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Perpetuating the crisis or a good first step?

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* Ben VanMetre, a senior budget and tax policy analyst at the Illinois Policy Institute, says Speaker Madigan’s pension reform plan doesn’t go nearly far enough…

Illinois Speaker Michael Madigan’s pension proposal (House Amendment #1 to Senate Bill 1) perpetuates Illinois’ crisis. The plan locks in the unmanageable defined benefit plan, guarantees the crowd out of core government services and continues the irresponsible pension payment ramp.

Madigan’s plan keeps politicians in control of state employee pensions. By failing to get rid of defined benefit plans, it keeps taxpayers on the hook for bailouts of a broken retirement system.

Worst of all, it creates a new guarantee obligation that prioritizes pension funding above the education of school children, providing health care for the poor and the provision of public safety for neighborhoods across the state.

Ultimately, the plan fails to provide what Illinois so desperately needs: comprehensive pension reform that ends the state’s pension crisis.

* But Rep. Jeanne Ives, who co-sponsored the IL Policy Institute’s 401(k) bill, defended her vote for the Madigan proposal…

“Hi. My name is Mike and I’m a spend-a-holic, with an addiction to power.” To which the other gathered spend-a-holics and / or power-addicts compassionately replied, “Hi, Mike.”

This was the scene that played out in the Illinois State House on Thursday afternoon, as House Speaker Mike Madigan deigned to step onto the House floor and argue for a bill that would reform pensions.

While it was not the bill that my colleague, Rep. Tom Morrison, and I put forth, which would bring the real reform needed in Illinois, it was a first step. And in Illinois, we needed that first step. […]

As I questioned him about how the pension crisis originated, he acknowledged, on the record, the role of his party and the fact that this bill is just the first step to further reforms.

Rep. Ives was far more deferential to Madigan than she makes it appear in her op-ed. Watch.

* Meanwhile, Rep. John Bradley (D-Marion) said publicly that he wasn’t sure how he’d vote on the bill, but he ended up forcefully behind it during debate. Have a look…

* Related…

* Illinois Constitution may impede pension reform effort

* House pension bill: What’s in it

* Finke: Pension reform ball now in Senate’s court

* Medical emergency kept Jakobsson from voting on pension bill

posted by Rich Miller
Monday, May 6, 13 @ 10:19 am

Comments

IPI just wants to bust public employee unions. They have no interest in any progress on the fiscal situation and no credibility on the issue.

Comment by wordslinger Monday, May 6, 13 @ 10:34 am
From what I have been seeing, the bill would reduce the pension debt by $30 billion. The debt is around $100 billion. The IPI spokesperson on Chicago Tonight said something to the effect that the end result of this reform would be an attempt to get a graduated income tax.

I don’t mind that we do a milder reform bill. I think that the pension debt should be approached from several different directions, one of which is to generate more revenue, either via closing some tax loopholes, a graduated income tax (very much a longshot at this point) and of course creating jobs to bring in revenue.

Although we’re in a very critical financial condition, we’ve survived this way for a while. If we reduce the pension debt by $30 billion instead of a big hatchet chop to reduce it by much more, I think it can buy us time to come up with complementary plans that can reduce it more while harming workers less.

Comment by Grandson of Man Monday, May 6, 13 @ 10:39 am
The IPI is against any defined benefit pension, in government or anywhere else. They are idologically for dismantling traditional pensions, not reforming them. They are just not part of any serious discussion on this issue, but somehow keep getting noticed.

Ives might have heard the sponsor agree that this is only the first step. I wonder if she supports the next step in Madigan’s mind: cost shifting.

Comment by walkinfool Monday, May 6, 13 @ 10:42 am
Ditto to what wordslinger wrote.

Also too, 401(k) plans have been a disaster for private sector workers while enriching the financial sector. Especially for novices who insist on “actively” investing their retirement dollars.

Comment by Bill White Monday, May 6, 13 @ 10:45 am
So, if defined benefit programs are the root of all evil, I’d like to hear an explanation of why IMRF is in top shape with no problems. A defined benefit program. The answer is because no one ever stole funds from it to use elsewhere and the payments were always made by everyone. This argument to eliminate db programs is just more excuse making and dodging of who created this mess.

Comment by Anonymous 1 Monday, May 6, 13 @ 10:54 am
“idological” ??

Typo, but I’m sticking with it.

Comment by walkinfool Monday, May 6, 13 @ 10:55 am
IPI always trots out the argument that pension funding crowds out core government programs like education, public safety, etc. But their solutions are so draconian that I wonder where the government employees for those programs would come from, what with the crappy pensions, low pay, bad working conditions and no respect that IPI positions would mean for public employees.

Comment by Sir Reel Monday, May 6, 13 @ 11:01 am
I’m a bit weirded out by Ives’ idea of a “moral solution.”

For a GOP’r to tout morality in a fiscal debate makes no sense to me — and is especially icky. Anyone — GOP or no — preaching morality in a pension debate is bothersome, but to see it phrased as “moral solution” in a piece penned by a GOP’r smacks of all that is wrong with the GOP these days — and why they will continue to be on the wrong side of … well, everything.

Comment by Frenchie Mendoza Monday, May 6, 13 @ 11:03 am
None of these pension “reformers” have credibility….

Comment by Liberty First Monday, May 6, 13 @ 11:04 am
Does anyone have a link to detailed calculations that document the $100 billion figure being tossed about? A link that shows all the relevant math?

Are we talking $100B present value or the sum of payments over 20 or 30 or 40 years?

===

Just last night I was trying to explain to my 7th grade son why he needs to show his work in math class, even if he has he right answer.

Comment by Bill White Monday, May 6, 13 @ 11:05 am
Here’s an interesting article about the COLAs. Taking the COLAs is unfair. Many state retirees, including teachers, rely on their retirement only and will NOT get social security. Why would anyone want to hurt our teachers?

http://www.pjstar.com/opinions/forum/x1213313327/In-the-Spotlight-COLA-cuts-will-unfairly-punish-state-retirees

Comment by WOW Monday, May 6, 13 @ 11:15 am
-WOW-

I don’t think anyone going through this process wants to hurt teachers. With that said, what is your solution to this problem?

Comment by Fred's Mustache Monday, May 6, 13 @ 11:26 am
Learning more about the math is fine but I don’t think we are going to have a eureka moment here whereby somebody finds a formula that will eliminate powerful state politicians’ desire to implement some type of pension reform. The question this spring is, who pays.

It’s the politics which matter now so I hope all the retirees and future retirees are paying attention, know who their state reps and senators are, and know how to get in touch with them. Many of our political leaders have apparently decided that the retirees should pay. So, if those politicians vote yes, should they be retired, from office? In any case, staying silent could cost retirees real money over the years.

It’s worth noting that the non-govt-retiree electorate may not be champing at the bit for pension reform. Since most private sector workers don’t have defined benefit pensions, they may not be that interested. But they may not want to see a loss of benefits for public sector workers either. Most of the US middle class has taken a big economic hit over the past decade. This is another one. It’s not unconnected but it’s not inevitable either.

Comment by cassandra Monday, May 6, 13 @ 11:32 am
It is all simply theater. Nothing can force a future legislature to appropriate money it does not have for pensions or anything else, nor to force it to raise taxes if it chooses not to. Any current legislation to reduce future pension liability is probably a good thing, but in the end it does not matter. The citizens of the state will not accept responsibility for an irresponsible $100 billion debt run up in their name, and they have an absolute ability (their vote) to mitigate it. State employees and all other recipients of state appropriations will ultimately receive some amount less than they think they are entitled to, and that is the way it will be. In the meantime grab some popcorn and enjoy the show.

Comment by wishbone Monday, May 6, 13 @ 11:32 am
WOW thanks for sharing the article. I loved that it compared apples to apples and clearly shows that if the income starts at the same point, state workers are not getting an unfavorable advantage over Social Security retirees. That said some people would argue that the base pension a state retiree gets is higher than what would be receive from Social Security (IPI shows a SERS retiree starts at double the average Social Security benefit). But regardless of where the base is the COLA is no better than what a Social Security retiree gets.

So we return to Fred’s question what is the solution? My contention is we have to tax at the correct level to fund the spending. The reality is the legislators don’t have the stomach for that, so the next choice is to cut programs and that has happened. I don’t think we have the stomach to cut more. So we are left where we are with having to reduce retiree benefits. None of us can wish this away and as a retiree I would much rather get something, than having the whole system go belly up and get nothing.

Comment by illinifan Monday, May 6, 13 @ 11:40 am
But wishbone, they already let the debt pile up. It wasn’t a secret. For ex, they, that is, we, elected Blago–twice! None of those new programs, member initiatives, financial shenanigans and pension sweeteners took place out of the sunlight.

Comment by cassandra Monday, May 6, 13 @ 11:43 am
Fred, I think the unions and the legislature need to meet in the middle somewhere and it sounds like Cullerton is working on that. The unions want to close tax loopholes and the legislature wants to place the burden on state workers, teachers, etc..
The lawmakers skipped the pension payments to fund other things in the past. That was like a loan or is even considered to be theft by some. If they would have funded their part the system would be ok now. The unions are willing to help so at least let them try.

Comment by WOW Monday, May 6, 13 @ 11:51 am
If you take the compounded COLA from the teachers some of them will be living in poverty in the next 20 years. Many teachers do not make that much to begin with.
The bottom line is the politicians stole the teachers money in the first place.

Comment by WOW Monday, May 6, 13 @ 12:05 pm
Looks like Speaker Madigan and Chicago Mayor Emmanuel may be talking to the same lawyers. Heard one of Emmanuel’s people on the PBS radio this AM discussing fiscal emergency, among other factors, which could cause a judicial reformation of a contract as a basis to set aside or change the terms of the multi-decade Chicago parking contract.

Comment by Cook County Commoner Monday, May 6, 13 @ 12:08 pm
If you are a state retiree, teacher, etc. you might as well start looking for a job with insurance because you’re going to need it. That is if you are able to work. This will also take a job from someone else that may need one even more.
What really makes people mad is that the politicians continue to take care of their cronies.
Illinois is NOT going to change. Be prepared for anything.

Comment by WOW Monday, May 6, 13 @ 12:26 pm
simplest way to solve the pension problem is to start taxing retirement income.

Comment by ejhickey Monday, May 6, 13 @ 12:29 pm
If we have a fiscal emergency that justifies throwing out the constitutuon why didn’t any of these people support a new con con to get rid of the pension provision? Or why isn’t anyone launching a campaign to just amend that provision?

Comment by hisgirlfriday Monday, May 6, 13 @ 12:31 pm
hisgirlfriday — it likely wouldn’t make a difference. Even if the state pension guarantee were removed, it would likely still apply to all pension benefits earned under that guarantee, both under state law and the federal contracts clause.
Pension benefits for new employees have already been changed going forwards.

Comment by Anonymour Monday, May 6, 13 @ 12:54 pm
Bill, It is my understanding that this $100 billion pension debt is based on the amount of current pension payouts, plus the cost of pensions if every current state employee would retire right now…something that will never happen.

Comment by rusty618 Monday, May 6, 13 @ 12:58 pm
The state constitution is not being thrown out if the courts approve Speaker Madigan’s plan (assuming it becomes law). Unless I’m mistaken, the state constitution’s pension anti-diminishment clause merely put state pension obligations on the same level as all other contracts, that is, the state and local governments could not unilaterally change the terms. And there are many reasons for which a court will allow a modification or rescission of a contract.

Comment by Cook County Commoner Monday, May 6, 13 @ 1:08 pm
For the sake of argument, let’s suppose the SB 1 is signed into law and upheld the the supreme Court. Here’s my concern:

The next fiscal crisis is readily foreseeable if the temporary income tax hike mainly expires in 2015. By FY 16, the State would be unable to make even the reduced pension payment as well as operate a bare-bones state government.

Consequently, what’s to stop the powers-that-be from coming back again and saying the pension debt is still too big, and that raising taxes isn’t feasible, so it’s time to claw back more benefits from state workers and retirees?

Doing so, after all, will have been ruled constitutional (under my hypothetical). And legislators will have proven that arguments about fairness won’t hold water.

In short, if they amputate an arm this year, and get away with it, why not come back for a leg by 2016? Esp. if Gov. Rauner has anything to say about it!

Comment by reformer Monday, May 6, 13 @ 1:12 pm
rusty618, your understanding of the unfunded liability is a bit incomplete.

First of all, remember that 80% of that total is for teachers and university employees, not just State workers. A distinction and a difference when things like the “cost shift” are discussed.

The textbook definition of UAAL is something like the amount by which the present value of the total benefits payable minus the present value of the normal cost (AAL) exceeds the present value of the assets available to pay benefits.

It’s not a contrived figure, in other words. It’s real and we ignore it at our collective peril.

Comment by Arthur Andersen Monday, May 6, 13 @ 1:32 pm
“And there are many reasons for which a court will allow a modification or rescission of a contract.”

Sure, but not unilaterally. To modify, you need offer, acceptance AND consideration. Reduction of benefits in the neighborhood of 20 to 40 % (according to some posters here) with nothing in return is not consideration. And if a contract is rescinded, the parties must be placed back in their original positions prior to the contract. Is the State of Illinois prepared to pay out in lump sum the value of all the payments the employee made in plus the value of the employer contribution? Cashing every employee out would really create a crisis.

In short, the law does not favor deadbeats.

Comment by wtf Monday, May 6, 13 @ 1:43 pm
==simplest way to solve the pension problem is to start taxing retirement income.==
This certainly would help but I don’t believe it would be the complete solution. $1B-$1.6B / year in new tax revenue http://www.itepnet.org/pdf/il_pension_0311.pdf vs. $100B total pension liability. Even being optimistic in assumptions, $100B/$1.6B = 62 years of taxing retirement income needed to pay the liability.

Comment by Robert the Bruce Monday, May 6, 13 @ 1:52 pm
“He (Madigan) and other supporters believe justices will find that Illinois’ dire finances justify cutting benefits, despite what’s in the constitution.” This is an argument for the use of police powers, however using police powers only on pensions to the exclusion of all other debt and non-essential programs shouldn’t fly. The supreme court has previously ruled in favor of their fellow judges in the Felt case. “Relying on the plain language of article XIII section 5 of the Illinois constitution and proceedings from the 1970 constitutional convention, the court held that the legislative change in the basis of computing a retirement annuity constituted an impairment in retirement benefits of the plaintiffs, and was therefore unconstitutional.” If the S.C. allows an impairment of benefits then all creditors to the state should be very worried because contract law in Illinois won’t be worth nothing.

Comment by Pacman Monday, May 6, 13 @ 2:28 pm
No, the state Constitution doesn’t just put them on the same level as any other contract between two parties–it says the state cannot diminish the benefit.

Comment by cassandra Monday, May 6, 13 @ 2:41 pm
So the legislature can create new benefits but cannot rescind or modify them? I doubt that’s what the constitution framers meant.

Comment by Tim Snopes Monday, May 6, 13 @ 2:46 pm
- Arthur Andersen - Monday, May 6, 13 @ 1:32 pm:

=== It’s not a contrived figure, in other words. It’s real and we ignore it at our collective peril. ===

Can you show me the math that documents $100 billion?

Comment by Bill White Monday, May 6, 13 @ 2:47 pm
Yes, there are reasons why a court will allow modification of a contract - but appropriating funds for other programs as an excuse to fulfill one’s contractual obligations is not among them. I’m hoping that the Illinois Supreme Court disappoints Madigan - respect for the judiciary, the rule of law, and the Illinois Constitution are worth preserving.

Comment by skeptical Monday, May 6, 13 @ 2:53 pm
The language doesn’t pertain to any and all benefits. It specifically refers to pension benefits earned by certain govt employees.

It’s true that some believe that the language pertains only to benefits earned, that is, they could be modified going forward for future retirees. Others don’t believe the language even allows that. We’ll see.

Comment by cassandra Monday, May 6, 13 @ 3:07 pm
==The language doesn’t pertain to any and all benefits. It specifically refers to pension benefits earned by certain govt employees.==

The language does apply to any and all benefits. At least, it certainly isn’t limited to “pension benefits”:

Art. XIII, Section 5 PENSION AND RETIREMENT RIGHTS
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.

Comment by Anon. Monday, May 6, 13 @ 3:33 pm
IPI and Ives ought to be able to understand the finacial devestation that would be done to the state by switching to a 401(k) style set up going forward…because, of course, the GA shorted the pension plans up to this point (the future payments into the pensions are needed to pay out as we go along…and that couldn’t be done with 401(k) type money).

Comment by titan Monday, May 6, 13 @ 3:36 pm
Bill White, plug “COGFA” into the Google and retrieve their 6/30/12 Report on the Financial Condition of the State Retirement Systems. It’s all there.

Comment by Arthur Andersen Monday, May 6, 13 @ 3:53 pm
Anon 3:33, my point, in response to TS above, is that the language doesn’t apply to any and all benefits that the legislature might decide to confer on its citizens. Pension benefits are singled out, so to speak, for protection.

Comment by cassandra Monday, May 6, 13 @ 4:00 pm
Cassandra, my apologies.

Comment by Anon. Monday, May 6, 13 @ 4:14 pm
@AA

>> Bill White, plug “COGFA” into the Google and retrieve their 6/30/12 Report on the Financial Condition of the State Retirement Systems. It’s all there.

Comment by Bill White Monday, May 6, 13 @ 4:27 pm
From the twitter stream, the new Cullerton plan is SOS wrapped up with a new bow. Still unconstitutional and a raw deal for retirees.

Amanda Vinicky‏@AmandaVinicky5m
“Keep COLA” giveups: 1) no healthcare access, salary hikes non-pensionable OR 2) 3-year COLA break, pay 2% more of salary to retirement

Pay a whole lot more and get a whole lot less any which way you go. If the unions sold everyone out on this, hope someone else takes it to court.

Comment by enough is enough Monday, May 6, 13 @ 5:19 pm
Tim Snopes - @ 2:46 pm:

Go read the 1970 Con-Con transcripts and subsequent testimony in the various pension cases that made it to the IL SC. That is EXACTLY what the framers meant!

Comment by RNUG Monday, May 6, 13 @ 6:22 pm
If the IPI didn’t like Madigan’s plan they are probably blowing their tops over the Cullerton/Union agreed-upon option…

Comment by Roadiepig Monday, May 6, 13 @ 8:15 pm
So Cullertion is hated by IPI/ALEC and Madigan is hated by the Unions and IPI

Comment by RNUG Fan Monday, May 6, 13 @ 8:56 pm
Nothing is going to change they will borrow from it again just like before and will not repay it.

Comment by Run For It. Monday, May 6, 13 @ 9:34 pm