Capitol Fax.com - Your Illinois News Radar

Fun with numbers

Posted in:

Illinois

* Umm…

The Illinois Supreme Court just blew a $2.2 billion hole in the 2016 budget that begins July 1.

That is how much in anticipated savings evaporated from the spending plan because of the court’s ruling [on pension reform].

And that means layoffs and steep cuts to state services.

There is no avoiding it.

That budget hole was there from the moment the governor introduced his budget. No way was he going to get those savings next fiscal year. C’mon.

* Uh…

While government union executives like to complain about the state shorting past pension payments (in some instances to maintain or grow the workforce unions could skim dues off of), just 40% of the unfunded liability can be attributed to a lack of funding. More generous benefits, actuarial miscalculations and lackluster investment returns account for most of the problem.

Actually, according to COGFA, benefit increases had absolutely zero to do with last fiscal year’s unfunded liability increase, and salary increases actually reduced unfunded liabilities.

* Hmm…

It’s not like taxpayers have not already paid their fair share. According to an analysis… “While government worker contributions to Illinois’ five pension systems have increased by 75 percent since 1998, taxpayer contributions have increased by 427 percent over the same period. In 2012 alone, Illinois taxpayers contributed $3.5 billion more to the pension systems than state workers did.”

Yeah, well, when the state doesn’t make its payments and the employees do, the state’s payments are gonna rise a whole lot more than the workers’ payments when the state tries to catch up.

Anybody wanna guess which organization produced all three of the above paragraphs?

posted by Rich Miller
Thursday, May 14, 15 @ 1:20 pm

Comments

There’s “Fox News” crazy and then there’s “IPI” crazy… wow.

Comment by Anonymous Thursday, May 14, 15 @ 1:25 pm
I didn’t have to look at the organization because I had already read this garbage on the IPI website. I go there sometimes just to peruse the insanity that they publish.

The IPI has lots of articles about pensions on their site. They have been in a constant temper tantrum about pensions ever since the Supreme Court ruling (well, and even before that but it’s been really bad lately).

Nobody should take the IPI seriously. But it’s fun to read their articles so long as you keep in mind it’s fiction.

Comment by Demoralized Thursday, May 14, 15 @ 1:25 pm
“While government worker contributions to Illinois’ five pension systems have increased by 75 percent since 1998, taxpayer contributions have increased by 427 percent over the same period. In 2012 alone, Illinois taxpayers contributed $3.5 billion more to the pension systems than state workers did.”

They do realize that state workers are Illinois taxpayers, too, don’t they?

Comment by 47Chief Thursday, May 14, 15 @ 1:26 pm
“The Illinois Supreme Court just blew a $2.2 billion hole…”

Let’s get one thing straight: The Supremes didn’t blow a hole in anything. I’m no friend of state pensions, but the law is the law and must be upheld.

Comment by In the Middle Thursday, May 14, 15 @ 1:29 pm
The organization whose name we were talking about banning?

Second choice: a certain Chicago newspaper owned by Rauner’s buddies?

Comment by RNUG Thursday, May 14, 15 @ 1:33 pm
The IPI is being deliberately misleading? Say it ain’t so!

Comment by Tournaround Agenda Thursday, May 14, 15 @ 1:33 pm
I think that we ignore or laugh at the antics of this organization (and other like it) at our own peril. Take a look at the comment boards on some of the other sites not populated by state government insiders. The heavily publicized and unrelenting campaign to demonize public employees has had more than a little success. The unions need to get off their (banned words) and confront this early and often. Time for some real class warfare.

Comment by kimocat Thursday, May 14, 15 @ 1:42 pm
They’re like a cult, zealous and unquestioning in their belief system, immune to conflicting evidence.

Comment by Wordslinger Thursday, May 14, 15 @ 1:42 pm
Mother Goose?
Brothers Grimm?
Hans Christian Andersen?
or some other writer of fairy tales…

Comment by D.P.Gumby Thursday, May 14, 15 @ 1:43 pm
They are Intellectually Dishonest.

Comment by Austin Blvd Thursday, May 14, 15 @ 1:44 pm
‘And that means layoffs and steep cuts to state services.’…because a choice was made to let the income tax rate lower from where it was. This is not a rock and a hard place, it is a rock and I don’t wanna.

‘In 2012 alone, Illinois taxpayers contributed $3.5 billion more to the pension systems than state workers did.” Of course no employer in any other business ever puts more into their employees pension because that would only raise prices their cudtomers would not pay for.

Comment by Anonymous Thursday, May 14, 15 @ 1:48 pm
“The Illinois Supreme Court just blew a $2.2 billion hole in the 2016 budget that begins July 1.”

I thought the 2.2 billion is Rauner’s pension plan savings and not SB1’s savings? Is he conceding that Rauner’s plan has been found unconstitutional with the ruling?

Comment by Person 8 Thursday, May 14, 15 @ 1:50 pm
Apologies for my remark which was deleted. I just get SO SO angry at the use of misleading statistics. There is 1)innocently using statistics incorrectly, 2)there is desemination of incorrect statistics, and 3) there is willfully desemination incorrect statistics. 1 and 2 are forgivable but need correction as Rich does. 3 is morally reprehensible and should reviled.

Comment by Honeybear Thursday, May 14, 15 @ 1:51 pm
Illinois Prevarication Institute

Comment by Last Bull Moose Thursday, May 14, 15 @ 1:58 pm
The ISC did not blow a hole in anything, $2.2b in fake ==savings== aside.

The ILGA, prior governors and pension holiday advocates dug that hole for us.

Comment by Formerly Known As... Thursday, May 14, 15 @ 1:59 pm
GTCR

Got To Cover Rauner

Comment by Tommydanger Thursday, May 14, 15 @ 2:00 pm
Under no possible scenario, IPI-imagined or not, could Rauner’s 2016 budget be impacted by his pension proposal. The ISC decision had nothing to do with it.

Broken from day one, as many commenters here pointed out months ago.

The decision will impact his options for 2017 and beyond, and that’s probably still too early to count.

Comment by walker Thursday, May 14, 15 @ 2:00 pm
The Prize goes to Pension 8.

Rauner’s additional $2.2 billion in pension savings came from the Rauner plan, not the Quinn Plan.

Although it would be interesting to know whether he assumed cost savings from both the Quinn Plan and his own…because as I read it the Rauner Plan supplants the Quinn Plan rather than supplementing it.

Comment by Juvenal Thursday, May 14, 15 @ 2:05 pm
I actually just learned how low Illinois income tax rates have been for so long. They have been quite low.

http://www.revenue.state.il.us/TaxRates/IndividualPriorYears.htm

We got state-funded services on the cheap for years. It’s good to see that the “organization” at least partially acknowledges this:

“just 40% of the unfunded liability can be attributed to a lack of funding”

“government union executives”

Better than “government union bosses.”

Comment by Grandson of Man Thursday, May 14, 15 @ 2:08 pm
== ‘In 2012 alone, Illinois taxpayers contributed $3.5 billion more to the pension systems than state workers did.” ==

Yep. To make up for all the money that wasn’t put in earlier when it should have been.

Comment by RNUG Thursday, May 14, 15 @ 2:10 pm
Juvenal-

Rauner has said all along that Quinn’s plan was unconstitutional. So the 2.2 billion have to be all of his own.

Comment by Person 8 Thursday, May 14, 15 @ 2:12 pm
One can never demonize public employees enough.

Comment by AnonymousOne Thursday, May 14, 15 @ 2:15 pm
Why would Scott Reeder let someone else’s work go out with his name on it? Plagiarizing (the linked article has a complete absence of quotes and makes no mention of any sources) from an advocacy group and then trying to pass it off as his own critical analysis. Maybe I’m just a fool for thinking he was better than this. This is just sad.

Comment by Agricola Thursday, May 14, 15 @ 2:17 pm
I would like to appeal the decision to not put IPI on the banned word list. Clearly, this is a bad, bad organization.

Comment by Norseman Thursday, May 14, 15 @ 2:19 pm
==One can never demonize public employees enough. == I don’t know AnonymousOne, you seem to be very good at it.

Comment by kimocat Thursday, May 14, 15 @ 2:19 pm
==It’s not like taxpayers have not already paid their fair share. According to an analysis… “While government worker contributions to Illinois’ five pension systems have increased by 75 percent since 1998, taxpayer contributions have increased by 427 percent over the same period. In 2012 alone, Illinois taxpayers contributed $3.5 billion more to the pension systems than state workers did.”==

I get so tired of hearing about how much or little employees ‘contribute” to the pension funds. The employees’ contribution is their labor, for which the state has contracted to pay them. Some payments are current salaries, some are in the form of benefits and some are deferred (ie, pension) payments. Whether the pensions are funded by direct contributions from the state or by the state “paying” current salaries and taking some of it back to make contributions is just bookkeeping, and basing any argument or decision on which way the state chose to do it is nonsense. The reality is that all pension contributions are paid for by the employees doing the jobs they were hired to do.

Comment by Anon. Thursday, May 14, 15 @ 2:21 pm
That crew has been vibrating since Friday and unapologetically engaging in misinformation, out of context statements and flat out lies.

Comment by Obamas Puppy Thursday, May 14, 15 @ 2:30 pm
Ignorant Propaganda Incitement

Comment by Cold Thursday, May 14, 15 @ 2:40 pm
kimocat. Surely you have misunderstood my snark.

Comment by AnonymousOne Thursday, May 14, 15 @ 2:42 pm
Please keep publishing IPI position papers, regardless of what numbers they pull out to support them.

It is a continual reminder of our current political environment. And of course Free Political Speech has to be valued as such.

Comment by walker Thursday, May 14, 15 @ 2:51 pm
It’s sad the IPI has marganilzed itself to this level. I think a thoughtful and accurate conservative opinion is always a welcomed part of a debate to spur discussion. This is not.

Comment by ToughGuy Thursday, May 14, 15 @ 3:07 pm
Though intellectually dishonest, it feeds well into a consistent narrative that has been built. It’s a campaign as much as any election. Let’s watch the opinion pages of the newspapers in which this appears for a counterpoint that people can relate to. I’m hoping to see something.

Comment by Earnest Thursday, May 14, 15 @ 3:09 pm
I’m kind of disappointed. I used to get IPI mails. Haven’t seen any for a while. Don’t think they are being trapped by my SPAM filter.

Comment by RNUG Thursday, May 14, 15 @ 3:11 pm
Is there anywhere we can find historical yearly normal costs for each pension system, NOT including debt service? Wouldn’t this number tell us more about pension costs and whether the taxpayer portion is trending up or down?

Comment by nixit71 Thursday, May 14, 15 @ 3:20 pm
Scott reader

Comment by foster brooks Thursday, May 14, 15 @ 3:28 pm
A lot of us put out meaningful, reasoned policy analysis based on real numbers and base our assumptions on things as they happen in the real world. These IPI guys are just making stuff up! Apart from irritating the insider-types on the blog, it cheapens real, evidence-based policy analysis in the eyes of the voters who are to busy with real lives to dig into the minutiae of policy.

They think–well, those guys have their policy analysts and my guys have their policy analysts. It must all balance out.

But it doesn’t!

That’s what’s damaging and frustrating.

Comment by Ray del Camino Thursday, May 14, 15 @ 3:56 pm
There go those activist Supreme Court judges again, strictly interpreting the constitution. If only they’d been pure and made new law. No wait, that’s not it. Conservatives, please help me.

Comment by Sir Reel Thursday, May 14, 15 @ 4:05 pm
== Is there anywhere we can find historical yearly normal costs for each pension system, NOT including debt service? ==

I think you can find it in the various annual financial reports for each system. It takes a bit of digging.

Depending on the system, the reports are available online back to 2003, so you can put together a bit over a decade of data. If it is your first time reading them, here’s a hint: the SERS, JRS and GARS reports are all formatted the same, so once you find the data in one report, its easy to find it in the other 2. TRS and SURS are each different and take a bit more work.

Comment by RNUG Thursday, May 14, 15 @ 4:09 pm
The State added PSA’s (Public Service Administrators) to the union a few years back and then they went ahead and plugged themselves in for so dandy overtime. They were on salary previously and couldn’t work overtime. This gave them the ability to bolster their pension amounts. SPSA’s Senior Public Service Administrators) are still on salary and cant work overtime.

Comment by Union Pawn Thursday, May 14, 15 @ 4:10 pm
=Is there anywhere we can find historical yearly normal costs for each pension system, NOT including debt service?=

COGFA Pension Report probably does that.

This year I am told the cost is about $1.9 billion and the debt service is around $5 billion. Next year the total payment is $7.6 billion.

Comment by JS Mill Thursday, May 14, 15 @ 4:16 pm
== SPSA’s Senior Public Service Administrators) are still on salary and cant work overtime. ==

Oh, they can (and do) work it … they just don’t get paid for it.

If they are lucky, they have a boss who provides somewhat flexible working hours and “basket leave” (if you were in the military you know what this is) to help offset the extra hours.

Comment by RNUG Thursday, May 14, 15 @ 4:30 pm
Nix, RNUG is correct as far as locating the source of annual normal cost payments. Remember that normal cost will change annually depending on the covered payroll and the actuarially calculated normal cost rate. Let me know if you need more detail on these.

Comment by Arthur Andersen Thursday, May 14, 15 @ 5:03 pm
For SURS, as I have been able to cull from the annual financial reports on the website (actuarial section), the employer normal cost as a percent of payroll has ranged from a low of 7.5% in 1998 to a high of 13.4% in 2011 and 2012. Over the 1997-2014 period the normal cost averaged 10.2%. The calculated normal cost probably fluctuates inversely with recent investment returns (hence the low figure in 1998) and with assumed future investment returns (that is probably why it rose from 10.2% in 2010 to 13.4% in 2011, as SURS reduced its investment return assumption in 2011 from 8.5% to 7.75%). In recent years, the influx of tier 2 employees has no doubt also had an effect, probably explaining why the normal cost fell to 11.8% in 2014 from 13.4% three years earlier.

The fact that the normal cost of SURS has averaged 10.2% of payroll has been the basis for many of my previous comments on this and other sites alleging that the State of Illinois - had it kept up with proper employer contributions over the past century - would contribute less to employee retirement than Walmart does. Walmart pays 6.2% employer portion of SS plus a dollar-for-dollar 401k match of employee contributions up to 6% of salary.

Comment by Andy S. Thursday, May 14, 15 @ 6:28 pm
The numbers can be interpreted in different ways. It seems to me that if the state had contributed its normal cost all along, the “underperforming” investment earnings would not have been as low either.

Comment by Soccertease Thursday, May 14, 15 @ 7:38 pm
Captain, there seems to be a worm-hole between IPI and the editorial board of the WSJ!

http://www.wsj.com/articles/illinois-pension-blowup-1431125048.

This little bit seems to have transited space-time: “Less than 40% of (the increase in) the state’s unfunded liability (since 1995) is due to inadequate payments.” Amazing how light and meaning warps when the text in parentheses is edited out. The fragment also made a brief appearance in a Statehouse Tweet from IPI on this very website just the other day!

Comment by X-prof Thursday, May 14, 15 @ 8:16 pm
Unlike a lot of people on this board, I like a lot of what the IPI puts out. I tend to favor free markets and low taxes.

But they’re just wrong on this issue. The average pension received by state workers across all the retirement systems is not that high.

The pension system is broke because:

1) Politicians have failed to make contributions and have raided the piggy bank.
2) A small percentage of people abuse the system with things like spiking, double dipping, etc. and end up with ridiculous pensions.

My person preferred solution to this whole problem would be to re-amortize the debt, first, and second to pass a constitutional amendment allowing the state to cap the pension payments any one person receives.

99% of state workers don’t need to see benefits reduced. The people receiving hundreds of thousands of dollars in pensions do. I say cap the pension at $100,000 and peg increases to inflation. No one needs more than that to retire on.

I’ve got my full proposal laid out here if anyone is interested:

http://www.ylibertynews.com/how-to-fix-illinois-pension-problem/

Comment by Phil King Thursday, May 14, 15 @ 10:55 pm
Andy S. @ 10:31 pm:

In the later 1990’s the funds were in the 80% to 90% funding level as a result of consistent (but less than actuarially based) employer contributions and extremely large investment gains from the stock market run-up. I think one of the funds actually reached something like 105% or 110% one year. The state took “pension contribution holidays” because things were apparently going so well.

Shorting (Edgar ramp mandated) pension funding some years, borrowing to make the pension funding payment other years while obligating a portion of future pension fund payments to be used instead to repay the borrowing, and the Great Recession of 2007 - 2008 all combined to drive the funding level back down to between 30% and 40%. All the studies I have read assign the primary blame to the level of pension fund payments under Blago and the lack of those funds as part of the “investment capital”, with the Great Recession getting secondary blame. Some minor blame can also be assigned to the overly generous 2002 ERI and small pension enhancements that were granted.

RE Social Security, it’s not all that dire. If all the Baby Boomers opt to take their benefit at age 62, most of the mythical “shortage” disappears. Given the economic climate and dim job prospects for older workers, a lot of that is happening. Alternatively, lifting the current earnings cap completely off will also bring in sufficient funds to keep it solvent. But those facts don’t play into the “we have to cut SS benefits to save it” storyline that is being pitched to prevent the earnings cap being raised.

Comment by RNUG Thursday, May 14, 15 @ 11:16 pm
Andy, I don’t have the exact numbers at hand, but COGFA reports based on the systems’ actuarial reports have shown pretty consistently that underfunding caused at least 50% or more of the increase in the UAAL in the recent past. Investment underperformance ranked second (~20%) followed by salary increases and assumption changes. When I have that hard data, I’ll post it.

Comment by Arthur Andersen Friday, May 15, 15 @ 12:14 am
Thanks, PK.

Comment by Rich Miller Friday, May 15, 15 @ 12:35 am
@Andy S. We agree that the problem started much earlier than 1995. Pension underfunding and the pension clause were hot topics for my senior colleagues when I moved to Illinois in 1980. I also bow to your deeper knowledge of the numbers and pension accounting.

Here’s a question. Let’s assume that the pension systems have undergone significant growth since 1971 in inflation adjusted dollars. I trust that’s true (or claims of out-of-control government growth by the small-government crowd have no basis). Then if the state had on average paid full normal costs since 1971, wouldn’t the unfunded liability from pre-1971 represent a shrinking fraction of the growing whole? In other words, wouldn’t the funding ratio have markedly improved unless, on average, the state did not pay full normal costs since 1971?

The WSJ claim might be technically accurate, but I suspect they are not telling the whole story about debt service, etc. Did they include lower investment performance due to buying more securities when the market is high and fewer when it’s low? The timing of underfunding matters, not just the net amount.

The IPI, on the other hand, cannot be excused. Kristina Rasmussen, Exec. VP of IPI, wrote “just 40% of the unfunded liability can be attributed to a lack of funding” — that’s total liability, including any hole dug prior to 1995, 1971 or whichever year one chooses. That’s what I was getting at, in my obtuse way, about how the omitted text warps the meaning of the WSJ’s claim.

Comment by X-prof Friday, May 15, 15 @ 1:52 am
-Phil King-

“99% of state workers don’t need to see benefits reduced. The people receiving hundreds of thousands of dollars in pensions do. I say cap the pension at $100,000 and peg increases to inflation. No one needs more than that to retire on. ”

Is “King” your surname or a title?

Comment by CapnCrunch Friday, May 15, 15 @ 6:20 am
RNUG, SURS was 101% funded in FY2000 at the top of the tech bubble. The other funds didn’t get that high because their U.S. Equity allocations were smaller. When the market collapsed, TRS and ISBI fared better due to more diversified portfolios.
However, no contribution holidays were taken in this time that I recall.

Comment by Arthur Andersen Friday, May 15, 15 @ 8:25 am
=No one needs more than that to retire on.= Not really a free market view is it?

Again, the pension is not the issue, the debt is. Tier 2 is solving some short term issues but it is a landmine that will have to be resolved.

I agree with re amortizing the debt and the spirit of what you have suggested.

I agree with the concept of a pension “cap” but it should be higher than $100,000. The pension is not about “need” it is about “earned” and $100,000 does not mean the same thing it did 30 years ago. I struggle to support the notion that anyone should receive a $250,000 or $300,000 public pension. That is more of an emotional response rather than a rational response.They made their contributions, like clock work.

If there was a cap, it would need to be higher and all of the proposals brought forward were pegged to Social Security. These are pensions not supplements so I would start with 150% of social security and limit increase to CPI or inflation.

What happens to income over the allowable cap? You cannot require a pension contribution on that amount and then not provide the benefit so it would be subject to SSI. SSI benefits for those receiving a pension are diminished. Is there another option?

Another fix would be to increase the retirement age to 60 or 62.

I agree with re amortizing the debt and the spirit of what you have suggested.

Comment by JS Mill Friday, May 15, 15 @ 8:51 am
Phil King - thank you for offering a real proposal. And by real I mean (a) constitutional and (b) actually addressing the problem.

I’m still deciding how I feel about some of specific ideas contained in it, but I wanted to say how much I appreciate seeing a serious effort at a solution. I hope the people involved in the secret meetings read it.

Comment by Agricola Friday, May 15, 15 @ 12:20 pm
IPI is intellectually dishonest. The workers paid and the state didn’t. I guess if you think the state is illegitimate in the first place, it some how justifies making up an alternative reality. Either that or it just pays well.

Comment by jknell Friday, May 15, 15 @ 4:07 pm