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* The Weekly Standard’s Eli Lehrer penned an opinion piece last month entitled “Pensions aren’t the problem”…
Illinois’s story offers a lesson to other states looking to rein in employee compensation. Quite simply, pension benefits represent a reasonably small share of overall state spending (3.4 percent in Illinois), not all states have severe long-term funding problems, and state pensions are almost impossible to reform in ways that solve current budget problems. Moreover, there’s a commonsense case that reasonably generous public sector pensions are good public policy. Pensions, in short, aren’t the main cause of state budget problems, and many political leaders trying to bring public sector compensation down ought to focus their attention elsewhere.
What Lehrer fails to grasp is that while employer pension contributions are relatively low in Illinois as a percent of the budget, the unfunded liability and debt are what drive the real costs here. That unfunded liability was caused by two things: 1) The state didn’t make all its payments, and 2) Market forces.
* Anyway, House GOP Leader Tom Cross responded today…
Let’s look at the facts. Lehrer claims pension spending in Illinois represents only 3.45% of overall state spending. The facts are that for this year’s budget (FY12) the Illinois House of Representatives recently appropriated $4.2 billion to pay for the cost of pensions, which as a percentage of our General Revenue Funds budget ($33.1 billion) is approximately 13% This is our third largest expenditure, only surpassed by Elementary and Secondary Education and Health Care spending. Not a small sum, and without significant reform will almost double to $8 billion in ten years. […]
Along with the Civic Committee of the Commercial Club of Chicago I am sponsoring Illinois House Bill 149, which allows current employees to keep all benefits earned prior to the date the reforms go into effect and going forward it would offer a menu of benefit changes to our current workforce. It will also provide for level-dollar funding over the next 35 years and reduce the unfunded liability to make our system more stable and financially manageable.
Lehrer then responded to Cross’s proposal, saying he’d vote for it if he was a member of the Illinois House…
But I do have one hang-up: it may violate the Illinois Constitution. Here’s Article XIII, Sec. 5: “Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”
I haven’t studied the case law behind this provision or examined Mr. Cross’ bill in depth but it seems like there would be a very credible court challenge to Mr. Cross’ legislation. In the end, Illinois may do the best by making up for its past underfunding of the pension system by sticking with the helpful changes it has already made, paying the promised benefits and finding cuts in places where they won’t face constitutional challenges.
We’ve seen this argument time and time again. Somebody proposes a pension reform, somebody else says it’s unconstitutional. Illinois’ Constitution can be changed, yet nobody seems to talk about that, not even those who are proposing big changes, including the Civic Committee and the Tribune editorial board.
I asked Leader Cross’ spokesperson if her boss would support a constitutional amendment deleting the pension protection language in the Constitution and was told: “It is Rep. Cross’ intent to let the pension reform working group move forward and offer its suggestions.” Apparently, this is just too hot a subject to touch. I can understand why, so with lots of trepidation…
* The Question: Should a state constitutional amendment be passed to delete the Constitution’s pension protection language? Take the poll and then explain your answer in comments, please. Thanks.
posted by Rich Miller
Monday, Apr 11, 11 @ 11:09 am
Sorry, comments are closed at this time.
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Unnecessary to have this language in the Constitution. A contract is a contract and enforceable by existing law.
Comment by Cincinnatus Monday, Apr 11, 11 @ 11:14 am
Yes. Unfortunately, due to state finances, I think Illinois needs to break pension agreements much like private companies have broken agreements to their employees. Strange argument by Weekly Standard - I thought they were conservative so generally would be all in favor of overstating, rather than understating, spending/deficits.
Comment by Robert Monday, Apr 11, 11 @ 11:15 am
A deal is a deal is a deal. Benefits for current employees should remain at current levels. My preference would be to focus instead on eliminating pension spiking and criminalizing it.
Comment by Jake From Elwood Monday, Apr 11, 11 @ 11:16 am
Except for large salary increases given to very few public employees before leaving government positions, pension systems are not the problem. Some fixes could be made by basing retirement on the last four years of service not the ending salary.
Otherwise I believe public employees earn every bit of their retirement.
Comment by Bman Monday, Apr 11, 11 @ 11:19 am
I voted no because the question asks should an amendment be passed. I think it’s fair to have the debate and put it to voters, but I don’t necessarily think it should be passed.
The steps Madigan mentioned to the Firefighters, including retiree healthcare premiums, putting property tax payers on the hook for teacher pensions, etc., ought to be tried before we amend the constitution, in my opinion.
Comment by 47th Ward Monday, Apr 11, 11 @ 11:20 am
I voted yes. The (Illinois) Constitution should not be a suicide pact.
Pensions are a benefit of employment, nothing more. They should be treated like other benefits of employment, like health insurance and salary.
Comment by so... Monday, Apr 11, 11 @ 11:23 am
a contract is a contract. if you don’t have a contract, that is another story. those who are retired should not have their financial lives put at risk.
Comment by amalia Monday, Apr 11, 11 @ 11:23 am
No. Taking away something people have been promised and have counted on for a career is shameful. I’m not oblivious to the difficulty of this issue, but reneging is not the answer.
Comment by Small Town Liberal Monday, Apr 11, 11 @ 11:25 am
Yes…this protection has been abused. Deals have been made to rig the system by inflating salaries, abuse overtime, and other such tactics. I am also under the understanding that pensions were originally a way of making up for the pay levels civil servants used to be at. Now pay levels are much higher in comparison to private sector work, yet all the perks and benefits remain just as awesome.
Mostly, though, we need the flexibility to deal with the problem. We can’t keep talking about how everyone has to make sacrifices, then blindly ignore that the Governor makes union deals to get reelected and public workers get immunities and protections private sector workers can’t dream of. It might be time to change this, or at least have a serious discussion about it.
That may be naive…I think IL is more into power plays to push things through then it is into serious discussions. But I am sick of politicians giving sweet deals to public workers which can then never be changed do to union contracts and this abused Constitutional protection.
Comment by Liandro Monday, Apr 11, 11 @ 11:26 am
It is ridiculous to have employees who have paid into the funds be punished for the lack of fiscal discipline/payment by the State.
Pass the salary cut (not just furlough days) for legislators and Constitutional officers and put it in the pension system…yeah, I know it will never happen, but a woman can dream…
Comment by Loop Lady Monday, Apr 11, 11 @ 11:27 am
No. It smacks of dishonesty, in that the constitutional ramifications of an enforceable contract were in place all those years, and it was legislative willfullness that didn’t put the proper funding in place (moreso than bad investment luck, which was balanced by good investment years in the 90’s). “From this point forward” is OK with new hires. If the state offers a voluntary buyout or plan conversion to existing employees that will “truly” lessen the state’s long term obligations, that’s OK.
Comment by Six Degrees of Separation Monday, Apr 11, 11 @ 11:32 am
No a contract is a contract. A promise is a promise and employees make employment decisions based on the full basket of compensation (including pensions).
Besides, if the IL citizens were outraged over the IL Const’s protection of pensions, they could have voted for a Const Conv last election.
Comment by cermak_rd Monday, Apr 11, 11 @ 11:33 am
No, a deal is not a deal when the politicians supposedly representing the taxpayers are actually representing the unions in the first place. Some of these contracts come dangerously close to the unions negotiating with themselves for the best deal they can get away with.
No, that’s not a deal…that’s a fraud. People can’t sit around angry that others are “demonizing” them if they turn their heads from these shady deals done in their name. They have to expect some push back.
Comment by Liandro Monday, Apr 11, 11 @ 11:33 am
The Constitution says that past obligations must be met. It does not say that past obligations need to be given to all future employees. New contracts can be entered into. Preferably, we would do two things, transition people from the current fixed benefit system to a fixed contribution system, and remove this stupid amendment (Somebody needs to tell me why it is necessary to include a provision about these particular contracts in the Constitution. Why are they not other sections dealing with other aspects of contract law. I think we should have something about mortgages, too. How about credit cards?
Comment by Cincinnatus Monday, Apr 11, 11 @ 11:36 am
Yes, we at least are going to have to have a vote on removing the provision. If after a vote by the general public, the provision is removed, well the voters had their say. If the provision is retained, so be it.
But the general public will have had their say. And it will be a pretty clear, decisive say.
Comment by Judgment Day Monday, Apr 11, 11 @ 11:36 am
Sorry, poor phrasing above. I should have said pay levels vs private levels are much higher in comparison to their former standings vis-a-vis private levels.
Buyouts were mentioned above, which may be an idea with merit. So too is a referendum. I think we should be looking at all these options…but the amendment should be on the table. So too should any bills that would stem the abuse the system has had.
Comment by Liandro Monday, Apr 11, 11 @ 11:38 am
- People can’t sit around angry that others are “demonizing” them if they turn their heads from these shady deals done in their name. -
Liandro, you’re way off. Did you happen to catch this little nugget from Rich above?
- That unfunded liability was caused by two things: 1) The state didn’t make all its payments, and 2) Market forces. -
Maybe you should try reading about the issues instead of responding with crackpot theories.
Comment by Small Town Liberal Monday, Apr 11, 11 @ 11:38 am
Ask Leader Cross what the pension payment will be in 10 years if the pension system is reformed in any of the ways suggested so far. Answer; about $8B. Reason; we’ll still be paying off the same old debt we’re paying off now. Listen closely one more time: the normal cost isn’t the problem-it’s very reasonable. The problem is servicing the old debt, which ain’t going away.
Comment by steve schnorf Monday, Apr 11, 11 @ 11:45 am
Liandro,
A buy-out would also require some sort of Federal intervention that would allow some sort of transfer of the cashed out employees into the Social Security system. I have been thinking about how this can occur without the Federal government absorbing all of those Social Security costs and without bankrupting the state. I do not think this is an insurmountable problem, but I still think it is past time to move to the Social Security/Fixed Contribution model even though it would cost the state marginally more than the current scheme.
Comment by Cincinnatus Monday, Apr 11, 11 @ 11:45 am
===The problem is servicing the old debt, which ain’t going away. ===
Correct me if I’m wrong, Steve, but isn’t much of that debt calculated future retirement benefits for active employees?
Comment by Rich Miller Monday, Apr 11, 11 @ 11:52 am
For those on this blog supporting the idea that the “deal” should simply be broken, how do you feel about the current discussion of Social Security and its benefits being limited or reformed? Personally, I pay into my state retirement and have done so for 22 years. I also pay into social security and have done so for @ 40 years. I expect the promises that were made to me, and the contracts that were agreed to by the state and the feds to be honored. If not, then what good are any future promises or contracts?
Comment by lincolnlover Monday, Apr 11, 11 @ 11:52 am
Steve’s right. Even with a state constitutional amendment the US Constitution guarantees contracts which the US Supreme court has ruled seven times applies to earned pension benefits. The debt has to be paid no matter how badly they try to screw their employees in the future.
The debt is not going away until they pay it. Its time to pony up.
Comment by Bill Monday, Apr 11, 11 @ 11:54 am
@STL:
I honestly don’t know what you’re talking about. What crackpot theory are you referencing?
Some basic critical thinking would inform us that this unfunded liability was also influenced by: 3. the initial terms of the various agreements and 4. the abuses the to the system to inflate pensions.
Reading is a good skill, but so is critical thinking. And, frankly, contracts should be able to be re-negotiated. Just crying out that the state didn’t pay their share is not a full response to a complex problem.
Comment by Liandro Monday, Apr 11, 11 @ 11:56 am
Besides a constitutional amendment would never pass. The public is much more honest than politicians.
Comment by Bill Monday, Apr 11, 11 @ 11:57 am
I voted no. Tinkering with the constitution opens a pandora’s box. Probably the biggest reason we didnt have a con-con is because of this issue.
But, I disagree with Lehr on future payments.
=== Here’s Article XIII, Sec. 5: “Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired===
It doesnt say anywhere in there that you can’t be fired. You are still a member of the system and your current benefits should be upheld. But getting rehired under a new system is a different story. Not that I would agree that the state should do this but it definately can be part of the negotiations.
Comment by Been There Monday, Apr 11, 11 @ 11:58 am
@lincolnlover:
I’m fine with SS being messed with, because otherwise someone like me is either A: not going to be getting any benefits, or B. servicing massive debts while getting meager benefits.
Heck yes reform SS.
Comment by Liandro Monday, Apr 11, 11 @ 11:59 am
Liandro, the abuses are real, but overall a relatively small portion of the payment. There was a huge problem with pension spiking in TRS, but that was addressed a few years ago. Stop deluding yourself that eliminating waste solves all our problems. That’s a goofy, unsupported, harmful fantasy. Cuts hurt people. Period. There is no magic wand.
Comment by Rich Miller Monday, Apr 11, 11 @ 12:00 pm
“Not a small sum, and without significant reform will almost double to $8 billion in ten years”
Cross was in the House when the pension ramp was approved. Did he vote for it?
A bit late to be pointing to that as part of the problem.
Comment by Don't Worry, Be Happy Monday, Apr 11, 11 @ 12:00 pm
No…It’s the only thing keeping elected officals honest. Kicking the can down the road has become the accepted solution to too many problems.
Comment by Louis Howe Monday, Apr 11, 11 @ 12:00 pm
And this is not a debate about federal Social Security. Stick to the topic at hand, please, or you’ll be deleted.
Comment by Rich Miller Monday, Apr 11, 11 @ 12:01 pm
While reforms of the system are desperately needed, such a constitutional amendment would be too dangerous to current retirees and employees in that the Legislature is in no way trustworthy to handle the period of time this group might be “unprotected”. I think instituting some of these reforms and letting it play out in the courts may be necessary, and ONLY then, would I be willing to consider amending the constitution and ONLY if such court proceedings clarified what needed to be done. Giving the General Assembly and/or this governor any more power over these workers would, in my view, be extremely dangerous based on the track records of both in managing public funds.
Comment by Amuzing Myself Monday, Apr 11, 11 @ 12:02 pm
- What crackpot theory are you referencing? -
See number 4 in your analysis. Even Schnorf, a Republican budget guru, has this to say:
- Listen closely one more time: the normal cost isn’t the problem-it’s very reasonable. The problem is servicing the old debt, which ain’t going away. -
I agree that critical thinking is a good skill, but perhaps you work on reading first.
Comment by Small Town Liberal Monday, Apr 11, 11 @ 12:03 pm
*should work
Comment by Small Town Liberal Monday, Apr 11, 11 @ 12:03 pm
No, the constitution shouldn’t be changed.
Should any group be able to change the rules to cover their malfeasance, misfeasance, and/or non-feasance? What contract is then sacred? As a contractor on a multimillion dollar construction project should you fear that this group would pass a law that would say they don’t have to pay you after the work is done? As the leader of a large corporation that moves here or invests heavily in infrastructure in exchange for tax or other considerations/exemptions, should you fear that this GA would change the rules after the investment is made? How does any of this improve the business climate? The GA got to dance now they have to pay the fiddler.
Comment by Irish Monday, Apr 11, 11 @ 12:06 pm
Voted no, then saw Cincy’s comment. That sums it up perfectly. I don’t think they want to amend Art. 1, Sec. 16 of the IL Constitution. That would torpedo the State’s credit rating.
Comment by SAP Monday, Apr 11, 11 @ 12:07 pm
===should you fear that this GA would change the rules after the investment is made?===
That happens all the time. See: Income tax increase.
Next…
Comment by Rich Miller Monday, Apr 11, 11 @ 12:07 pm
Both the U.S. and Illinois constitutions forbid ex post facto laws (i.e., retroactive legislation.)
Article I, Section 9 of the federal constitution restrains Congress: “No Bill of Attainder or ex post facto Law shall be passed.” (Case law has nuanced this somewhat.)
But more apropos to the current discussion is the applicability of Article I, Section 10 to the states: “No State shall enter into any…ex post facto Law…”
Even more compelling in the present context is the Illinois constitution. Article I, Section 16 reads: “EX POST FACTO LAWS AND IMPAIRING CONTRACTS. No ex post facto law, or law impairing the obligation of contracts or making an irrevocable grant of special privileges or immunities, shall be passed.”
In short — the ex post facto prohibitions will doom the suggested state constitutional amendment.
Comment by Dooley Dudright Monday, Apr 11, 11 @ 12:12 pm
The PR powers behind eliminating public service worker benefits is pretty powerful. Now they’re even buying up time on sports talk radio.
Amazing.
Budget problems throughout the nation can’t possibly be caused by out of whack militarization nor endless Bush tax cuts; have to be due to public worker pensions & health care.
Comment by Kasich Walker, Jr. Monday, Apr 11, 11 @ 12:13 pm
===the ex post facto prohibitions will doom the suggested state constitutional amendment. ===
Only if you go back and reduce benefits already earned.
Comment by Rich Miller Monday, Apr 11, 11 @ 12:14 pm
@Rich 12:14 —
Agreed.
But if I understand the QOTD — the proposal is to delete the clause, not to differentiate between prior and prospective benefits.
Comment by Dooley Dudright Monday, Apr 11, 11 @ 12:20 pm
DD, there’s only so much that can be done, with or without this change. Try not to obfuscate matters.
Comment by Rich Miller Monday, Apr 11, 11 @ 12:22 pm
@STL:
So I take it you agree with point three then? And to my point about pay levels increasing vis-a-vis private pay despite pension benefits being designed to counter-balance the formerly poor pay levels?
Or are you only going to respond to points where you think you have an advantage? Like I said, stop trying to take a one-track response to a complex problem. Point 4 is only one of many, yet you are acting as if I base my entire position around it. I hardly did so, you just chose to only address that because you felt you could single it out successfully. Address the whole argument.
Comment by Liandro Monday, Apr 11, 11 @ 12:26 pm
No. That protection was written into the constitution for a reason. I holds the state liable for keeping it’s promises. If it were removed, and, as Rich seems to desire, we could diminish the pension terms for the future earnings of current state employees, what would stop other legal shenanigans from occurring? While the commercial club advocates for the above diminshment, they also want to tinker with who is on the other side of the contract. The constitutional amendment is much more important in this respect in that the state is the party on the other side of the contract, and states can’t go bankrupt. But, without the language in the constitution, Sidley & Austin’s opinion that the contractual agreement is with the pension plan entities (TRS, SERS, SURS, GARS etc) themselves and not the state is what worries me much more. Can these entities, like private industry, declare bankrupcy, whereas the state cannot? If so, eliminating the constitutional amendment is only the first step in defaulting on all state pensions.
Some people, including Eli Lehrer, have mentioned that the state could “just” reduce current compensation, or eliminate positions in an effort to have public employees “share the pain”. That would be a much more honorable thing to do rather than reneging on a portion of an employee’s benefits package that they agreed to each year they signed a contract to work for the state. The problem with that is that the state has already cut the workforce, and the people that are left are needed. Many will leave, rather than accept a salary reduction, and you can’t lay off many more without severely curtailing the actual delivery of state services.
Comment by PublicServant Monday, Apr 11, 11 @ 12:28 pm
Been There - Firing union employees without just cause is prohibited by the contract. That could get the state into a whole nother area of litigation. As far as a constitutional amendment goes, I think you have it right that it would, indeed, open up a padora’s box.
Comment by lincolnlover Monday, Apr 11, 11 @ 12:29 pm
No to the Constitutional Amendment. No to breaking the contract.
Time for everyone to feel the pain of kicking the can down the road. Perhaps then the general public will stay a bit more informed when the Legislators rob Peter (us) to pay Paul (their special interests).
Well, there is hope that folks will pay more attention, but doubtful. You can bet our legislators will look for a rock to shove this under, regardless of how temporary it is.
Comment by Justice Monday, Apr 11, 11 @ 12:33 pm
No, not for current employees.
You have employees whose retirmenet will be gutted. Keeping the benefits they have, which havent matured, are very small.
You have a number of employees who have been with the state for a decae or two, who will not have enough time left in their carreers to replace the loss from gutting their exisitng retirement.
I support requiring the current worker to pay a higher contribution, but asking 45-50 year olds to try and build retirment plans from scratch is not realalistic.
The problm with Cross approach is that the money being paid is not due to the benefit level being too high; it is repaymnt of money taken from the fund. The State ran up a bill with the pension system, and now want to back out of the obligation. Pull out the payment that is required due to the general assembly spending the money elsewhere, and the pension cost is very small.
The State is suggesting it would pay a matching contribution of say 10% per employee, right now the State pays roughly that amount. So there is no net difference in the per employee amount on the cost side going forward. We are talking purely abut the back debt owed y the State, not the cost of the plan to the State going forward.
Comment by Ghost Monday, Apr 11, 11 @ 12:33 pm
I voted No. The Pension Reform legislation from last year addresses the matter going forward. To amend the Constitution to rescind pension benefits to current annuitants and those who have paid in all these years and are relying on their state pension to finance retirement years is just wrong. After all, that was the agreement…the State of Illinois will pay less than what one could receive in the private sector, but we will guarantee you a defined benefit in exchange. To change the rules of the game now is just immoral, IMHO.
Comment by Commonsense in Illinois Monday, Apr 11, 11 @ 12:33 pm
- Like I said, stop trying to take a one-track response to a complex problem. -
That’s exactly the type of response the “renege on the contract” supporters are arguing for. I, personally, believe the answer involves many changes, including to the constitutional requirement for a flat tax. You, however, seem to ignore the repeated explanations that the normal cost of the pension isn’t the problem, it’s the debt servicing. So no, I don’t agree with your other points, but only one of them classified as crackpot to me.
Comment by Small Town Liberal Monday, Apr 11, 11 @ 12:35 pm
===Time for everyone to feel the pain of kicking the can down the road.===
Everyone but you.
Comment by Rich Miller Monday, Apr 11, 11 @ 12:36 pm
I voted no. Regardless of the hysteria amongst the public about public pensions most public pensions are not out of line. We have all paid into the system what we have been required to pay. I could probably go along with paying a couple percentage points higher but not Cross’ assinine 30% or whatever the number is. Also, I don’t believe changing the Constitution solves the problem as I think even a change to the Constitution would be challenged in court (yes that can happen).
Comment by Demoralized Monday, Apr 11, 11 @ 12:38 pm
Actually I meant to say “everyone.” I am not part of the pension system and neither is my family. I too will share the pain, but will push for more accountability of our legislators to the people of Illinois; All the people of Illinois.
Comment by Justice Monday, Apr 11, 11 @ 12:41 pm
- PublicServant - Monday, Apr 11, 11 @ 12:28 pm:
“That protection was written into the constitution for a reason. I holds the state liable for keeping it’s promises.”
I believe there is a Constitutional requirement to balance the budget too…
The Constitution should be amended to remove this provision from the Constitution simply because it does nothing other than to single out one type of contract over any other type of contract. As others have pointed out, there are already State and Federal Constitutional requirements, as well as several hundred years of common law precedent that require any duly executed contract to be honored.
And, saying that this provision should be stricken from the Constitution does not necessarily mean that one is saying the existing contract between the state and its employees should be broken. I have not seen one right thinking person ever make that assertion on CapFax.
This whole discussion does shed light on the current relationship between the state and its employees. We should rethink that relationship, and consider decertifying the unions for any multitude of reasons.
Comment by Cincinnatus Monday, Apr 11, 11 @ 12:45 pm
Lengthy litigation over this has to be a winner for members of the Civic Committee of the Commercial Club. High blood pressure knee jerk contributions alone might cover the cost of some Illinoisisbroke ads and a website.
Comment by The Healing Power of Kasich Walker, Jr. Monday, Apr 11, 11 @ 12:46 pm
When I joined the UIUC faculty in the late 70s, the standard line was that the salaries were “11th in the Big Ten” (this was before Penn State and Nebraska), but the pension was guaranteed in the constitution. Thousands of us have given the state one of the best Universities in the world, at below-market salaries, but with the promise of a decent pension. (Not the highest: University of California profs can retire at 100% of their final salary.) The state of Illinois will do whatever it does, but if you take a person’s work and then don’t pay them what is promised, you are a thief. Doesn’t matter if other people in the private sector have had their pensions stolen, you’re still a thief. Period.
Comment by The old professor Monday, Apr 11, 11 @ 12:48 pm
The subject clause serves as a repugnant sanctification of the process whereby elected officials accept campaign contributions from government employee collectives and then reward them with benefits. It also sanctifies whatever benefits elected officials bestow upon themselves. The dichotomy between private sector and public sector retirement benefits and security must be abolished, and all legislative and constitutional vestiges purged. Once the elected and their employees are facing the same financial risks during the “golden years,” perhaps a less cavalier attitude by federal, state and local governments toward budgets, taxation and borrowing, which impact the investments and savings we little people must rely on, will arise.
Comment by Cook County Commoner Monday, Apr 11, 11 @ 12:54 pm
===government employee collectives===
What are you, a syndicalist? lol
Try to tone yourself down a bit, please.
Comment by Rich Miller Monday, Apr 11, 11 @ 12:56 pm
“===the ex post facto prohibitions will doom the suggested state constitutional amendment. ===
Only if you go back and reduce benefits already earned.”
Are you sure that’s true? If the current provision prevents a reduction in future benefits for state employees, it would seem that there is an ex post facto argument to be made if you now say that their future benefits can be reduced. I’d be interest to hear more from someone with experience in costitutional law.
Regardless, I voted yes to eliminating the provision. Even if it doesn’t apply to current employees, it may help in the future.
Comment by Pelon Monday, Apr 11, 11 @ 12:57 pm
I see your point regarding the favored treatment seemingly written into the constitution that favors one type of contract over others, Cincy, but, if you’re correct, then leaving it in the constitution, or taking it out will have no affect, since you state that the protections that it supposedly gives are already covered by existing contract and common law. The point is that it’s been there for the 30 years that I’ve worked for the state, and as I accepted those annual contracts, I relied on the certainty of that constitutional protection. I’m not so certain that I’m covered as well by contract and common law, but I hope you’re right.
As for your assertion that you haven’t seen any right thinking person ever discuss breaking the existing contract between the state and its employees, while that may be true, there seem to be a lot of wrong thinking people not only using Capitol Fax, but that exist as part of the public at large.
Comment by PublicServant Monday, Apr 11, 11 @ 1:03 pm
- Pelon - Monday, Apr 11, 11 @ 12:57 pm:
“===the ex post facto prohibitions will doom the suggested state constitutional amendment. ===
Only if you go back and reduce benefits already earned.”
“Are you sure that’s true? ”
I would love to see a litigation where a possible future contract benefits, terms and conditions are guaranteed based on a past contract is Constitutional. That would be great theater.
Comment by Cincinnatus Monday, Apr 11, 11 @ 1:06 pm
We had a chance to have a con con a while back. It was voted down. If we need to open up the IL Con. then lets have a Con Con and I am sure we can cut in other places too!
I voted no on changing the Constitution on this issue only.
Comment by He Makes Ryan Look Like a Saint Monday, Apr 11, 11 @ 1:07 pm
Actually, next year’s pension cost is going to be around $6 billion when you factor in the 2003, 2010 and 2011 pension bonds which I believe is around 20% of the state’s general revenue.
Comment by Ahoy Monday, Apr 11, 11 @ 1:07 pm
I think it’s $7 billion.
Comment by Rich Miller Monday, Apr 11, 11 @ 1:09 pm
I did not explain my vote, sorry. I support an amendment to leave current benefits earned alone and decreasing future benefits earned. Due to our past, it’s the only way forward. I don’t know if it’s fair or not, but I know it’s what we have to do unless we want to make the tax increase permanent and put all the money to pension and retiree benefits and I don’t think many people want to spend their hard earned money on someone else’s retirement.
Comment by Ahoy Monday, Apr 11, 11 @ 1:11 pm
PublicServant,
I argue for removal from the Constitution for the very reason that two provisions are addressing the same thing. Not only is there a chance that some future conflict between the two sections may arise, if one accepts the premise that a contract is a contract, there is nothing accomplished by this provision other than to single out and protect one type of contract (public sector union/worker agreements and pensions) over another (say a similar agreement in the private sector or other type of contract like a mortgage). Why are these particular types of agreements in the Constitution other than a reflection of lobbying interests that took place 30 years ago?
Comment by Cincinnatus Monday, Apr 11, 11 @ 1:11 pm
Yes, it should be amended. The provision was put in because the pensions were already underfunded — it obviously did not work to have it in there, so taking out should change nothing as far as pension liability already accrued. However, it would allow us to re-negotiate, something all contract parties are able to discuss at least. It is crazy that a contract cannot be open to modification even where both parties agree (now, one of them doesn’t have to agree because they claim the Constitution makes their agreement irrelevant).
Comment by Alexander cut the knot. Monday, Apr 11, 11 @ 1:13 pm
I’m sorry but I’m not certain what two constitutional provisions you are referring to that address the same thing. What thing is that by the way? If your correct about some unspecified future conflict, then why wait for the future? Take it to court now and let’s get this out of the way. Your argument that I don’t need the moat because I’m adequately protected by the inner and outer gates of the city, just doesn’t hold water with me. Pun intended.
Comment by PublicServant Monday, Apr 11, 11 @ 1:24 pm
The pensions aren’t the problem. The problem is the state not putting that money into pension funds but spending it elsewhere.
Comment by Cheryl44 Monday, Apr 11, 11 @ 1:28 pm
I think it is time for reform of the system. That being said it would be a battle on all fronts. The unions will fight any decrease in benfits. I think the only way change the system would be to allow those employed at the present to keep what they have earned. Anyone within five years of retirement would be offered a buyout similar to those in the past.These were paid for in part by a one time payment by the retiring employee. Then place those left in the system on a 401 type plan. I know this idea would be a hard sell but the other option would be layoffs to reduce debt,
Comment by nieva Monday, Apr 11, 11 @ 1:36 pm
PublicServant,
“- Dooley Dudright - Monday, Apr 11, 11 @ 12:12 pm:
Both the U.S. and Illinois constitutions forbid ex post facto laws (i.e., retroactive legislation.)
Article I, Section 9 of the federal constitution restrains Congress: “No Bill of Attainder or ex post facto Law shall be passed.” (Case law has nuanced this somewhat.)
But more apropos to the current discussion is the applicability of Article I, Section 10 to the states: “No State shall enter into any…ex post facto Law…”
Even more compelling in the present context is the Illinois constitution. Article I, Section 16 reads: “EX POST FACTO LAWS AND IMPAIRING CONTRACTS. No ex post facto law, or law impairing the obligation of contracts or making an irrevocable grant of special privileges or immunities, shall be passed.”
I argue that one cannot impair a contract or pass a law ex post facto, so why is there another requirement that in effect does the same thing.
- Alexander cut the knot. - Monday, Apr 11, 11 @ 1:13 pm: cleverly points out that this Constitutional carve-out actually prohibits two parties from doing anything that they may agree to do on an existing contract. All the subject provision does is provide political cover to both sides in the debate.
Cheryl does get to the root of the actual budget problem, and as long as the state controls the pensions of its employees, this problem will recur. We see the same problem in Social Security, but unlike SS, the Illinois pension system does not have the full backing of the US government with its ability to print money.
There are no lock boxes in government pension systems, which is why I keep promoting a change to a SS and 401k type system. At least SS has the backing of the Feds, and a 401k is owned by the employee and not the government. This means that the employee has the responsibility for his own wealth, and the ability to will it on to his heirs.
Comment by Cincinnatus Monday, Apr 11, 11 @ 1:39 pm
I voted yes. The Constitution should be the governing document of our government. It shouldn’t be a Christmas tree laden with the ornaments of special interests. This scenario is the perfect example. Collective bargaining agreements are already legally enforceable without this Constitutional language. But the legislature should have the latitude to legislate changes vis a vis the conditions of public employment, including pensions. Not only is it basic common sense, it is embedded in the tradition of our state and our country.
Comment by Conservative Republican Monday, Apr 11, 11 @ 1:43 pm
TRS and SURS must be closed to new members. There was a time when we could fund education, higher ed, and pensions for K-12 and college professors, but that day has passed. School districts and universities must be given a reasonable timeframe during which to transition to defined contribution plans, and the State must make a commitment to paying down existing liabilities in those two systems. Let us embrace Speaker Madigan’s logic that teachers are not State employees. And yes, the Constitution should be amended to allow for reductions in benefits going forward - it’s the only way out of this mess.
Comment by The Elderly Eastern Sangamon County Land Surveyor Monday, Apr 11, 11 @ 1:43 pm
I voted no. The constitutional provision was adopted to prevent public employees’ pensions from being treated as something created by statute that could be changed at will, the same as any other statutory provision. It won’t effect unionized employees at all, because they have real contracts that must be honored. You only get what you pay for, and there are no magic bullets. If we don’t give contractual rights to future benefits, so you can take them away at will, workers (and, more to the point, unions negotiating for workers) will rightfully ignore those benefits in determining what salary they will require to work for you. If you try to set the salaries at a level that takes those benefits into account, you will get a lower quality employee. If you pay the higher salary that ignores the benefits, and then wind up giving the benefits, too, you’ve overpaid for your workers.
Comment by Pat Robertson Monday, Apr 11, 11 @ 1:50 pm
==it’s the only way out of this mess.==
No it is not. The other wat out is for the state to pay what it owes.Raise taxes, make cuts, do whatever they have to do to pay up.
The more likely scenario for the future is for growth and burgeoning inflation to diminish the value of the state’s debt to manageable levels.
I voted no but why not just forget the constitution and let Madigan do whatever he wants. That’s what really happens anyway.
Comment by Bill Monday, Apr 11, 11 @ 1:50 pm
I doubt that such an amendment would be constitutional, in that it attempts to eliminate “an enforceable contractual relationship.” If the amendment applied only to future pensioners, that might work. But then the same goal can also be more simply achieved legislatively.
Comment by OldIllini Monday, Apr 11, 11 @ 1:51 pm
Pointing to the abuses in this system is as honest and as meaningful and as relevant as all of the stories about welfare queens was when discussing welfare reform. Pension abuses, especially when revealed during dire economic times, make it easier for politicians to scapegoat people and scapegoating makes it easier to get legislation passed that makes politicians look responsive to the public. The pension dialogue is getting a bit ridiculous. The politicians don’t fund the pensions for years and then say that they have to cut benefits in order to be able to pay pensions.
It seems to me that there are some problems with the pension system here and in many other states. Beginning the reforms by suggesting that people who have already vested and are drawing benefits should have those benefits altered should be a non-starter. Here, it’s not just a starter, it looks like it could be the entree!
Comment by chiatty Monday, Apr 11, 11 @ 1:54 pm
A constitutional amendment would garner the support of 80% of the electorate. It would pass like crap through a goose.
Comment by The Unlicensed Hand Surgeon Monday, Apr 11, 11 @ 1:54 pm
No. I would agree with requiring additional funds from state employees, but the problem lies with the legislature bi-partisan shirking their responsibilities for the past 25 years…I said it before, this issue wouldn’t even be on the table if they would have done what they past in previous legislation and what they’ve said they would do.
Comment by Captain Illini Monday, Apr 11, 11 @ 1:56 pm
A constitutional amendment would never garner popular support amongst the electorate. It would be viewed in the same vein as Gov. Walker’s unpolular assault on unions in Wisconsin. The voters have more sense than that, Mr. Hand Surgeon.
Comment by The South Springfield Shoplifter Monday, Apr 11, 11 @ 1:58 pm
I voted yes because of the current wording does NOT allow for any changes. I feel that current members benefits should NOT be touched but future members benefits could be with an amendment.
Such amendment should also come up with a standardized plan (formula) for all members.
Of the 13% Rep. Tom Cross states what % is catch-up payment??
Comment by JustMe_JMO Monday, Apr 11, 11 @ 1:59 pm
Oregon reduced benefits that had already been earned in 2003. If I’m not mistaken, they also reduced benefits for current retirees.
Comment by The Unlicensed Hand Surgeon Monday, Apr 11, 11 @ 2:09 pm
Since there is not a Con-Con, it would take a lot of time and energy to delete the provision and as people point out it wouldn’t impact contract rights.
The other issue is if employees ready to retire are afraid their pension is not secure, they may not retire. Because the state doesn’t have mandatory retirement age, we will end up with an increase in elderly people working for the state. They will be working not because they have the drive and desire to work; but because they are afraid.
Comment by Objective Dem Monday, Apr 11, 11 @ 2:15 pm
No. I agree with steve schnorf - the normal cost isn’t the problem-. If pension payments take 13% of the budget and if the normal cost is 3.45%. Changing the pension system changes nothing. You still have to pay something for pensions and I do not see it would be different then the current ‘normal cost’. The IMRF has a pension where the payments, or ‘normal cost’ have been made and it is somewhere around 85% funded so the problem is not with the normal cost.
Comment by Bigtwich Monday, Apr 11, 11 @ 2:22 pm
This is the most difficult issue in Illinois politics today. Even if a constitutional amendment could be passed, you still have to deal with federal contract law. A contract is a contract. The state of Illinois made contractual promise to pay state and municipal workers a pension. This will wind up in the U.S. Supreme Court because how can we expect the Illinois Supreme Court to settle a case that involves their pension??
Comment by Steve Bartin Monday, Apr 11, 11 @ 2:22 pm
I voted “no.” Nevertheless, some savings could be realized on a short term basis by eliminating pension spiking on all levels and even capping pension payouts at no more than $99 thousand a year for those favored enough to get that large spike in pay just before retirement and end up with high six figure payouts in pensions.
This protects the average working stiff who put in his/her time on a salary basis for 20 years with no expectation of any spike, and puts a lid on the abusers.
Comment by Louis G. Atsaves Monday, Apr 11, 11 @ 2:35 pm
With all due respect to Bigtwitch and all the other admirers of the “normal cost is affordable” line of argument, may I respond with a big ’so what’? That’s a little bit like arguing that $20k in credit card debt is affordable because your minimum monthly payment isn’t all that much.
And to say that changing the pension system changes nothing - I would dispute that as well. COGFA calculated that SB 1946 would save the State over $70 billion between now and FY 2045. Applying some of those reforms to current employees would produce big savings as well.
Comment by The Unlicensed Hand Surgeon Monday, Apr 11, 11 @ 2:35 pm
Hand Surgeon - I could be wrong, but I don’t believe Oregon has the same constitutional provision that Illinois does. So, the fact that they changed benefits is irrelevant to whether or not it could be done here.
In the end, I agree with steve schnorf. We can talk all we want about reducing future benefits on current members, but that doesn’t do a thing about what’s already earned. If you owe $100,000 on your credit cards, even if you stop charging today, you’re still going to owe $100,000. And there’s a lot of unintended consequences of making some of these switches - the state would most likely have to start paying Social Security (and that is also sometimes retroactive) and they wouldn’t be able delay making the full 401k payment every year, etc. I think there’s a lot of merit in the Speaker’s argument that the TRS payments should be made by the schools & not the state, but just as a taxpayer, it doesn’t make a big difference to me. I’m still the one who has to pay it (and I don’t think that’s a bad thing).
Comment by Katiedid Monday, Apr 11, 11 @ 2:38 pm
Steve Schnorf,
Assuming for a moment that the current pension benefits do not change, and pretending for a moment that the past obligations are wiped out, and assuming for a moment that the current trend in state spending and workforce remains the same, what percentage of spending is the pension system of the total payroll budget.
What I am actually trying to compare is the cost of the pension system as currently envisioned to a cost associated with 6.2% employer Social Security contribution plus something like a 6% for a total of 12.2% of payroll costs.
Comment by Cincinnatus Monday, Apr 11, 11 @ 2:38 pm
I voted no.
Not everyone who draws a public pension is a political player who gamed the system to max out, despite what the Trib would lead you to believe.
I grew up with a lot of folks who work as janitors, painters, grounds crew, food service workers, etc., at the universities. They make modest salaries, they paid their bit, and they’re counting on their promised pensions. A lot of them are shocked and scared to death right now by the vilification they’re taking from the media assault by the Trib and the Civic Committee, like they’re the cause of all the state’s ills.
I’ll stand with the salt-of-the-earth over the dishonest gasbags at the Trib and Civic Committee. And I’ll pay my bit.
Comment by wordslinger Monday, Apr 11, 11 @ 2:39 pm
- That’s a little bit like arguing that $20k in credit card debt is affordable because your minimum monthly payment isn’t all that much. -
It’s actually nothing like that. If the state had always made it’s payment (the normal cost), there would be no pension debt. Try again.
Comment by Small Town Liberal Monday, Apr 11, 11 @ 2:41 pm
===Try again===
Allow me: It’s like paying off your current charges for this month, while ignoring the interest and principle costs on all the previous bills you skipped.
Comment by Rich Miller Monday, Apr 11, 11 @ 2:44 pm
No, because it has been proven over and over that we can not trust the legislature to live up to any of their promises without the maximum force of law … even if it duplicates the federal law it relies upon.
People made their choices and financial plans based upon the “rules” … they need to be able to rely on those rules not being changed.
While there would still be some amount of shortfall (and we can argue how much for forever based on past & current market conditions), the simple fact is things would be much better today had all the required / needed state contributions been made. The problem has never been the average employee paying in, or even what the average employee earned … it took the legislature’s and management’s (who supposedly was looking out for the state’s interest) collusion and evasion to create the shortfall. And, as others have pointed out, reforms have been made to stop most of the gaming of the system … now it’s only the politicians (I include top agency management in that definition) who can continue to game the system.
Comment by Retired Non-Union Guy Monday, Apr 11, 11 @ 2:51 pm
- It’s like paying off your current charges for this month, while ignoring the interest and principle costs on all the previous bills you skipped. -
Correct me if I’m wrong, Rich, but the normal cost would be what the payment would be if there hadn’t been any payments skipped, right?
Comment by Small Town Liberal Monday, Apr 11, 11 @ 2:56 pm
Katiedid,
While Steve is correct about costs, I contend there are items other than cost in play. One of the reasons the past obligations happened is the constant raid on the pension fund(s) by the General Assembly. For that reason alone we should transition the pension system to Social Security/401k so that further generations of state and local politicians (notice I didn’t say Federal) no longer can raid the system. Illinois would be forced into a pay-go for pension benefits (I doubt the Feds would look as kindly on the lack of monthly/quarterly contributions as do our other creditors). Furthermore, on a pay-go basis, direct deposits to an employee’s 401k would occur.
This “hardship” to the state would force fiscal discipline upon the Governor and GA and provide an impetus for balancing the budget. Furthermore, after a generation or so (we are talking generational change here as older employees die and remove their pension obligations) the system would be pay-go. Right now, and for the foreseeable future, we are incurring charges for borrowing to cover past costs. Under the current system, these charges will never end. Ever.
One further benefit is the ability to plan. If the state falls into debt in the future, trimming employees provides immediate budgetary relief. As it it now, removing an employee does not get you a dollar for dollar reduction in cost to the state since the pension obligation lingers on for another 30 years.
None of these problems are problems if the GA were to fully fund pensions, or if they treated the pension fund as a lockbox. The GA is Constitutionally required to do so now, as they are also Constitutionally required to balance the budget. Human nature being what it is, this behavior can never be expected.
Comment by Cincinnatus Monday, Apr 11, 11 @ 2:57 pm
The Legislature, not the state employee caused this problem.
Let’s also include the current and any future past due bills the state can’t pay in the Amendment. Once a bill is over 90 days past due t=it is wiped out by the Constitution.That would be an easy way to solve the current debt crisis. You just have to shake your head at the Legislators sometimes.
Comment by South of I-64 Monday, Apr 11, 11 @ 2:59 pm
C, good question, hard to answer without doing more work than I’m willing to do. The missing factor is all the employees who aren’t on the state payroll-community colleges, local school districts, some university employees. We see the pension spending in the state budget, but not the salary base it has to be compared to. COGFA might have something on their site that gets close to the answer.
Rich, if I correctly understand how the unfunded liability is calculated (what would be needed if the entire workforce were laid off at midnight tonite) then no, all you can affect is the normal cost.
Everyone needs to remember we aren’t paying the full payment now, even with the debt service noted above. That’s a big part of the reason the unfunded liability goes up even in pretty good market years. Cullerton’s idea of effectively separating the pension payments into debt service and current normal cost is a good one. People would see the problem much more clearly that way.
Comment by steve schnorf Monday, Apr 11, 11 @ 3:11 pm
Ok enough, NO the constitution does not need to be changed, we need to address the problem where it is, the legislature.
Why don’t we jail every past and current legislator who is still alive for theft, by not paying into the pension system 100% every year?
The teachers have done their part and paid 100% into the system their fair share. The state has not. They have been used as the state piggy bank.
Corporations had pensions but got rid of them because they too began to pay less and less into them, said they were to expensive, now the 401K is all the rage. Except, it is hard to retire when the stock market tanks like in 2008-2009.
Why are we turning on teachers? On one hand we say we need better schools, but in the same breath we say teachers are lazy people who are ruining the economy.
The teacher’s didn’t sell the bad mortgages, wall street did, but no one has gone to jail.
Everyone should have a pension like teachers and the legislators, but we are in a race to the bottom right now. It is so sad, just so sad.
Comment by Union Monday, Apr 11, 11 @ 3:19 pm
You might as well just forget about changing the constitution. Realistically, it’s just not going to happen. But if you insist on trying, you will also need to kill or qualify Article XIII - Section 4 - Sovereign Immunity Abolished.
All states are considered Sovereign by default. It allows them to ignore contracts and not pay debts if they so choose. Removing this provision would completely kill our bond rating making it difficult and VERY costly for the state to borrow money for large projects that can’t be immediately payed for with cash on hand.
The simple way to fix this problem is to just negotiate a better contract in 2012 when the current one expires. If the GA doesn’t trust the executive branch to do that, they could legislate terms for future contracts and override a veto if they get one.
Comment by Lucky than Good Monday, Apr 11, 11 @ 3:19 pm
===The simple way to fix this problem is to just negotiate a better contract in 2012 when the current one expires.===
State law prohibits collective bargaining on pension issues with state worker unions.
Comment by Rich Miller Monday, Apr 11, 11 @ 3:24 pm
Unlicensed Hand Surgeon, I help run a business and we spend a fair amount more then the 4% of wages for pensions that is the State part of funding SERS. I do not pretend to understand the TRS, particularity with the potential of bringing teachers under Social Security. I do think it is important to keep employees for a long term, well with a few exceptions now and then. I think it is going to require the current amount of State contribution towards pensions to do that. So I do not see how you are going to have a savings. If you give some one 4% for an IRA or pay 4% to a pension system . It does not change the States obligation. Now if the current contributions do not come close to covering the cost that should be addressed. That is why I mentioned the IMRF. They have been required to make all contributions over the years and I understand they are about 85% funded. If the State had made timely contributions to all pension funds over the years would SERS be 85% funded and would we be having this discussion?
Comment by Bigtwich Monday, Apr 11, 11 @ 3:29 pm
I swear so many on here see such simple solutions to these problems. My sight must be going with age.
Union, the GA hasn’t stolen any money. No one has ever missed a pension payment from one of the state systems.
I repeat, the closest I see to the beginning of a solution is to send the normal costs out to the employing entities (along with funding for the current normal cost). Deal with the rest of the payments as debt, which is what they are. Look at POBs to bring the carrying costs down from the current 8+% to maybe somewhere around 6% (2% of $80B is $1,6B annually, you know)
Comment by steve schnorf Monday, Apr 11, 11 @ 3:29 pm
===If the State had made timely contributions to all pension funds over the years would SERS be 85% funded and would we be having this discussion? ===
But it didn’t, so we are. Stop living in the past.
Comment by Rich Miller Monday, Apr 11, 11 @ 3:35 pm
Steve,
Thanks for the suggestion. Take a look at Appendix A here:
http://www.ilga.gov/commission/cgfa2006/Upload/FinCondILStateRetirementSysMarch2011.pdf
It would be interesting to crank the effect of a transition on the percentage contributions. There should be a point out there in space where the contributions equal SS + 401k.
Comment by Cincinnatus Monday, Apr 11, 11 @ 3:44 pm
Cincinnatus_ “What I am actually trying to compare is the cost of the pension system as currently envisioned to a cost associated with 6.2% employer Social Security contribution plus something like a 6% for a total of 12.2% of payroll costs. ”
I love this idea!! Right now, I (and the state) pay social security. I (state is supposed to pay but doesn’t) pay 4.5%. So, with you concept, I would actually have a slight increase. The only problem with this is, that the state hasn’t fulfilled its earlier promises to me, so why would I have any expectations that they would fulfill this one? For that reason, I voted “not”. I will take all the protection I can get at this point.
- Rich Miller - Monday, Apr 11, 11 @ 12:56 pm:
===government employee collectives===
What are you, a syndicalist? lol
Try to tone yourself down a bit, please.
- Pelon - Monday, Apr 11, 11 @ 12:57 pm:
“===the ex post facto prohibitions will doom the suggested state constitutional amendment. ===
Only if you go back and reduce benefits already earned.”
Are you sure that’s true? If the current provision prevents a reduction in future benefits for state employees, it would seem that there is an ex post facto argument to be made if you now say that their future benefits can be reduced. I’d be interest to hear more from someone with experience in costitutional law.
Regardless, I voted yes to eliminating the provision. Even if it doesn’t apply to current employees, it may help in the future.
- PublicServant - Monday, Apr 11, 11 @ 1:03 pm:
I see your point regarding the favored treatment seemingly written into the constitution that favors one type of contract over others, Cincy, but, if you’re correct, then leaving it in the constitution, or taking it out will have no affect, since you state that the protections that it supposedly gives are already covered by existing contract and common law. The point is that it’s been there for the 30 years that I’ve worked for the state, and as I accepted those annual contracts, I relied on the certainty of that constitutional protection. I’m not so certain that I’m covered as well by contract and common law, but I hope you’re right.
As for your assertion that you haven’t seen any right thinking person ever discuss breaking the existing contract between the state and its employees, while that may be true, there seem to be a lot of wrong thinking people not only using Capitol Fax, but that exist as part of the public at large.
- Cincinnatus - Monday, Apr 11, 11 @ 1:06 pm:
- Pelon - Monday, Apr 11, 11 @ 12:57 pm:
“===the ex post facto prohibitions will doom the suggested state constitutional amendment. ===
Only if you go back and reduce benefits already earned.”
“Are you sure that’s true? ”
I would love to see a litigation where a possible future contract benefits, terms and conditions are guaranteed based on a past contract is Constitutional. That would be great theater.
What I am actually trying to compare is the cost of the pension system as currently envisioned to a cost associated with 6.2% employer Social Security contribution plus something like a 6% for a total of 12.2% of payroll costs.
Comment by lincolnlover Monday, Apr 11, 11 @ 3:59 pm
C, heavy reading, huh? I hadn’t looked at it for a couple of years.
Comment by steve schnorf Monday, Apr 11, 11 @ 4:16 pm
lincolnlover,
The state would meet its Social Security obligations, I think we both agree. Where the state really falls short is on its contributions to a fund to pay for future pension benefits. If they were contributing to a 401k program that you owned, with each paycheck you would see the contribution and since you own the 401k, you’d see its receipt in your account. If the state failed to make its contribution, you would know immediately, and can you imaging the uproar if they didn’t deposit in your account every payday?
Right now, current pensioners are not complaining since the state is making its payment to those retirees. Future retirees do no complain since they have the knowledge that the state has not reneged on its obligations in the past, and they have the Constitutional provisions which they feel gives them some assurances.
It would be a hell of a court case if the state just couldn’t keep its promises.
The bottom line then is no matter what the fiscal situation, no matter what the General Assembly promises, no matter if the state workers want to participate in a corrective action to the state problems (they are prohibited by the Constitution from changing anything in the past, even if they agree), the only people who really are on the hook for any of this are the taxpayers. There is no Constitutional provision protecting them in this instance, indeed one can make the case that the Constitution is nor protecting them at all. (How is that Balance Budget clause working out?)
So, I would like to divorce the pensions from the state budget to remove all temptations on both the unions and the government. Nor more conflicts of interest. No more budgetary shenanigans. No more slush funds.
The best we can hope for now is a clean break for all employees from the previous system, and a single borrowing plan to fund past obligations. Otherwise, this never ends and our children’s children’s children will still be arguing about this.
Comment by Cincinnatus Monday, Apr 11, 11 @ 4:18 pm
Yes, we should change the constitution to make a change to the pension system. I think we should put all five pensions into the same pool and everyone would receive the same pension of 1.67 percent a year for a maximum of 44 years and 10 months (equals 75 percent). We should cease paying any pension to part time employes (General Assembly). Further, while changing the constitution let’s add term limits to elected officials. Additionally, add that no elected official can do any business with the state (as an owner, representative or lobbyist) for the number of months they served as an elected official.
Comment by Ebcdic Monday, Apr 11, 11 @ 4:26 pm
=== State law prohibits collective bargaining on pension issues with state worker unions. === RM - 3:24 pm
No it doesn’t. Where? The state constitution prevents tinkering with accrued benefits. Nothing prevents negotiating future benefits. This was done already. Remember when the state negotiated an increase to employee contributions from 0% to 4%? They could just as easily negotiate 6% or 7% and then late on when the economy recovers, and the state can afford to budget more, they can negotiate a smaller percentage again.
Comment by Lucky than Good Monday, Apr 11, 11 @ 4:28 pm
One small step which the State could legally take is to cap what school boards are allowed pay to administrators- there is no excuse when admin salaries exceed 200k- what happens is that superintendants get cozy with their Boards and convince them to pay out huge packages for senior school district personnel- the board members are often lay people with no business background and have no idea what a competive salary and bennefits package should be- there is no constitutional prohibition to capping salaries which would then limit pension obligations- how do we justify paying administrators 200 to 350 thousand dollars for running a school district? A similar problem took place in Highland Park with the park district- there needs to be state-wide limits on what public sector employees are allowed to be paid so that the State has protection on what is ultimately required to be paid out in retirement benefits- All of there local governmental bodies are being allowed to run up obligations which the state is ultimately going to be responsible for
Comment by Sue Monday, Apr 11, 11 @ 4:42 pm
===No it doesn’t. Where?==
State Employee Labor Relations Act.
Comment by Rich Miller Monday, Apr 11, 11 @ 4:53 pm
Steve Schnorf-what happens when the pension systems don’t achieve sufficient returns to cover the POB costs- borrowing to invest carries huge risk- New Jersey’s experience demonstrates that issuing pension bonds doesn’t always work out- Illinois has not been very communative whether the 2003 POB experience has been positive in terms of returns? Although market timing is always problematic, placing the POB proceeds with the systems in one giant lump sum after the recent runup in asset prices is nothing other then market timing. We as taxpayers are allowing the various pension boards to be making investment decisions which have great impact on the state’s finances- there may be some merit to imposing an outside advisor such as Blackrock to assure the investment decisions are consistent with the State’s interests
Comment by Sue Monday, Apr 11, 11 @ 4:54 pm
“Stop living in the past. ”
Not. Just trying to understand, leaving aside the past, if the current pension systems are sustainable if payments are made as they come due.
Comment by Bigtwich Monday, Apr 11, 11 @ 5:18 pm
is the state allowed to set a different tax rate for Illinois state pensions vs. other income?
Comment by Amy Monday, Apr 11, 11 @ 5:27 pm
I could not find anywhere in the State Employee Labor Relations Act where it prohibits collective bargaining on pension issues. Could you point out the section number and paragraph?
Comment by Lucky than Good Monday, Apr 11, 11 @ 5:32 pm
Sue, the POBs are general obligation bonds. It’s a lousy way to do business, but Illinois has never been late on a GO bond payment since 1818. Despite the recent Newt/60 Minutes hysteria, investors know that
As far as the costs of issuing the bonds, that’s an interesting question.
For example, in February, the state issued $3.7 billion in GO bonds. The cost of issuance was a little more than $16 million, whacked up among underwriters, bond counsel, etc.
They’re GO bonds. Vanilla. Beyond Vanilla. Larry Bird vanilla.
Um, what exactly are they doing for that $16 million? They’re GO bonds. They were oversubscribed. They sold in a New York minute. A boatload of wired “underwriters” took $15 million off the top for virtually no work, and absolutely no risk. The rest went to a few law firms who took forever and many pages to harrumph onto very heavy stock paper: “These are GO bonds.”
In the instant communications, computer age, what’s the point of “underwriters” for sovereign state bond issues? It’s the biggest do-nothing contract in the world. Why can’t we just issue the bonds directly? Sixteen million bucks buys a lot of steaks for investment bankers at Gene and Georgettis, but you could also do something else with it.
Comment by wordslinger Monday, Apr 11, 11 @ 5:33 pm
“Why can’t we just issue the bonds directly?”
I’m sure they would make a great addition to some deserving state pension funds.
Comment by MikeMacD Monday, Apr 11, 11 @ 5:39 pm
Mike, I’m not sure what you mean there.
The state issues GO bonds. Technically, underwriters buy the bonds and sell them to third parties.
But the reality is, when Illinois GO bond offerings go on the market, they sell as fast as computers allow. They’re oversubscribed and not on “the market” for more than half an hour in some cases.
Given that, what justifies underwriters, in the $3.7 billion GO offering I cited, taking $15 million off the top? They’re not taking any risk. State employees do the heavy lifting of putting together the Official Statement.
Heck, George Ryan got Dan Webb and Winston and Strawn for $10 million pro bono. How many hours, and employees, do you think underwriters put into an Illinois GO bond issue?
For an Official Statement, I could pick up an eight pack of Crayolas at CVS, write “Illinois GO Bond” on the back of an envelope, and it would sell instantly. Do I get $15 million for that?
Comment by wordslinger Monday, Apr 11, 11 @ 5:58 pm
WS,
Oh, I was just kidding a little. A few months ago I suggested eliminating the middle man and just handing the bonds straight to the state pension funds. You and I had a little back and forth on it.
I still think it’s a decent idea. You can ladder the maturities so that the funds receive principal and interest (cash) throughout the life of the bonds. As far as the ultimate maturity of the last bond is concerned it can go out for many, many, many years. I’m not one who is overly concerned with fully funded pensions at the state level (of course in a way if you deposited these bonds with the pension funds they could be said to be fully funded at that point). If fifty years from now all retirees have been paid and the funding is at say 50% (without these hypothetical bonds) I really don’t see a major problem.
IF these GO bonds were given to the pension funds they will be a hard obligation as opposed to the Constitutional guarantee which seems to have some doubters.
I’m in complete agreement with you concerning underwriter fees for GO Bonds. $80 Bn as Mr Schnorf alludes to though is awfully big. Why not just hand them over to the pension funds?
Comment by MikeMacD Monday, Apr 11, 11 @ 6:36 pm
wordslinger- forget about how much it costs to underwrite the bonds- the question is whether the pension systems achieve returns in excess of the interest paid on the debt- this is nothing more then an arbitrage and we are relying on the pension Boards’ investment prowness -we aren’t talking about Goldman Sachs or Blackrock- more like larry, moe and curley
Comment by Sue Monday, Apr 11, 11 @ 6:40 pm
Sue, the question you raise, is in my humble opinion, the wrong one. If returns don’t cover the cost of the bonds, they certainly won’t cover the actuarially assumed return on investments by the systems. In any case you are better off the lower the return needed to achieve whichever assumption.
By the way, i haven’t checked lately but generally our systems have done reasonably well on investments looked at in rolling 5 or 10 year time frames. You can cherry pick very bad and very good periods, but overall they get pretty close to the assumptions.
Comment by steve schnorf Monday, Apr 11, 11 @ 6:49 pm
Steve S. got very close to my thinking…
The Constitution doesn’t say the pension funding will be ‘x’, it says benefits will be paid. None of the systems have ever missed a payment, and the funding at the time of the insertion of the guarantee was only a couple points higher than it is now.
Why all this emotion on both sides, if the funds’ assets are larger than the debt, and the normal cost is do-able, annually?
Wipe out pension debt using the Funds, fund normal cost anually, avoid the costs of FICA, the Constitution is not violated, the benefits are paid… neat trick.
Only a couple problems… need to get the debt into the same ownership as the assets, (its doing lump sum what they’ve been doing for decades) and you forego the 60 to 80% of the cost of doing business that a funded system generates in investment income. That will raise the normal cost over time, but nowhere near ramp territory.
If this is the long view, lets do it now, before the assets are gone with outstanding debt remaining. The state systems have been selling assets to pay benefits for some time…
Pay as you go puts direct pressure on the folks who created the mess. Constitution need not be altered. Employees need not be violated.
A handful of unfunded DBs is a definite risk, but the GA has deep pockets and would be ramp-less.
It’s fund ‘em or figure out another way to meet the needs.
Tier II by design will be self funding in less than 2 decades - state obligation moves to zero over time - have we already started down this path?
Comment by countryboy Monday, Apr 11, 11 @ 7:04 pm
Tom Cross could set a good example by giving back his own pension. Of course that will happen when pigs fly.
Comment by just sayin' Monday, Apr 11, 11 @ 7:38 pm
Here is a link to the study conducted by Cullerton’s office. The whole reason the protection was put in the constitution was to prevent what is currently happening. And for those of you who claim “contracts can be changed” - that doesn’t mean one side gets to decide.
http://www.surs.org/shepherd.surs?flk=News&shp=78&aid=149
Comment by Liberty First Monday, Apr 11, 11 @ 8:07 pm
Thanks for the link LF,
Someone tell Madier that using a pejorative ethnic term in a headline is never a good idea. There are plenty of ways to say renege without dragging the Welsh into it.
Comment by 47th Ward Monday, Apr 11, 11 @ 9:34 pm
Cinci pretty much said it all. You shouldn’t violate contract; but the Constitution has nothing to do with contract. The language should be burnt out of the Illinois Constitution.
Comment by Timmeh Monday, Apr 11, 11 @ 10:05 pm
HB149 proposes amending the Pension system for current workers as follows: as of 2012, irrevocably elect (1) current system; (2) new system for those hired as of 2011 or (3) 401(k) -401(k) is the default if you fail to choose. The devil is in the details: Although, it proposes reducing mandatory % contribution for current plans from 8.5% to 6%, it also says current plan election will also have to contribute “an additional amount” to make up unfunded pension liabilities, as well as amortization of benefits. This could clearly result in workers having to actually contribute 50% of wages towards the pension. Also, it eliminates fiduciary responsibility for financial advice given to those who elect 401(k) as well as State liability for the balance of 401(k); which means, that 401(k) managers could easily push fraudulent investments that result in complete loss of 401(k)’s without any recourse for retirees. Looks like the Springfield caucus of Republicans led by Rep. Tom Cross - Dave Winters - Darlene J. Senger - Sandra M. Pihos, Chris Nybo, David Harris, Michael W. Tryon and David R. Leitch have decided to start pirateering Illinois workers’ pensions.
Comment by Analysis Monday, Apr 11, 11 @ 10:36 pm
No, analysis, they aren’t getting ready to pirate money, they are suggesting one attempted solution to our pension underfunding problem. It is not a suggestion I personally agree with, but I don’t see a reason to demean them for proposing it..
These sorts of solutions have the primary advantage to the state of moving most risk from employer to employee, much like some Republicans (not me) suggest changing SS to a defined contribution program with individually managed accounts. Most American see thru that because it has the potential to affect them personally. State pensions don’t affect nearly as widely.
Comment by steve schnorf Monday, Apr 11, 11 @ 11:53 pm
- steve schnorf - Monday, Apr 11, 11 @ 6:49 pm:
“By the way, i haven’t checked lately but generally our systems have done reasonably well on investments looked at in rolling 5 or 10 year time frames.”
It’s true that the rolling averages do tend to meet the projected returns. The problem is that the payout schedule for the obligations is not lined up to the ebbs and flows of the market. Off years may be those with high payouts, vice versa and sometimes in between. This causes fluctuations in the value of the assets, and can cause underfunding. When overfunding occurs in good years, we have seen adjustments to the benefits or contributions, or bigger raids on the funds by the GA for general use.
MikeMacD suggests (lightheartedly?) that the GA directly issue bonds to the pension authorities. While at first blush this seems like it saves the middleman cost, I would suggest that there may be a huge risk involved. Essentially, the state would be monetizing its own debt, sorta like paying from the left pocket to the right. I am not even too sure if it is legal to do this.
Comment by Cincinnatus Tuesday, Apr 12, 11 @ 12:25 am
@Steve Schnorf: The problem with the Republican way of looking at it is that Government is not the same as a private employer or corporation. It’s not about profits, it’s about the common good. By treating Government the same as Corporations, by definition, one is trying turn Government’s treatment of it’s workers into profiteering. These workers have no choice, because they have already committed decades of service with the expectation of their benefits. Similarly, a ship that has already left its port, shouldn’t be subjected to pirates simply because it is now alone at sea, and the country it sailed from is temporarily undergoing hardship.
Comment by Analysis Tuesday, Apr 12, 11 @ 12:35 am
The one reform that is legal, but no one has looked at, is simply this: lower the retirement age for all current workers, to say 50, and do it for several years, thereby forcing them to retire early with lower benefits. Then reinstate the previous age for current workers, and the new age for new workers, once things seem feasible again.
Comment by Analysis Tuesday, Apr 12, 11 @ 12:41 am
Analysis- ever hear of the age Discrimination in Employment Act or the Illinois Human Rights Act- it is unlawful to force mandatory retirement ages with exceptions for the police and firefighters
Comment by Sue Tuesday, Apr 12, 11 @ 7:37 am