Latest Post | Last 10 Posts | Archives
Previous Post: Yet another suburban mosque attack
Next Post: A new campaign tool?
Posted in:
* Gov. Pat Quinn and Senate President John Cullerton have rejected a proposal pension floated by labor unions yesterday…
The union group’s plan was a nonstarter for Gov. Pat Quinn, who is pushing for a more comprehensive pension overhaul. A Quinn spokeswoman dismissed the suggestions as “nothing new,” adding that the proposal “would not solve the state’s pension challenges, nor is it feasible.”
Union officials say the proposal is a “fair alternative” to the plan that House lawmakers could vote on Friday when they return to the Capitol. […]
With an election looming Nov. 6, others dismissed the union’s move as an attempt to derail any vote for pension reform.
“Passing a bill that takes on the pensions of legislators and state employees wasn’t easy,” said a top aide to Senate President John Cullerton, D-Chicago, who sponsored the measure. “The latest efforts by (unions) should prove that it’s far from politically convenient.”
The proposal’s outline is here.
* And…
Quinn, meanwhile, tried to increase the pressure on lawmakers to shift some pension costs away from the state. He released an analysis in Chicago showing that state funding for higher education will continue to drop if pension funding continues to squeeze out the money available for other state programs.
Universities and community colleges will lose more money if the state continues to cut support for higher education than they would pay if they had to assume pension costs for their workers, the analysis says.
It parallels an analysis Quinn released a week ago purporting to show that local school districts would be better off if they pay their teacher pension costs than they would be if lawmakers continue to reduce state aid to schools.
The idea of shifting state pension costs to schools has not drawn much support so far in the legislature.
* In other news, state Rep. Mike Fortner has some very interesting and apparently quite doable pension reform ideas. Here’s one of the revenue streams…
HB 6204 introduces a new revenue stream allocated to paying down the state’s unfunded pension liability. Money currently allocated to paying back existing bonds once the bonds have matured will be invested into the pension system to fully fund the system by 2045. Under former Governor Rod Blagojevich and current Governor Pat Quinn, the state sold bonds instead of making the required payments for pension liability from the general fund. We are still paying back these bonds, with interest. Under HB 6204, when the bonds mature, the money currently allocated to repaying the bonds will be redirected into the state’s pension fund. Fortner claims these new revenue streams, combined with the cost-savings effect of HB 5754, will fully fund the pension obligation by 2045 years without a tax increase.
Fortner would also require an eight percent employee contribution, which is the same as the State University Retirement System uses.
He would also cap pension benefits at a certain level, which for most workers would be the “annual salary of the participant during the 365 days immediately before the effective date of this Section.” Beyond that cap, a “defined contribution” program would kick in. Employees would pay six percent of their salary above the cap into that fund.
* From Fortner’s Power Point…
HB 6204 requires a total of $5.1 billion in FY 2014.
* $200 million less than current expected payment
* Greater saving in future years from reduced growth
HB 6204 pays 100% of unfunded liability by 2045.
The bill also allows workers to transfer all their pension contributions, plus interest, into a defined contributions plan. And it shifts the three percent employer contribution costs above the cap to Downstate and suburban school districts.
Thoughts?
posted by Rich Miller
Tuesday, Aug 14, 12 @ 9:37 am
Sorry, comments are closed at this time.
Previous Post: Yet another suburban mosque attack
Next Post: A new campaign tool?
WordPress Mobile Edition available at alexking.org.
powered by WordPress.
Mike Fortner is a very thoughtful guy. I admit I don’t really understand the nuances of pension fund structures, but for those that do, I’d suggest studying his bill. There are likely some very smart win-win ideas in there. (He is kind of like the Republican Dan Biss, who also had some very smart ideas in his pension bill).
Comment by Dan Johnson Tuesday, Aug 14, 12 @ 9:40 am
The first part might work since somehow SURS got there. I dont know about the Cap though but interesting…unlike Quinn and Cullerton.
The Union bosses need to start acting like bosses There need to be a lot of primaries in 2014
Comment by western illinois Tuesday, Aug 14, 12 @ 9:54 am
Fortners plan is interesting and possible for SURS and TRS. However, there is SERS which has many employees paying into the pension and Social Security already for an 10.5% current contribution. SERS also did not have the last year ability to kick up salaries, and the pension is based on a 4 year average. The solution to this mess is really 5 different solutions since there are 5 pension systems each with their own nuances.
Comment by illilnifan Tuesday, Aug 14, 12 @ 9:59 am
At least people are finally putting intelligent propsals on the table instead of the knee-jerk crisis mentality stuff that has thus far come out of the Gov’s office.
Comment by Skirmisher Tuesday, Aug 14, 12 @ 10:04 am
illinifan - those were my thoughts, too. I pay 4% to SERS and 6.75% to Social Security: almost 11%. So now I am supposed to pay 15% of my salary into retirement costs?? By the time you take out taxes and rising healthcare costs, with no projected raise over the next 3 years, what is my family supposed to live on?!
Comment by lincolnlover Tuesday, Aug 14, 12 @ 10:10 am
Mike Fortner is a smart, responsible guy, but let’s be clear. These are not “revenue streams”, new or otherwise. They are current expense items which might be redirected in the future.
Comment by walkinfool Tuesday, Aug 14, 12 @ 10:11 am
TRS is currently higher than 8% contribution for employees, although many school districts pay the employee cost or some portion of it. Does he propose lowering the TRS contribution rate then to 8% and does this appy to both tier one and tier two?
Comment by Wondering Tuesday, Aug 14, 12 @ 10:22 am
Lincolnlover has a great point.
Comment by Anon2 Tuesday, Aug 14, 12 @ 10:28 am
Just for to get this proposal in perspective….would they now expect state employees to pay an additional 8% for a total of 12% or 4% more for a total of 8%?
Comment by Fedup Tuesday, Aug 14, 12 @ 10:31 am
Caps are an essential element of any reform. Where they cannot be imposed, taxes should be levied so that no retirees receives more in retirement than she earned while working or any amount approaching six figures.
Comment by Carlos S. Tuesday, Aug 14, 12 @ 10:31 am
Fortner’s proposal certainly sounds more reasonable than others on the table. Devil, or course, will be in the details.
Comment by Downstate Illinois Tuesday, Aug 14, 12 @ 10:41 am
I’d like to hear from Schorf on this one.
Comment by Kerfuffle Tuesday, Aug 14, 12 @ 10:46 am
Fortner’s plan seems to make sense, but I’d like to see the actuarial tables to really see how the systems react over both short and long term. I’d also point out that while 100 percent funding is a laudable goal, it really isn’t necessary to fund a trust fund at 100 percent. 80-85 percent is widely viewed as a healthy balance. While Lincolnlover has done a good job at piling up the math, 15% isn’t a terrible cost to pay for a defined benefit system. While nobody likes more taken out of the take-home pay, a few more nights of beans and rice never hurt anyone.
Comment by Commonsense in Illinois Tuesday, Aug 14, 12 @ 10:46 am
I should have better qualified that…15% for both a defined benefit annuity and Social Security isn’t a terrible cost. Sorry.
Comment by Commonsense in Illinois Tuesday, Aug 14, 12 @ 10:48 am
@Carlos
Caps on pension earnings would probably run afoul of the constitution, as would any special income tax on pension earnings over a certain amount.
Fortners plan doesn’t have any new revenue streams, it merely redirects some in the future, which isn’t a bad idea. The pension cap would result in lawsuits and the contribution increase has already been shot down by Quinn and Cullerton.
Comment by Anonymous Tuesday, Aug 14, 12 @ 10:58 am
When those bonds mature, won’t the state have to pay back the principal. How will they do that, other than by taking out more loans, so to speak. Or are these payments also amortizing the principal?
Comment by cassandra Tuesday, Aug 14, 12 @ 11:02 am
Amen to a lot of contested primaries in 2014. Good candidates with strong simple message. The current state rep(sen) voted to suck millions of dollars out of their respective districts (healthcare premiums) in a time of economic hardship. You have to make the case that all the people have a stake in this issue.
Comment by Change Tuesday, Aug 14, 12 @ 11:04 am
Commensense. You are so off-base with a callous comment like that. Too often, the bean counters are not the ones who have to eat the beans. Most AFSCME employees make $50,000 or less. Take another 4% from them, plus increase healthcare costs by 25 to 30% and suddenly, they can’t make their mortgage payments. You need to back off and think about this in terms of real people’s lives, not just a “few nights of beans and rice”. Plus, remember that in the private sector, people have a choice as to whether they want to participate in a retirement plan. At the state, there is no choice. You are in, whether you can afford it or not.
Comment by lincolnlover Tuesday, Aug 14, 12 @ 11:07 am
–Or are these payments also amortizing the principal?–
Yes.
Fortner’s revenue proposal makes some sense. But about that dedicated revenue stream: what’s to stop future GAs from simply amending the law and waiving or reducing a payment?
The bill says that the annual payments are considered a contract and the funds are directed to file mandamus if the payments aren’t made.
But couldn’t a future GA simply strike those provisions? And could a court force the GA to make an appropriation?
Maybe the legal eagles know.
The hammer of POBs is that if you screw around with payments, you get shut out of the debt market. That’s why the state has never defaulted on a bond, as opposed to other obligations.
The beauty of POBs, especially now, is that you get the all the money to invest up front, and a reasonable rate of return should outperform the interest rate considerably. Money making money.
Comment by wordslinger Tuesday, Aug 14, 12 @ 11:12 am
@ Lincolnlover - Sorry if I sounded callous, that wasn’t my intent. But as a former state employee with four decades of service I also know that as a group, state employees have come a long, long way in terms of salary and benefits. (When I started with the state in 1977, I made a whopping $125 per week and was thrilled when I got my first raise to $150 per week two years later.) There are a number of inequities out there that I wish weren’t, but it’s the reality we all have to face. Maybe state employees should be given the option to opt out of their system and contributions refunded. I don’t necessarily think that helps resolve anything of funding the current systems but if having the option would help I really don’t have an quarrel with doing that. Just remember that when someone contends they are/were “forced” into the system, it adds credence to the argument for passing legislation giving employees a defined contribution plan as well as modifying the defined benefit plan.
Comment by Commonsense in Illinois Tuesday, Aug 14, 12 @ 11:36 am
==But couldn’t a future GA simply strike those provisions?==
The state and federal constitutions’ contract clause would prohibit doing this.
==And could a court force the GA to make an appropriation?==
Almost certainly not, but when Blagojevich tried to unconstitutionally cut judges pay a few years back, the Illinois Supreme Court ordered the Comptroller to make the payments without an appropriation, which works just as well.
These kind of questions will be very important if any of the current proposals to whack state retirees in the name of reform get passed. My hope is that it doesn’t take the courts too long to answer them, because the state will be in a deeper hole than it is now when it has to repay the retirees for what the GA is proposing to steal from them.
Comment by Anonymice Tuesday, Aug 14, 12 @ 11:41 am
C’sense - As a teacher, I made $8000 for an entire year in 1975. I think I probably lived better than beginning teachers today who make much more than that. My point is this: a family of 4 making $40,000 qualifies for free and reduced lunches, and, possibly food stamps. Do we want state employees to be treated the same way that Wal-Mart treats their employees? To many front-line workers, even 4% is too much to lose. I don’t care how we try to justify it, taking a mandatory %15 from someone’s salary is way, way too much. Perhaps it should be a sliding scale, like it is with employee’s health insurance contribution. The more you make, the more you pay.
BTW - I know that teachers do not pay social security, but is there any reason that cannot be changed? Other than, obviously, school districts would take an immediate hit.
Comment by lincolnlover Tuesday, Aug 14, 12 @ 11:48 am
All of this is posturing. Everyone knows this is a lame duck issue. Nothing major will happen until then. The unions have substantially less influence right after an election.
Comment by over the top Tuesday, Aug 14, 12 @ 11:55 am
Fortner’s revenue suggestion is an interesting idea.
His proposal to essentially “freeze” pension benefits is likely not only unconstitutional, but I’m also not sure it would save the state any money.
As I understand it, there are huge costs to starting a defined contribution plan, not the least of which is that employers (the state) would have to start paying into Social Security on the member’s behalf.
I hope Schnorf or another expert will correct me if I’m mistaken. Which happens from time-to-time.
Comment by Yellow Dog Democrat Tuesday, Aug 14, 12 @ 12:00 pm
Lincolnlover….If teachers pay Social Security the state or the school district actually would have to pay the feds the money and no longer defer payment, thus costing more. It looks like they are trying to develop a shell game that makes it look the payments are made into the system by reducing benefits, or increasing contributions, but the state or districts will never have to actually pony up with the money….the core reason we are in this mess now.
Comment by illilnifan Tuesday, Aug 14, 12 @ 12:00 pm
I agree, Illini. And for those advocating a 401 benefit instead of a defined pension - where will the mandatory matching funds come from? The same people who are welching on their committments now? Or just higher taxes?
Comment by lincolnlover Tuesday, Aug 14, 12 @ 12:15 pm
“…the Illinois Supreme Court ordered the Comptroller to make the payments without an appropriation, which works just as well.”
And how long do you think the Supreme Court can stave off the state’s bankruptcy if it goes down this road with regard to the huge pension issue? Is it going to mandate tax increases or draconian cuts in other programs? There are reasons for separation of powers and the courts cannot assume all of the powers of the legislature and the executive branch. Again those relying on the courts to save the current state pension plans are delusional.
Comment by wishbone Tuesday, Aug 14, 12 @ 12:20 pm
Delusion is in the eye of the beholder. The law is on the side of the retirees and the judges own fiscal interests are on the side of the retirees, and the state is nowhere near bankrupt. Even if the state could and did declare bankruptcy, that would mean bondholders and the service providers who waiting for their payments would have to take a hit in the same proportion as retirees, and other spending would be cut, so all of us would share the pain. I don’t expect retirees to agree to be the only ones hurt, and I doubt that we can force them to accept it.
Comment by Anonymice Tuesday, Aug 14, 12 @ 12:59 pm
YDD, Cullerton’s bill also freezes the pensionable salary for those who keep the compounded COLA. In that respect Fortner’s proposal is similar, but only affects those making over the Tier 2 maximum and doesn’t involve the COLA. If it is unconstitutional, then it would be for both plans.
Comment by muon Tuesday, Aug 14, 12 @ 1:06 pm
Fortner’s proposal seems to me, coupled with the union’s announcement yesterday, to be a possible start down a new path. If the numbers in fact work, this proposal should be more attractive to both current employees and retirees than anything we’ve seen gain traction so far. Add in cost shifts on normal costs and maybe you could make soup everyone could live with (not love, but live with).
Comment by steve schnorf Tuesday, Aug 14, 12 @ 1:13 pm
== . I pay 4% to SERS and 6.75% to Social Security: almost 11%. So now I am supposed to pay 15% of my salary into retirement costs?? By the time you take out taxes and rising healthcare costs, with no projected raise over the next 3 years, what is my family supposed to live on?! ==
Pensions are expensive.
Comment by Ralph Tuesday, Aug 14, 12 @ 1:26 pm
Drive by comments are cheap.
Comment by PublicServant Tuesday, Aug 14, 12 @ 1:31 pm
==But couldn’t a future GA simply strike those provisions?==
The state and federal constitutions’ contract clause would prohibit doing this.–
That’s the rumor. But this is statute. No statutes are written in stone. One GA could say the payments are a contract, and the next could amend the law to say it’s subject to appropriation.
Comment by wordslinger Tuesday, Aug 14, 12 @ 1:43 pm
No matter what they do, somebody will have to pay. It will likely be a combination of employees and taxpayers, but everyone’s costs go up the longer they wait.
If the state shifts costs to local school districts & community college districts, those districts could raise the revenue through property tax increases (and almost certainly would). How that would play out would depend on whether the money came from the ed fund or, if the law is changed, from the retirement fund. The retirement fund is not capped and is set based on need, and it does not take money from the ed fund. Either way, property taxes go up.
If employees are required to pay more, they will want a pay increase to offset the new deduction. No one wants to take home a smaller paycheck and negotiating those contracts will not be pleasant. Most districts will be able to trim some costs through internal cuts, but there some of those costs will be passed on to the property tax payer.
The one area I fail to understand is the push to pass the cost on to the universities. Their primary sources of revenue are the state and tuition. Tuition is already rising too quickly (according to the Gov and most GA members), so how is a University to pay this new cost except with additional state revenue?
Bottom line is that there is no free lunch and much of the cost of fixing the pensions will be paid by the tax payers of Illinois. The GA does not want to be hit by the ire of the voters, so passing the cost through local governments is pretty attractive.
I wanted to write some pithy conclusion to my wandering prose, but I can’t think of one. I think I’ll go hide in a dark place instead…
Comment by Pot calling kettle Tuesday, Aug 14, 12 @ 1:58 pm
Ralph - Of course they are. No one knows that better than the state employees who have been paying for them for years. You are still failng to grasp the inequity of dumping on people who have no choice in whether they wish to participate or not. “Pensions are expensive” is absolutely true!
Comment by lincolnlover Tuesday, Aug 14, 12 @ 2:26 pm
“I don’t expect retirees to agree to be the only ones hurt, and I doubt that we can force them to accept it.”
I agree with you completely. All recipients of State funds will be affected (including current retirees). The ratio of state revenue to state expenses tells you the size of the reductions needed. Because I don’t see major revenue increases as politically acceptable, the only fair approach are across the board cuts that impact all affected parties more of less equally. My main point is that the courts can’t really insulate any one group (like retirees) from the poor past actions of the legislative and executive branches.
Comment by wishbone Tuesday, Aug 14, 12 @ 4:28 pm
I think 6204 is the best solution I’ve seen so far and is reasonable to all parties. Every state employoee I’ve talked to, Pot, is already counting on no raises in the new contract and they are willing to contribute a little more to theire pensions, in order to keep what was originally promised to them, as opposed to what has been floated out there so far
Comment by Former Merit Comp Slave Tuesday, Aug 14, 12 @ 4:36 pm
===I don’t see major revenue increases as politically acceptable…===
I don’t see theft of deferred, earned compensation as legally (or morally) acceptable. Thus the impasse. I also don’t see you commenting on the solution put forth in the new Fortner bill, which is the current point of the discussion here, Wishbone. As to your previous comments, states are sovereign entities, and as such cannot go bankrupt. Secondly, the courts have already ruled that while state employees cannot compel the state to allocate funds to pay their portion of the pension costs, they have ruled that the state is responsible for payment of the pensions as they come due. Now while you would have state employees fight it out with the poor for state revenues, while the fat cats get off largely scott-free, in the end, the taxpayer will pay, and that includes in equal (and fair) measure, state employee taxpayers. Whether you see any tax increase as politically acceptable, contractual, and constitutional promises made are promises kept.
Comment by PublicServant Tuesday, Aug 14, 12 @ 5:09 pm
Fortner is a very smart guy, we all know that. And I like him a lot. I like this idea of his too. However, he hasn’t shown yet that he has the political smarts and know how to work a very difficult bill and get it through . . .
Comment by Siriusly Tuesday, Aug 14, 12 @ 5:19 pm
“I also don’t see you commenting on the solution put forth in the new Fortner bill, which is the current point of the discussion here, Wishbone.”
Guilty, I guess I just feel the state’s fiscal woes can’t be solved by tinkering at the margin with individual programs by closing a prison here or with a Medicaid cut there. Is the president of the U of I (my alma mater) worth $620,000 per year? I don’t know, but I strongly believe we could get a great president for 10% less. We need a macro approach to the problem and exempting or partially exempting any group just transfers more pain to others.
Comment by wishbone Tuesday, Aug 14, 12 @ 6:49 pm
===exempting or partially exempting any group just transfers more pain to others===
Wow! We agree on something. However I suspect we differ on the groups we feel are being exempted.
As for your concern regarding tinkering around the edges, I’m pretty sure saving $62,000/yr on the U of I president’s salary qualifies as an example.
Regarding the state’s fiscal woes, due to idealogical blindness, you fail to recognize the extreme drop in state revenues due to our regressive tax structure and the effects of our nation’s recession on the gross (macro) income of the middle class and poor upon whose spending and income Illinois is heavily dependent. The right wing zealots response, instead of offering a mea culpa on their war on reasonable regulatory oversight, and adequate funding of the regulators, have doubled down on a recession their ilk are largely responsible for, and are screaming that the sky is falling, and attempting to pit sections of the middle class against each other and the poor, while at the same time not only absolving the fat cats, but asking for even further tax reductions for them at the expense of the middle class and the poor because they’re “job-creators”. Yeah, right.
Explain why you feel the Fortner bill just tinkers around the edges. I’m curious about your specific objections and concerns. Leave your ideology at the door. It doesn’t play well here.
Comment by PublicServant Tuesday, Aug 14, 12 @ 7:47 pm
What labor unions? Labor is not a monolithic force. Even lousy reporters aren’t so lazy as not to i.d. who proposes what, the leaders, the membership. Not all unions are in the AFL-CIO. not all are public employees. Wake up MIller.
Comment by The Fox Tuesday, Aug 14, 12 @ 9:37 pm
Might be way too late to jump in on this discussion but why is the pain only felt by the working class? Time for everyone to feel the pain equally! I am tired of standing in line behind everyone with link cards with full name brand food in the cart while I have a half cart with store brand cheap items because I can’t afford anything else! Most of them don’t pay property taxes, pay healthcare expenses let alone pension contributions but get on the freebies!!
Comment by Tired Tuesday, Aug 14, 12 @ 9:47 pm
“Leave your ideology at the door. It doesn’t play well here.”
Hmmm! I am an Obama backing (with my wallet) Democrat. Pro gay rights and a woman’s right to choose, and for raising taxes on the super rich. I believe that income inequality and climate change are the two biggest problems facing our country and the world respectively. However, we are not going to get a progressive income tax at the state level so why waste time discussing it. I also don’t think we are going to see increased state revenue from any other source so we better be about the business of reducing spending, since unlike the Feds we can’t print money. Across the board cuts seem to me to be the only way to insure that the special interests DON’T stick the entire burden on the lower and middle classes. If that all makes me a right wing ideolog so be it.
Comment by wishbone Tuesday, Aug 14, 12 @ 11:52 pm
They pay property taxes via their rents and sales taxes when they spend 100% of the income they receive. You’re part of the problem if you’re blaming the poor, but guys like Wishbone count on you to insulate them from paying their fair share.
Comment by PublicServant Wednesday, Aug 15, 12 @ 6:12 am
Finally a thoughtful piece of legislation.
Comment by Obamas Puppy Tuesday, Aug 21, 12 @ 1:32 pm
Theres one piece of legislation everyone is forgetting.When Obamacare comes into effect,the states that are involved with this will be except frm paying into medicaid,the federal government will pay the states medicaid saving the state millions or billions of dollars. I know some parts of obamacare is into effect right now and if I was the Governor of Illinios I would definetly check into this.Maybe some of the fund could be released right now to help with their pension problems,but thats commen sense. They want access to the retirees money,but my friends that is probably unconstitional and illegal.
Comment by john holan Friday, Aug 24, 12 @ 4:02 pm