28 Comments - Candy Dogood - Monday, Jul 6, 20 @ 11:30 am: Illinois: Passes law deliberately back loading payments to the pension system promising magical economic growth rates. Also Illinois: Surprised when making payments on that payment plan doesn’t decrease pension liability. Still Illinois: Complains about having to make up for skipped payments to the pension system. Y’all want to save some money? Y’all gotta reamortize your payment schedule. ===state pension system to be 90 percent funded by 2045=== But get a load of those payments in the 2040s. - Keyrock - Monday, Jul 6, 20 @ 11:40 am: Don’t worry, the magic beans are backordered, but I’m sure they’ll be delivered soon. - 1st Ward - Monday, Jul 6, 20 @ 11:51 am: What’s more precarious is Chicago. CFD 19%, CPD 22%, remaining funds in mid 20% - low 30%’s funded at YE 2019. The state can lower the percentage of municipal funding to offset some of the ramp or when revenue is declining to forgo tax increases. Municipalities levers are limited. If the fair tax passes would Chicago be able to have a city income tax? - Anotheretiree - Monday, Jul 6, 20 @ 11:54 am: When I’m feeling pessimistic…I fear that Covid may be the last straw. We wont be able to get out. Only option is a GOP White House with both houses allows state bankruptcy, or a Democratic government does a state bailout. - Give Us Barabbas - Monday, Jul 6, 20 @ 11:54 am: If I were cynical, I’d say this was a deal made behind the scenes to let the Gov’s office take some citizern heat, in order for the legislators to be able to tell their constituents: “hey, I went to my Manager about getting the car loan down another percentage point, I fought hard for ya, but there was nothing more I cold do. And the undercoating, well, they put that on at the factory - we *have* to charge for that.” …If I was cynical. Honestly, constituent cervices or no, it would be a very very bad look to be seen as clouting some constituents ahead of others on this. I mean, we vilified Rauner over clouting his kid into a school and that displaced only one child. Now you want to let every legislator just cut in front the line for their voters… where does it end? In chaos, is where. …and in exchange for - what, a hearty handshake? No, this is how graft and worse corruption got normalized, trading favors on things that should be above that level. - Blue Dog Dem - Monday, Jul 6, 20 @ 12:00 pm: I wish the governor would come out snd pledge the entire increase from the progressive tax initiative be added to existing pension payments. It would pass 70-30. - the Patriot - Monday, Jul 6, 20 @ 12:20 pm: Blue dog is right. I 100% oppose this tax, but if I knew we would dedicate it to the pensions I would support. The problem is what they say and what they do are different. Keep in mind, We have functioned most of the last 20 years with a budget that has run deficits that violates the constitution. This will be the democrat legacy. You won’t impeach Edgar on it now, and one name was on every budget for the last 23 years. Until we acknowledge that Madigan is the biggest budgetary failure in IL history, we will not get better. - Oswego Willy - Monday, Jul 6, 20 @ 12:24 pm: === This will be the democrat legacy. You won’t impeach Edgar on it now, and one name was on every budget for the last 23 years=== For your own safety, please, wear a mask if you’re gonna mouth breathe like that. Think of others. Yeah, that whole “one name” silliness? Governors sign budgets. Except of course the failed governor Bruce Rauner who signed but one budget, which, according to YOU would make Rauner complicit in the whole “unbalanced budget” hyperventilating. You know that, but you can’t help yourself. It’s called the Edgar Ramp… governors own. - Back to the Future - Monday, Jul 6, 20 @ 12:35 pm: Probably time to kick the can down the road again. This idea is time tested. Interesting that the locally run downstate police and fire funds were ranked second and third in funding in the state and all the other state run funds (except for one) were worse. - AndyIllini - Monday, Jul 6, 20 @ 12:53 pm: =Blue dog is right. I 100% oppose this tax, but if I knew we would dedicate it to the pensions I would support. The problem is what they say and what they do are different. Keep in mind, We have functioned most of the last 20 years with a budget that has run deficits that violates the constitution.= I agree. I’m undecided on how I’ll vote on the progressive income tax. I agree that the state unfortunately needs more revenue and will continue to need more revenue. But it isn’t so much about if you believe our legislators need more money to spend but more about do you trust them with that money. - City Zen - Monday, Jul 6, 20 @ 12:54 pm: ==I wish the governor would come out and pledge the entire increase from the progressive tax initiative be added to existing pension payments.== From the SURS CAFR report: “Dedicating a total of $200 million per year in future state budgets to the public pension systems in addition to the statutorily required pension contributions. This commitment, however, is dependent on voter approval in 2020 of a change in the Illinois Constitution that allows for the conversion of the current “flat rate” income tax to a “graduated rate” tax.” Keep in mind the required SURS contribution alone increased $400 million last year. That $200 mil is meant for all five pension systems. - Perrid - Monday, Jul 6, 20 @ 1:04 pm: I’ve said this before on other posts, where Rich’s given us a table with the projected unfunded liability by year, but it is absolutely insane to me that the written down, agreed to PLAN was to let the problem get worse until 2028 (I think, haven’t seen the table in a while). Again, the PLAN was to let the debt grow, maybe slower than before but still grow, until 2028, and then catch up in 17 years. Insanity. - Candy Dogood - Monday, Jul 6, 20 @ 1:31 pm: The merits of a progressive income tax vs. a flat tax are completely unrelated to the state’s unfunded pension liability. Aside from the impact that the highest income earners in Illinois wind up with an effective rate below the flat tax creating a somewhat regressive system, because of the state’s inflexibility when it comes to drawing adequate revenue we have seen some essential services, like DCFS for example, where the budget has drastically shrank when adjusted for inflation and the consequences are dead kids. It has also caused the state to struggle to adequately fund K-12 and higher education in the state resulting in massive hikes in tuition and declining enrollment in several magnate schools, and local property taxes that are higher in order to raise the funds that the state opted not to supply because Illinois is one of the worst states when it comes to ration of state funding for K-12 education. This creates an enormous amount of fiscal pressure on rural poor school districts where the tax base for a levy simply doesn’t exist causing a state wide k-12 education system that is defficent in the communities that need a strong k-12 system the most. Pretending that the pension liability/Edgar Pension Ramp is the only structural fiscal issue that the State and People of Illinois need to address is silly — and the idea of tying a constitutional change to one specific outlay is also silly. We need a progressive income tax rate in order to address the needs we have in the 21st century. Paying for the expense of 20th century pensions is only one of our problems, and other issues may be more pressing. If we’re serious about pension reform, we need to actually reform the pension system — not argue about how to pay for it, and not discuss creating a tier 3, but discuss why it is that we insist upon so many separate systems instead of creating one consolidated system with one specific set of rules for all public entities to follow, and make it very difficult for participating government agencies to award large salaries at the end of a career just to dump those expenses into the pension system. For some reason the Illinois GOP believes the only reform is to cut as if they missed the day class that covered economies of scale. - Blue Dog Dem - Monday, Jul 6, 20 @ 1:41 pm: If we can get Grandson of Man to agree, I think we have what you might refer to as bipartisan support. - RNUG - Monday, Jul 6, 20 @ 2:13 pm: == Probably time to kick the can down the road again. == That is exactly what the Edgar Ramp was designed to do … and is still doing for the next 7 or 8 years. I’ve always expected the ramp would be reworked about 2025 - 2030 to be maybe 10 - 15 years longer but with actuarially based payments. It wouldn’t necessarily lower the payments (at that time) by very much but it would stop the payments from taking an ever increasing share of the State budget. - Dan Johnson - Monday, Jul 6, 20 @ 2:21 pm: Tax pension income. Put the almost $2B/year in the pension funds. Solve a big chunk of the problem. - Oswego Willy - Monday, Jul 6, 20 @ 2:22 pm: === Tax pension income.=== You need 71 and 36 Show me those votes. - Realist - Monday, Jul 6, 20 @ 2:30 pm: There are 2 simple solutions to the pension problem. If you collect a pension, or plan on collecting a pension, then vote to raise taxes. If you do not collect a pension and have no plans to collect a pension, then move to another state. - jdcolombo - Monday, Jul 6, 20 @ 4:24 pm: Here’s a challenge. I would like for someone, anyone, to come up with JUST ONE plausible scenario in which a state (as opposed to a private business) would actually need 95% funding for pensions. The scenario for private business is easy: the business goes out of business. At that point, no more money goes into the pension fund, so you need enough put away to cover all future pension obligations. So here’s the challenge. Come up with a similar scenario for a state, which cannot ever “go out of business.” And once you have failed to come up with such a scenario, then maybe we can discuss why 95% funding is a completely artificial standard, literally made up from nothing by the accounting industry, and pushed by Wall Street because . . . well, guess who gets investment fees from all that money . . . . - Blue Dog Dem - Monday, Jul 6, 20 @ 5:08 pm: jdcolumbo. What is a safety threshold a state should be on the hook to maintain? - 44th - Monday, Jul 6, 20 @ 5:26 pm: Fraud, over spending, poor management of eligibility are the problems that need to be fixed. Throwing $ at the problem will never be enough. - Old Illini - Monday, Jul 6, 20 @ 5:30 pm: jdcolumbo makes an important point. What is the argument for 95% or for that matter, for any other percentage? I agree with jdcolumbo — I don’t get it. - City Zen - Monday, Jul 6, 20 @ 5:32 pm: @jdcolombo - You don’t seem to understand pension funding. 100% pension funding ensures that the folks who consumed the services pay for them. It also ensures that if the tax base ever diminishes, those pensioners will still receive the benefits promised to them. That target funding percentage is not supposed to be an artificial standard, although the way the state uses it most certainly is. It is a product of the calculations and assumptions used in pension accounting. - Blue Dog Dem - Monday, Jul 6, 20 @ 5:50 pm: I don’t disagree that 95% is an arbitrarily high number. But so is a guaranteed rate of return near 7%. - jdcolombo - Monday, Jul 6, 20 @ 6:08 pm: City Zen. I perfectly well understand pension funding, and it has nothing to do with matching consumption to payment. Government NEVER matches consumption to payment; the only way to do that is to forbid governments from incurring debt, which is paid for by future generations. That is not the law, never has been, and never will be. Instead, pension funding has everything to do with protecting employees. The idea of pension funding came to fruition via ERISA, which was adopted after the collapse of Studebaker and the inability of all the Studebaker employees to receive their promised pensions as a result. Pension funding at 95%, or even 100% is a necessary policy choice in the private sector if one wants to protect employees’ pension promises. But that level of funding is not at all necessary for the public sector, where there is no scenario in which the paying entity (the government) can go out of business. Blue Dog Dem asked what the target funding level should be. I think about 65%, based on the arguments made in the following paper, which I find persuasive: http://haasinstitute.berkeley.edu/sites/default/files/funding_public_pensions_-_publish.pdf The main policy is the same: funding levels should be sufficient to protect the promises made to employees. But unlike private entities, there is no scenario in which a state goes bankrupt/out of business/gets sold. So the question is what level of funding is necessary to protect pension promises from a downturn in state finances that requires the state to cut back on pension payments. That doesn’t require 95%. It requires SOMETHING, but 95% is a number that comes from rules regarding the private sector that are completely inapplicable to the public sector and not from a concerted analysis of funding risk by government entities. Yet everyone quotes it like it was one of the 10 Commandments given Moses on Mt. Horeb. It’s not. - jdcolombo - Monday, Jul 6, 20 @ 6:28 pm: BTW - Blue Dog Dem: 7% is not an unrealistic rate of return over a 40 or 50-year time horizon, which is what most pension promises are. The average long-term rate of return in the U.S. stock market has been between 8-10% (closer to 8 for the S&P 500, closer to 10 for the Dow). Google “Average Stock Market Long-term Rate of Return.” - Blue Dog Dem - Monday, Jul 6, 20 @ 6:35 pm: jd. I understand long term returns in equities. Two things concern me. The first is govt entities being reliant on market returns in a disproportionate level. The other is the hypocrisy of certain elements of the Democratic Party and their position that its OK to tax the heck out of corporations,yet being reliant on those corporate earnings to boost stock prices which in turn fund pensions. - Candy Dogood - Monday, Jul 6, 20 @ 11:36 pm: ===I think about 65%, based on the arguments made in the following paper, which I find persuasive=== It is a heavy lift to convince folks that the budget of a state government — which has the ability to levy funds on just about anything and to change that levy as needed and does not have the current legal authority under U.S. law to declare bankruptcy while operating on cash basis accounting — operates differently than a household budget. The practical difference between how our state’s “income” and “spending” operate compared to a household budget is how we were able to continue to function for years with an intentionally inadequate income tax rate during the Rauner administration — rich as Bruce was, Brucey Bruce didn’t understand that the cash accounting the state uses doesn’t create the same pressure as a firm would see in the private sector. There was just a longer delay in payments. In the long run the process was expensive because the state enacted laws to discourage the practice by making it expensive to delay payments. In our case, of course, people lined up to take the interest in exchange for making timely payments to state vendors which helped more public funds into private hands unnecessarily while allowing some connected folks to make a pretty handsome return on a risk free investment. (Looking at you, Jim Edgar.) The State of Illinois could theoretically elect to have a zero percent funding goal for state pensions so long as there was the commitment to actually pay those expenses as they arose, though a lot of folks would find this dubious since there’s a political party that prides itself on insisting that our promises to public servants be broken. If we had confidence in ourselves to manage our own government well, we wouldn’t necessarily need to rely on market speculation/investment to try to capitalize on our funds. However unless our economy’s growth rate is greater than the return on investment, it’s usually a good idea to go ahead and fund a state’s pension system. Though it’s not just regular folks that eat up the idea that our state budget must operate like a household budget, or a smaller municipal budget — our bond rating agencies do too, even though there’s basically zero risk to a general obligation state bond. So we pay higher rates on our bonds than private companies that can’t go a decade without being bailed out by the federal government. Public finances are fun, and that’s how we get smart and educated folks insisting that 100% of a tax increase must be directed to the pension funds — which only exist as a future projected liability and doesn’t have a whole lot of impact on the cash accounting we use, and ignores that there are other areas our state really needs to be making a public investment in. Changing the constitution will give our legislature the flexibility to do both without increasing taxes on our lowest income neighbors. Sorry, comments for this post are now closed.