Capitol Fax.com - Your Illinois News Radar

*** UPDATED x1 *** S&P warns Illinois as Quinn demands fast action, rejects Cullerton plan

Wednesday, Jun 6, 2012 - Posted by Rich Miller

* Standard & Poor’s claimed today that Illinois pension reform faces an uphill climb and kept its negative outlook in place…

There was no action during the regular legislative session on pension reform and we consider this negative from a credit standpoint. Given that the pension reform legislation did not pass during this session, it will now be a much more significant challenge to implement, in Standard & Poor’s opinion, requiring a three-fifths majority if addressed in a special session in 2012.

We have kept our outlook on the state of Illinois (’A+’ general obligation debt) negative since January of 2011. Despite significant revenue enhancement and ongoing revenue recovery, structural budget balance has been elusive and liquidity remains strained due to the state’s growing accumulated deficit (accounts payable and general fund liabilities). We expect to resolve the outlook on Illinois this year based on our review of the fiscal 2013 enacted budget and the state’s progress, if any, on addressing its significant pension
liabilities and associated cost pressures.

* Gov. Pat Quinn’s office offered up a reaction…

“It is clear from this (S&P writeup) as well as past ratings agencies’ comments that pension reform must happen immediately,” Mr. Quinn’s office said in a statement. “(The governor) cannot act alone and continues to work with legislators to make certain we address this challenge.”

* Quinn met with the other leaders today and is now back to insisting that some pension cost-shifting to local school districts be enacted. Quinn dropped the idea last week when the Republicans wouldn’t agree to it, but then the resulting pension reform bill died because Speaker Madigan was opposed.

Quinn also dismissed Senate President John Cullerton’s proposal to just do the state and General Assembly retirement systems right now and put everything else off for a while. “I think it’s very important to understand that this issue can’t be delayed, it can’t be a partial solution,” Quinn said.

Quinn said today that the leaders will meet again sometime around the “19th, 20th or 21st of this month” to look at data for the various ideas which were offered up at the meeting. He didn’t specify what those ideas were.

* Raw Quinn audio…

Click to download

*** UPDATE *** Via the AP, it appears the leaders are divided into two camps…

Senate President John Cullerton, Senate Minority Leader Christine Radogno and House Minority Leader Tom Cross want to pass measures where there’s already broad agreement and keep negotiating the others.

But Gov. Pat Quinn says he wants a complete overhaul, and House Speaker Mike Madigan says any pension reform should address the schools issue.

32 Comments

*** UPDATED x1 *** House committee wants further action against Rep. Derrick Smith

Wednesday, Jun 6, 2012 - Posted by Rich Miller

* The House’s Special Investigating Committee has voted unanimously to recommend that indicted Rep. Derrick Smith be referred to another House committee for punishment. The committee’s report is here. Live broadcast of the press conference is here.

*** UPDATE *** If you missed the live feed, here’s the raw audio…

Click to download

[ *** End Of Update *** ]

* AP…

The committee’s task was only to determine whether Smith should be punished. Another committee will choose whether to reprimand, censure or expel Smith — or to take no action.

The seven-page report said the alleged misconduct legislators should examine is that Smith “abused the power of his office by participating in a scheme to obtain a personal benefit in exchange for his official acts.”

Smith, 48, allegedly took the bribe for backing a $50,000 state grant application on behalf of a day care center that turned out to be fictitious. Authorities say it was an FBI sting with an undercover informant wearing a recorder. […]

In making its finding, the special committee had a much lower standard of fault-finding than Smith would face in federal court.

* Tribune…

“Accepting a cash bribe in exchange for an official act, or even plotting or attempting to do so, constitutes a breach of Rep. Smith’s obligation as a public official to faithfully discharge his duties in the best interests of the people of the state of Illinois and warrants disciplinary action by the House of Representatives,” the report states. […]

Smith faces the potential of censure, reprimand or expulsion under the House procedures, which started with the investigative panel that convened Thursday and could eventually bring his case before the full House.

* Reps. Lou Lang and Jim Durkin have been appointed House managers. Twelve “jurors” from the House - six from both parties - will listen to the case presented by the managers. The committee must convene no later than 30 days from today.

13 Comments

*** UPDATED x2 *** The compounding problem

Wednesday, Jun 6, 2012 - Posted by Rich Miller

* The Daily Herald looks at what the compounding of annual pension cost of living increases has done to the system…

Retired Illinois teachers received a collective $900 million bump above their original pension benefits last year.

These “cost-of-living adjustments” amounted to 21.3 percent of the $4.2 billion total retirement benefits paid to 101,288 former educators from around the state, officials from the Illinois Teachers’ Retirement System reported. That’s up from 18 percent of the total teacher pension payout just five years ago. […]

Simply compounding a 3 percent increase to the current average teacher pension of $46,452 over a 25-year period produces an additional $114,238 over that span, compared to the same 3 percent increase if it had not been compounded. In year 25, the teacher’s compounded pension would be $94,427. Not compounded, the pension would amount to $79,897.

* But not everybody is convinced that getting rid of compounding COLAs is the right answer…

West Chicago Republican state Rep. Mike Fortner said he’d prefer to see an increase to employee contributions rather than risk a protracted legal battle over changing employee retirement benefits. He said increasing teacher retirement contributions by 1 percent would essentially pay for the compounded pension bump perk.

“They can keep the compounded plan as long as they’re paying for it,” Fortner said.

If Fortner is right, why wasn’t that route taken instead? The teachers’ unions reportedly offered to kick in two more percentage points into the system. We need more data. Fast.

*** UPDATE 1 *** Rep. Lisa Dugan just called to say that she asked that very question and was told in no uncertain terms that the additional kick-in by employees wouldn’t produce nearly enough cash to solve the compounding problem.

*** UPDATE 2 *** From AFSCME…

This chart shows how the 3% compounded COLA is critical to protecting retirees from inflation. Imagining someone who retired with a $15,000 pension in 1987, the chart shows the amount of their pension in each of the 25 subsequent years under two scenarios: Red is what the retiree has earned under current law, with a 3% annual compounded COLA; green is what they would have earned if the Tier 2 COLA provision had been in place (half of CPI capped at 3%, simple). The purple line shows the amount the retiree would have needed in each year for the pension to keep pace with the actual rate of inflation.

Under current law, the 1987 retiree is today an aggregate $12,000 behind, or 2% less than, the amount required to keep pace with CPI for the period. The benefit has exceeded the real value of the base plus inflation in just 3 of the 25 years. Had the Tier 2 COLA been in effect, the retiree would have lost $111,000 or 20% of the value of the base plus inflation.

Chart…

More info…

52 Comments

« NEWER POSTS