1 retirees are dead and gone. Somewhere between 18 and 60+ years.


  86. - Generic Drone - Tuesday, Dec 18, 18 @ 10:08 pm:

    Rnug. The union offered 1% to the state when Madigan and Quinn were attacking pensions. Whether or not the Union can negotiate that is something well above my pay grade. Non the less, it was offered. They refused saying it was not enough.


  87. - wondering - Wednesday, Dec 19, 18 @ 7:22 am:

    I hope it isn’t lost on those bemoaning the 3% AAI ,that social security, not known for lavish increases, is going up 2.8% in January.


  88. - wondering - Wednesday, Dec 19, 18 @ 7:42 am:

    Since 1975, 44 years, social security COLA’s have averaged 3.73% annual increase.


  89. - City Zen - Wednesday, Dec 19, 18 @ 8:45 am:

    ==I hope it isn’t lost on those bemoaning the 3% AAI ,that social security, not known for lavish increases, is going up 2.8% in January.==

    Apples and woolworths.

    As soon as those in the top half of the pension system start redistributing some of their pensions to the lower half, folks can bemoan all they want.


  90. - Anonymous - Wednesday, Dec 19, 18 @ 9:20 am:

    “As soon as those in the top half of the pension system start redistributing some of their pensions to the lower half,”

    Why should they? They earned it.


  91. - wondering - Wednesday, Dec 19, 18 @ 3:08 pm:

    Well then, City Zen, I assume you are a strong advocate for the progressive income tax.


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