If only reality was this simple
Monday, Feb 3, 2020 - Posted by Rich Miller
* Crain’s editorial…
The most glaring omission in the governor’s address, however, was the state’s overwhelming pension underfunding crisis—an exclusion that had pundits straining to find new ways to describe the avoidance of uncomfortable conversations without invoking the proverbial elephant or gorilla in the room. To be fair, Pritzker did nod to passage of a bill last year to allow police and fire pensions outside Chicago to consolidate statewide, but the savings that will result will be nowhere near enough to fill the shortfall in the state’s public employee pensions.
What the governor apparently would rather not discuss is the need for real, structural tax reform to put the state on a path toward actuarially sound financial terrain. Pols at the Capitol and in Chicago’s City Hall want us to believe budget salvation lies in sin taxes on gambling and pot. But an agreement between the Lightfoot administration and Springfield on the best way to divvy up casino revenue and licenses has been elusive, to put it charitably. Meanwhile, the legalization of the marijuana market, with its high taxes and low supply, seems to have done more to drive pot buyers into the arms of black market purveyors than to raise a meaningful and reliable revenue stream. And yet, even if these two new taxing opportunities had been rolled out to perfection, they wouldn’t come close to being enough to fill the pension hole, which widened $3.8 billion to reach $137.3 billion at the end of fiscal 2019.
What Illinois needs even more than an intelligently functioning marijuana market and an amicable arrangement on casino revenue is a constitutional amendment allowing the state to undo the automatic cost-of-living hikes built into public pensioners’ plans—the ones that exceed the actual cost of living and are causing our debt to spiral ever upward.
The graduated income tax proposal that forms the basis of so many of Pritzker’s plans requires a constitutional amendment—creating an opening to push through a pension fix at the same time. Pritzker won’t walk through that door, no doubt because the unions that helped him win office wouldn’t like it much. But the responsibility Pritzker won was to represent the interests of all Illinoisans, not just those who carry a union card.
The governor is not a dictator. He cannot simply command legislators to do his bidding. We had three populist governors in a row who tried that route and they all failed to one extent or another.
Cutting off their paychecks didn’t work (both times it was tried), holding up a state budget for two years didn’t work, saying members were spending state money like “drunken sailors” didn’t work, threatening to finance primary opponents didn’t work (both times). He has pro-union Democratic super-majorities in both chambers and a sizable chunk of the Republican caucuses wouldn’t go anywhere near a constitutional amendment. And there is some doubt whether it could even pass muster with the voters if it got that far.
By all means, keep pounding on the guy if you want. It’s a free country. Just recognize that there’s only so much a governor can do. Even this one.
- Skeptic - Monday, Feb 3, 20 @ 11:32 am:
“constitutional amendment [..] to undo the automatic cost-of-living hikes built into public pensioners’ plans” I’m guessing they’re not regular readers here?
- DIstant watcher - Monday, Feb 3, 20 @ 11:43 am:
Broken record, meet past failures. Past, failures, this is broken record.
So many people who claim to care about the business climate don’t live in the real world.
- Precinct Captain - Monday, Feb 3, 20 @ 11:43 am:
Let’s not forget the constitutional concerns.
- Anyone Remember - Monday, Feb 3, 20 @ 11:48 am:
“Meanwhile, the legalization of the marijuana market, with its high taxes and low supply, seems to have done more to drive pot buyers into the arms of black market purveyors than to raise a meaningful and reliable revenue stream.”
No facts to back up the statement. And apparently they don’t care that 40 years ago the CPI was 12.4%. Was this, with Crain’s grammar and editing, actually written by Katrina McQueary?
- RNUG - Monday, Feb 3, 20 @ 11:50 am:
== I’m guessing they’re not regular readers here? ==
I’m sure they’re regular readers. But they are still dreaming a CA can undo contract law and decades of court decisions.
The best they are ever going to achieve is a voluntary program to give up the 3% AAI for some other consideration. There is a variation of that available now, and it’s proving there are people that are not financially savvy.
- RNUG - Monday, Feb 3, 20 @ 11:56 am:
== And apparently they don’t care that 40 years ago the CPI was 12.4%. ==
That is why the proposals are always for a 3% or less capped CPI calculation to replace the AAI. They don’t want to risk an unlimited / unknown cost of living expense. With a capped cost of living, the State wins either way.
- ZC - Monday, Feb 3, 20 @ 11:58 am:
Were I a Republican, this is what I’d be complaining about, way more than gerrymandered maps.
I’m a Dem and don’t like the pension clause but it is what it is. It’s bad policy but it’s awesome politics, for those who benefit from it. And Republicans who want to just cut, cut, cut taxes, are in a real bind in Illinois.
- MG85 - Monday, Feb 3, 20 @ 12:05 pm:
==What Illinois needs even more than an intelligently functioning marijuana market and an amicable arrangement on casino revenue is a constitutional amendment allowing the state to undo the automatic cost-of-living hikes built into public pensioners’ plans—the ones that exceed the actual cost of living and are causing our debt to spiral ever upward.==
This is untruthful on several accounts.
The first is that our debt isn’t spiraling upward.
https://www.usgovernmentspending.com/spending_chart_1999_2020ILp_13s1li111mcn_H0t
If we are talking about exclusively state debt then statistics show our debt is going down.
Second, it is not the Constitutional automatic cost of living increases that has caused our debt to be where it is today. It is, in fact, years of under funding our pension responsibilities.
The Edgar ramp of the 90’s allowed for lower contributions with a mirroring of a balloon note by 2024 (because, of course no one wants to be responsible for actually paying bills). Unfortunately, the markets went sour and investments dragged.
Thus, in 2005 SB27 allowed politicians to underfund their pension responsibilities anytime there was budgetary pressure. Guess what the GA found every time they put a budget together? Pressure. Even Crain’s on paper acknowledges this:
https://www.chicagobusiness.com/static/section/pensions-timeline.html#8
So does the Comptroller:
https://illinoiscomptroller.gov/linkservid/5005F7CE-117D-4D76-B802513FFDBD8773/showMeta/0/
This point of view is tantamount to a homeowner deciding to not make full mortgage payments month after month and then a year later declare he’s behind on mortgage payments because the payments are too high.
This is a revenue problem and the customer (aka taxpayers) has been let off the hook for far too long. It’s time for the state to pay up and correct the tax structure in this state.
- Anyone Remember - Monday, Feb 3, 20 @ 12:08 pm:
” … don’t like the pension clause but it is what it is.”
Do you know why we have the pension clause?
- Moody's Blues - Monday, Feb 3, 20 @ 12:36 pm:
= I’m sure they’re regular readers. But they are still dreaming a CA can undo contract law and decades of court decisions. =
Would someone who specializes in con law please point us to any federal case law establishing that federal or state contract law prohibits a state’s voters from amending their constitution to change a pension provision?
We keep reading the assertion from commenters that Illinois’ pension protection clause is constitutionally sacrosanct. Have federal courts unambiguously agreed?
If so, that’s a big deal. If it’s just speculation, we can treat it as such. Thanks in advance to the con law expert.
- SpfdNewb - Monday, Feb 3, 20 @ 12:45 pm:
something, something about insanity doing the same thing over again and expecting different results, something, something…
- Moe Berg - Monday, Feb 3, 20 @ 12:54 pm:
Very disappointing to read from what is often a pretty good publication such bad faith argumentation and to observe a desire to cast every development in the most negative possible light.
They’re playing to the majority of their readers’ prejudices: government sux and unions sux.
Do better, please.
And, no one, but no one, claimed that marijuana legalization or casino expansion was going to magically, instantly fix all of the state’s challenges.
Can we get the BGA to haul out the Truth-o-Meter on this editorial? LOL
- Perrid - Monday, Feb 3, 20 @ 1:00 pm:
Moody’s Blues, IL can absolutely change its constitution. We could make it so that new hires that come in have to take whatever the state gives them, and the state could change it’s mind year to year. The problem is that that is not what the state has done to date, with existing employees. The state has entered into a contract with existing employees, in its own words, to guarantee a pension, and the IL SC has interpreted that contract to be very broad. It is by no means certain that the state can retroactively, unilaterally change the terms of the contract, even with an amendment.
In a way you are right, the state would be breaking new ground so no one knows for sure what SCOTUS would do when, not if but when, the case got to them, but ignoring the problem while getting into a years, decade maybe, long fight with a very high chance of losing sounds incredibly foolish to me.
- Grandson of Man - Monday, Feb 3, 20 @ 1:01 pm:
How many times does it need to be said: Pensions were already cut, with Tier 2 reform. We’re supposed to go back and cut workers yet again? Does Crain’s have any idea how expensive it is to have a middle class lifestyle? Practically entire paychecks are swallowed up, sometimes even more than that.
It’s the revenue side we must address, to hopefully get the Fair Tax, which hasn’t been done before.
- Blue Dog Dem - Monday, Feb 3, 20 @ 1:14 pm:
Grandson. Is JB dedicating most of that revenue to pension pay down and I missed it? Or is it the usual pay the minimum and let the next governor worry about it.?
- Lester Holt’s Mustache - Monday, Feb 3, 20 @ 1:20 pm:
==prohibits a state’s voters==
Nothing is prohibiting voters from doing it, but federal contract law prohibits doing it retroactively. Any kind of change only affects those going forward, like it did with Tier 2 pensions - i.e., everyone hired after 1/1/17 only gets x benefits, which aren’t anywhere near as generous as the previous Tier 1 benefits.
- Bigtwich - Monday, Feb 3, 20 @ 1:31 pm:
“it’s awesome politics, for those who benefit from it”
That would be the taxpayers of Illinois. The average rate of inflation since the Illinois Constitution was adopted is 3.9%.
- Regulator - Monday, Feb 3, 20 @ 1:33 pm:
Perhaps a bigger elephant.
Article I, section 10, clause 1 of the U.S. Constitution:
“No State shall … pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts…”
Try again, Crain’s. This is still the USA.
- Chicagonk - Monday, Feb 3, 20 @ 1:35 pm:
Until Pritzker states that he is open to broadening the sales tax or looking taxing retirement income, I will doubt his will to make difficult choices when it comes to the pension issue.
- Former Springfield - Monday, Feb 3, 20 @ 1:41 pm:
He’s not a dictator, but he does have the bully pulpit, and his silence likely means he may not like what history books say about him on this issue, and perhaps his governorship.
Also, let’s remember voters can vote for a constitutional convention in 2028…when the pension funding issues may be much worse than they are today. By then it could be the voters and Tier 2 employees vs. Tier 1 employees/retirees. No one should assume that clause in the state constitution will necessarily be there forever.
- Ano - Monday, Feb 3, 20 @ 1:47 pm:
==average rate of inflation since the Illinois Constitution was adopted is 3.9%==
Yes. And if our elected have had so much resistance to properly funding workers’ retirement funds with a predictable yearly AAI, can you even imagine how that would’ve worked with a variable amount of inflation over time/year to year?
- Maximus - Monday, Feb 3, 20 @ 1:51 pm:
Nobody will have the stomach to make big changes on the spending side until the system is much deeper in trouble. Until then the revenue side will continue to be the end being adjusted. Have to wait a few years before trying to reduce costs when everyone is feeling more pain from the payments.
- SAP - Monday, Feb 3, 20 @ 1:53 pm:
My calendar says that the Governor’s budget address is 16 days from now.
- Skeptic - Monday, Feb 3, 20 @ 1:57 pm:
“Those who are not receiving a public pension are all in favor [of taxing retirement income].” Eh? What polls are you reading?
- Whatever - Monday, Feb 3, 20 @ 1:59 pm:
==We keep reading the assertion from commenters that Illinois’ pension protection clause is constitutionally sacrosanct. Have federal courts unambiguously agreed?==
Pretty much. When you read the ILSCt decision on the last pension “reform act,” you’re actually reading a summary of the USSCt’s contracts clause cases. The ILSCt didn’t question at all that there was a contract or what the contract consists of, it spent all its time applying the federal case law on when a state can impair a contract despite the contracts clause, and decided the state did not have a valid excuse.
- WestTown TB - Monday, Feb 3, 20 @ 2:23 pm:
Maybe I am unaware of something here, but it seems like the lowest hanging fruit would be to end the pension program for new hires, and put new hires on social security with a 401K plan with some matching system.
Honor the contractual obligations to current retirees and employees, and one day 40-50? years from now, any pension liabilities will much, much smaller, and eventually gone. One does not need a CA for this.
Curious about others thoughts on this…
- Anyone Remember - Monday, Feb 3, 20 @ 2:31 pm:
WestTown TB
” … but it seems like the lowest hanging fruit would be to end the pension program for new hires, and put new hires on social security with a 401K plan with some matching system.”
The (in)famous Edgar Ramp is predicated upon new employees being part of the pension system - pull them out, and the Edgar Ramp funding requirements won’t be met. When this was pointed out to Bill Brady, whilst running for Governor in 2010, his response was make up for those funds was … wait for it … sell 50 year bonds. No /s.
- Grandson of Man - Monday, Feb 3, 20 @ 2:44 pm:
“By then it could be the voters and Tier 2 employees vs. Tier 1 employees/retirees.”
By 2028, based on demographic trends, the state may be more liberal/progressive than today. Since the IPI-style of pitting workers against each other and voters/taxpayers failed lately, it might fail even more in the future.
- Skeptic - Monday, Feb 3, 20 @ 2:44 pm:
WestTown: The problem isn’t new hires, Tier II took care of that. The problem is all the Tier I retirees that are still alive and plan on remaining that way for some time.
- SW - Monday, Feb 3, 20 @ 2:55 pm:
Nothing will be done until the can cannot be kicked down the road any longer. When the day comes when they cannot borrow any more money and someone has to decide whether to pay pensions or the Medicaid bill, or Earned Income Tax Credit, or any of the myriad other programs then something will be done. Until then, forget about it.
- Jocko - Monday, Feb 3, 20 @ 3:00 pm:
==end the pension program for new hires==
And how do you plan on recruiting (and retaining) these new hires…free Starbucks in the staff dining room, on-site masseuse?
- Skeptic - Monday, Feb 3, 20 @ 3:08 pm:
“And how do you plan on recruiting (and retaining) these new hires” Well, taking a cue from a former State leader, we could issue gift cards. /s
- Lucky Pierre - Monday, Feb 3, 20 @ 3:15 pm:
“The responsibility the governor won was to represent the interests of all Illinoisans, not just those who carry a union card.”
That is not entirely fair Crain’s editorial board.
The Governor and the Democrats are certainly looking out for the trial lawyers too.
Where was this concern when you decided to endorse him?
- Last Bull Moose - Monday, Feb 3, 20 @ 3:52 pm:
Just a few years of double digit inflation and the State will be in good shape. I am continually surprised that Trump’s policies have not increased inflation.
- Shemp - Monday, Feb 3, 20 @ 3:53 pm:
Public employees are allowed to save for their own retirement in addition to their pensions in various pre-tax and affter tax options. Changing pension plans isn’t sentencing future public employee hires to poverty-level retirements. Too many people see this as an all or nothing thing.
- ajjacksson - Monday, Feb 3, 20 @ 8:57 pm:
What MG85 said.
- Ano - Monday, Feb 3, 20 @ 9:09 pm:
Worried about pension offerings for new hires? Should be, at least in Education. Apparently, those who would have become teachers are smarter than they’ve always been painted. Students are very aware of earning potential, job conditions, advancement opportunities, public sentiment, etc. etc and are opting not to become a teacher. Shortages abound and look to continue in the future.
But make teaching more attractive, lucrative? Not on my dime, so many say.