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Timing is everything

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Illinois

Lawmakers are human beings, and like most human beings they don’t make any major changes until it’s clear that something absolutely has to be done.

Pension reform is a good case in point.

It’s been obvious since just after World War II that Illinois’ pension systems were dangerously underfunded. But nothing was done until the problem was discussed at the state constitutional convention in 1969. The delegates came up with a plan that they believed would scare the Illinois General Assembly into finally providing adequate funding for the pension systems.

The idea was simple. Legislators were forever barred from cutting pension benefits. Constitutional delegates figured that legislators wouldn’t be so irresponsible as to short the pension systems and raise benefits to the point where it threatened the very existence of the government. The delegates were wrong.

Pension payments continued to be skipped and skimped while benefits continued to rise. In the 1980s, legislators compounded the interest on annual pension increases, making the problem far worse.

In the 1990s, Gov. Jim Edgar put in place a 50-year solution. But like those crazy mortgages in the last decade, the big balloon payments were put off until far into the future.

Even with Edgar’s “ramp,” pension payments still were skipped, and when the stock market crashed after the mortgage industry collapsed, billions of dollars contributed by taxpayers simply vanished.

The unfunded liability now tops $100 billion. Annual payments are so high and are rising so fast that they are literally eating up the rest of the state budget. Almost every dime of 2011’s huge state income tax increase now goes to the pension systems.

Two years ago, House Republican Leader Tom Cross along with Ty Fahner at the Civic Committee pushed a pension reform plan that actually increased annual payments by a billion dollars and knocked just $3 billion to $5 billion off the state’s unfunded liability.

Despite strong editorial support, unions flat-out rejected Cross’ plan and a bipartisan consensus developed against it. The bill went nowhere.

This past Monday, the unions unveiled a compromise plan with Senate President John Cullerton that knocks $10 billion off the unfunded liability and actually saves taxpayers $45 billion over the next 30 years.

But instead of being praised for their difficult compromise, the unions have been hammered for an insufficient effort.

If the unions had proposed their current plan two years ago, it would’ve immediately passed and they would’ve been praised for saving the state. Nothing proposed by that point even came close to the savings that the unions have now agreed to.

The problem for the unions is that House Speaker Michael Madigan passed a pension reform plan before they unveiled their own proposal. Madigan’s plan saves far more money than the union proposal and knocks billions more off the unfunded liability.

The delay in reaching an agreement with the Senate meant the unions could not go to sympathetic House Democrats and plead their case before the House voted.

So now we are once again stuck with two competing pension bills. The gridlock has not been broken. The irony here is after 65 years of pension woes, a one-week delay in coming up with an agreement may have made a huge difference in how the state ultimately decides to deal with the issue.

Timing is everything. And that’s really too bad. The solution to the pension problem ought to include the voices of those who are being asked to give up something that has been guaranteed by our Constitution.

posted by Rich Miller
Friday, May 10, 13 @ 8:59 am

Comments

Seems like the same thing happened with two tier pensions. The Unions just waited too long and Madigan’s train ran them over.

There is nothing MJM hates more than people who do not negotiate honestly.

Comment by Abe the Babe Friday, May 10, 13 @ 9:07 am
What negotiations? Tier 2 was rammed through the house and senate in one day.

Comment by foster brooks Friday, May 10, 13 @ 9:13 am
Let’s hope Madigan’s bill prevails and is signed by the governor.

Comment by Downstater Friday, May 10, 13 @ 9:20 am
It’s deja vu all over again.

Comment by dupage dan Friday, May 10, 13 @ 9:21 am
“What negotiations? Tier 2 was rammed through the house and senate in one day. ”

True it was all passed in one day but only after weeks of negotiations stalled in the SPrez office. And the mere fact that the union was is now willing to endorse cuts to current emlpoyees and retirees when they werent willing to do that for FUTURE ones shows that they werent too serious in 2011.

Comment by Abe the Babe Friday, May 10, 13 @ 9:21 am
Concise and to the point Rich. Skipped, skimped, shorted, set aside, all describe what the GA decided, but you left out SPENT on other things…so the potential court room argument the state might make to defend itself against a lawsuit becomes hypocrisy and total contradiction. Hopefully the GA will take this time to reflect and do the right thing.

Comment by Captain Illini Friday, May 10, 13 @ 9:21 am
Pretty spot on, Rich.

For too long the unions’ strategy in dealing with the pension mess has been straight out of Goodfellas - “Business bad? ‘**** you, pay me.’ Oh, you had a fire? ‘**** you, pay me.’ Place got hit by lightning, huh? ‘*** you, pay me.’

Comment by so... Friday, May 10, 13 @ 9:28 am
So “solution” becomes newspeak for theft. The state becomes just another deadbeat that spent it’s money on other priorities (right!) and now wants to weasel out of it’s responsibilities.

Good luck getting any suckers, in the future, to guard the prisons, plow the snow at 3AM and run the programs that protect the public.

Comment by Anon. Friday, May 10, 13 @ 9:29 am
Abe

Seems like the same thing happened with two tier pensions. The Unions just waited too long and Madigan’s train ran them over.

MJM refused to negotiate. The unions repeatedly asked to be included in the process. They were allowed to testify a couple of times, but until recently with Cullerton, were not offered a real role in determining the benefits earned by their members. Members who paid their pension religiously, while the state skipped its. There was a pension summit in February. MJM refused to attend.

“There is nothing MJM hates more than people who do not negotiate honestly.”

Comment by AFSCME Steward Friday, May 10, 13 @ 9:29 am
I think it’s hard to get people to focus on an issue that has been a “problem” for 65 years, yet no pension payment has ever been missed.

Comment by wordslinger Friday, May 10, 13 @ 9:37 am
Poor management at the highest degree. I got a nice letter from CMS today letting me know that they are cutting my pension by at least 750 dollars a year to cover my insurance. July of 2014 it will go up another 2 percent for a total of 1500.00. That is a reduction of four percent or about two weeks pay per year. If we lose our 3% compounded on our checks like MJM wants then the cuts will equal almost one months pay. Where does it stop?

Comment by Nieva Friday, May 10, 13 @ 9:42 am
“There is nothing MJM hates more than people who do not negotiate honestly.”

I wonder how he feels when he looks in the morror?

Comment by anon Friday, May 10, 13 @ 9:46 am
“I think it’s hard to get people to focus on an issue that has been a “problem” for 65 years, yet no pension payment has ever been missed. ”

Every Ponzi scheme works great until the first payment gets missed, then it all goes to hell.

Comment by Chris Friday, May 10, 13 @ 9:52 am
Thanks, Rich, for another great article and for your evenhanded treatment of public union workers–also for another Illinois history lesson to put the pension crisis and reform attempts into context.

The Sun Times editorial board is simultaneously slamming the Cullerton reform bill, saying it’s grossly deficient and calling it a “lemon.”
The board also fears combining a Cullerton bill that could be tacked onto Madigan’s bill to overcome a constitutional challenge. I don’t agree with this position, because the state should do all it can to pass reform that will stand.

Comment by Grandson of Man Friday, May 10, 13 @ 9:58 am
I think the unions gambled and hoped that legislation like MJM passed would never occur, due to pre-existing political loyalties and recalcitrant union pressure on the process.

They failed to properly evaluate and predict the political changes occurring in the face of this unprecedented fiscal crisis.

The fact is politicians and the voting public at large (non-union, non-pension receiving) are waking up the realities of this fiscal calamity and they will not be supportive of maintaining these pension obligations while cutting every other program in the state and raising taxes on everyone.

The unions should have seen this coming and negotiated a deal many months ago. It was almost laughable when within hours of MJM passing, news broke out of a “union backed deal.” We might as well call this “plan B.”

Regardless, even the MJM deal really isn’t aggressive enough solve the fiscal mess, and it will need to be couple with both pension cost shift and increased revenue to make any real difference.

But just so the union types don’t feel left out, and singled out by the MJM legislation, they can feel comfort in the fact that all citizens of Illinois will begin to experience pain over the next few years.

Count on your property taxes going up due to cost shift.

Count on your public schools laying off staff and decreasing educational experiences for our children.

Count on your income tax increase being extended and possibly raised even further.

If your family benefits from social services programs for a disable person or something like that get ready to fear that it will end.

If you work for a place that depends upon state paying its bills on time (hospital for example), get ready to start getting even more nervous about your job being there for you.

These are just a few of things which we can look forward to.

Tough action needs to be taken now. Pass MJM, then get onto the next part of solving this almost impossible situation.

Comment by biased observer Friday, May 10, 13 @ 10:02 am
Good summary.

Comment by RNUG Friday, May 10, 13 @ 10:09 am
Seems as though passing the Madigan bill would leave the Democratic Party with a deeply divided base for a long time. The State already has one party that wastes its resources and focus on internal divisions. Arranging an alliance with Republicans to pass the Madigan bill over the Cullerton bill seems especially detrimental in this regard.

The sensible course might be to pass the Cullerton plan with some adjustments that push the unions’ limits but allows for some face-saving on the part of the House.

Comment by east central Friday, May 10, 13 @ 10:14 am
“I think it’s hard to get people to focus on an issue that has been a “problem” for 65 years, yet no pension payment has ever been missed. ”

Word and Chris both have point. Is the pension problem a crisis or is it a political battle. One could say it’s both-and both artificially exaggerated. Why do we need to go from 30-some % funded to 100% and why are Cullerton and Madigan working against each other?

Comment by Soccertease Friday, May 10, 13 @ 10:16 am
“The unions repeatedly asked to be included in the process. They were allowed to testify a couple of times, but until recently with Cullerton, were not offered a real role in determining the benefits earned by their members.”

I applaud the union for finally coming forward and with some solutions. But this was only after years of “talks” on this issue (and madigan hasnt been the only one negotiating this - see Nekritz gang, governors team led by stermer and now Cullerton). My point is, and the point i believe Rich is making in the column is that the Union’s offers come up a day late and billions short.

And being able to testify in committee vs. privately negotiating in good faith are two different things.

Comment by Abe the Babe Friday, May 10, 13 @ 10:28 am
I appreciate the history lesson, Rich. I was under the impression that the pension issues were more recent (30 years or so).

Comment by Fan of the Game Friday, May 10, 13 @ 10:59 am
Another great column by Rich.

Comment by Norseman Friday, May 10, 13 @ 11:03 am
Abe

Not true. The union has had proposals out for a long time. The problem is that the pols all wanted to dictate instead of include them in the process. MJM refused to attend the pension sumit in February.

“I applaud the union for finally coming forward and with some solutions. But this was only after years of “talks” on this issue (and madigan hasnt been the only one negotiating this - see Nekritz gang, governors team led by stermer and now Cullerton). My point is, and the point i believe Rich is making in the column is that the Union’s offers come up a day late and billions short.

And being able to testify in committee vs. privately negotiating in good faith are two different things.”

Comment by AFSCME Steward Friday, May 10, 13 @ 11:17 am
The unions are selling out their members. The constitutional pension guarantee is iron-clad. There is no reason for a worker who has earned their pension to give up any of it because politicians have mismanaged money. They (politicians) created Tier II to solve the problem. Now they are coming back for more. Do you think if we give them some of what we have guaranteed to us they will not be back for more? Yes they will. I want what I have earned and what is constitutionally guaranteed to me. To hell with the unions!

Comment by State Worker Friday, May 10, 13 @ 11:44 am
I don’t see how any of the proposals on the table actually solve the pension problem. Even if some of the proposed changes become law AND pass a constitutional challenge, the state still needs a pension with good enough benefits to keep all of the TRS and SURS employees out of Social Security (already an issue with Tier 2 folks). Imagine if the state or local districts had to pay into SS for all of those employees: where does the $$$ come from? Further imagine that all of those employees would need to pay into SS: an instant 6% pay cut.

This is really a revenue problem. At some point, the tax payers will foot the bill. It may be a shift to local property tax payers (either the authority to tax in the uncapped retirement fund, or referenda on ballots across the state each cycle until they pass) OR a graduated income tax OR sales tax on services OR a combination. In the end, the bill will need to be paid. The lack of revenue in any of this Spring’s bills is the missing piece.

Comment by Pot calling kettle Friday, May 10, 13 @ 12:09 pm
I’m not sure which, if any, pension bill will be signed into law, but I do know that politicians are doing a very good job at creating a very deep distrust between the legislature and the citizens of Illinois.

Regardless of which side of the fence a person is on concerning the pension debate, we will all have second thoughts when a politician tells us that their bill will or won’t allow a specific event.

In my retirement I want my biggest concern to be getting a little white ball into a small hole.

Pass something, get it into the courts and let’s end this.

I want to get on with my retirement.

Comment by Where will it end Friday, May 10, 13 @ 12:18 pm
Pot calling kettle,

You raise an interesting point regarding revenue. Has anyone’s calculation included a modest growth of, say, 2% in revenues owing to a slowly expanding economy, and has anyone proposed changing the guaranteed rate of return on pension investment? It would seem that increased revenue is not just limited to increased taxes.

Comment by Cincinnatus Friday, May 10, 13 @ 12:19 pm
@State Worker “I want what I have earned and what is constitutionally guaranteed to me. To hell with the unions!”

A couple of things. Tier two did nothing to affect you and unfortunately it did nothing to address the $100 B unfunded liability. It merely slowed the future bleeding.

And second, really? Ironclad? nothing in the constitution is “ironclad”? Try yelling fire in a crowded theater? Or try buying a maching gun turret citing your 2nd amendment right.

And third. Are you really willing to not share in the sacrifice for a solution? and let healthcare programs, education, and non-profits bleed this out? At least your union bosses realized they have a stake in this and tried coming up with a solution.

More solutions and less yelling please.

Comment by Abe the Babe Friday, May 10, 13 @ 12:29 pm
Abe the Babe @ 12:29 pm:

While I agree nothing in the consitutional is 100% iron clad, to date the IL SC has interperted the pension clause to be exactly what it says with no limitations.

Comment by RNUG Friday, May 10, 13 @ 12:36 pm
Great article and insight.

Comment by Kissfreak Friday, May 10, 13 @ 12:50 pm
Madigan has been around for decades.Did he ever express concern about ignoring the funding of the state’s committed share,and instead providing supporters with contracts and cash? I really don’t know,but I wonder.

Comment by Julia Friday, May 10, 13 @ 1:02 pm
==Madigan has been around for decades.==

Long enough to have helped put that clause about pensions into the state constitution.

Comment by Pot calling kettle Friday, May 10, 13 @ 1:25 pm
Madigan has been around for decades.Did he ever express concern about ignoring the funding of the state’s committed share,and instead providing supporters with contracts and cash? I really don’t know,but I wonder.

I don’t know about the House, but in the IL Senate, there were often one or “No” votes on an otherwise lopsided vote regarding pension funding or enhancement matters, Lauzen and/or Rauschenberger. As much as I am not in tune with much of their politics, these two were seemingly the only ones who saw this coming.

Comment by Six Degrees of Separation Friday, May 10, 13 @ 2:16 pm
As –Pot calling kettle– notes, MJM was at the 1970 Con-Con … you can google the records yourself, they are all online.

Comment by RNUG Friday, May 10, 13 @ 2:49 pm
==are you really not willing to share in the sacrifice?===

Every worker in this state is sacrificing more of their paycheck with the increase in state tax. Having read comments on various posts along the way, many people seem to feel they are making a tremendous sacrifice by paying more in taxes. So, if you are a public worker, paying the increased state tax AND an increase in your pension deduction as well, you are supposed to make additional concessions? Sounds like someone has bought into the ‘painting the public workers as the villains’ theory here.

Comment by Anonymous 1 Friday, May 10, 13 @ 3:00 pm
I disagree with the position that the unions sold out the workers. The unions stepped in to help fix a massive problem. I’m proud of that. Whether the unions’ contributions are enough is obviously debatable, but at least it’s more than the anti-tax crowd.

Maybe it’s late, I don’t know, but we are where we are. We have a gargantuan pile of debt poop on the state floor. The workers may not have caused the pile, nor the taxpayers, nor whoever. Blaming each other or politicians of the past still doesn’t make the pile go away. We need to start grabbing shovels and removing this stuff.

Also, if I’m in a political battle with wealthy anti-union organizations, I want to be on the higher moral ground. I believe that if unions are unwilling to give anything, it diminishes my moral stature. How can I demand that the wealthy pay more in taxes when I’m unwilling to pay anything more myself? Now when people say that unions are greedy and inflexible, their words ring more hollow.

Comment by Grandson of Man Friday, May 10, 13 @ 3:27 pm
Millions for charter schools in Chicago! Millions for an Art building at a south side college. We now have 10 Million people nation wide on Disability. The immigration bill may cost 6 Trillion. Why would anyone want to work. The working man is on the low end of the totem pole. I know the pension system is in bad shape! But its from decades of the state legislature not paying in and using it for special projects. Madigan has been there for four decades? He is one of the problems. If you read the constitutional minutes from the 1970 convention. There was already concerns of under funding the pensions by tens of millions of dollars. Forty years later Madigan who is a part of the problem has decided it is now a problem. Why did it take FORTY years to become a problem. Too much money is being spent on pension and not enough can be used for special projects in home districts.

Comment by John Friday, May 10, 13 @ 3:30 pm
@ Anonymous 1

So because state workers had to pay the extra 2% in taxes, like every other worker, they should be immune from sharing in pain for the pension problem? Not sure that logic makes sense.

==So, if you are a public worker, paying the increased state tax AND an increase in your pension deduction as well, you are supposed to make additional concessions?==

I was arguing against a commenter who was advocating against ANY pension diminishment. Look, the madigan and cullerton bills are tough on state workers. Thats because there are no other options.

We should pass a graduated income tax, broaden the sales tax to services, and keep the income tax increase permanent. But those arent politically viable right now or in the foreseeable future.

The only thing left is to reduce benefits and see what the courts do. Respecting public workers and trying to make the pension systems solvent dont have to be mutually exclusive.

Comment by Abe the Babe Friday, May 10, 13 @ 3:43 pm
Rich good article. I also didn’t know the problem went back that far.

Comment by Mason born Friday, May 10, 13 @ 3:53 pm
so… 9:28

The unions have been willing to negotiate. What stalled things was their insistence on an ironclad enforcement mechanism to compel State pension contributions (just like the private sector does, by the way).

The response of legislators? (And, to be fair, the person quoted below may not hold that position now, but many do, including the Editorial Board of the Chicago Tribune.)

==After the hearing, Cross conceded there is no mechanism to make the legislature meet its obligations.==

http://www.sj-r.com/top-stories/x1355383674/Cross-pension-bill-spells-out-employee-contribution-levels?zc_p=2

That sums up the problem very succinctly.

Comment by Anyone Remember? Friday, May 10, 13 @ 4:07 pm