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* Two things to think about before we move to the actual topic of this post. First, from the Illinois Constitution…
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.
Pretty darned plain language there.
* And this is from the S&P downgrade back in January…
If there is meaningful legislative action on reform, we believe that there could be implementation risk based on the potential for legal challenges, and it could be several years before reform translates into improved funded ratios and budget relief.
* Now, on to today’s stories about the pension votes yesterday…
The Illinois Senate Wednesday approved a plan to cut working teachers’ pensions while rejecting a more sweeping plan, sending mixed messages about where the debate over one of the state’s biggest financial problems will go next.
A plan by state Sen. Daniel Biss to cut the pensions of public employees including teachers and lawmakers, which had appeared to gain bipartisan momentum in recent months, was instead soundly defeated 30-23.
Biss’ plan would have cut annual cost-of-living pension increases, raised the retirement age and required local school districts to start paying into a 401(k)-style plan for teachers, among other things.
But whether it would pass muster under an Illinois Constitution that says benefits cannot be “diminished” was a key question in the debate.
As a result, a proposal from Senate President John Cullerton was approved by a 30-22 vote.
I have yet to hear any credible arguments about how Biss’ plan survives constitutional muster. The best argument is that nobody ever knows for sure how a court will rule. That’s true. Other than that, the Constitution is pretty clear here.
* More…
The Senate voted 30-22 to reform just one state pension systems facing financial trouble, but it was the largest of five, the Teachers’ Retirement System.
True to the approach he’s taken previously, Cullerton, a Chicago Democrat, wrote the legislation to give teachers a choice between health care coverage during retirement or reduced annual cost-of-living increases. The “consideration” approach, Cullerton insists, would allow the state to sidestep a prohibition in the Illinois Constitution against reducing previously promised pension benefits.
“Benefits cannot be changed unless the Legislature offers public employees and retirees a choice and the opportunity to consider and accept that offer,” Cullerton said.
But between the slim victory on a narrowly drafted bill and the earlier defeat of another Democrat’s comprehensive approach to the pension crisis, the action Wednesday leaves questions about whether the General Assembly has the stomach to tackle the pension mess.
* The politics…
Biss, D-Evanston, and Cullerton took different approaches toward overhauling the retirement plans, and the divide broke down along partisan lines — as well as along Cullerton’s power base.
Biss’ broader pension measure picked up a dozen Republican votes, including that of Senate Minority Leader Christine Radogno of Lemont. She called Biss’ measure the most comprehensive approach and the “best path forward at this point in time.”
But only 11 Democrats jumped in with Biss. The 23 votes fell seven short of passage.
The Senate Democratic rank and file sided with Cullerton over Biss. No Republicans backed the Cullerton plan, noting it only affected active teachers. […]
The Biss plan would save an estimated $150 billion over 30 years. Cullerton’s plan would save an estimated $18 billion to $40 billion.
Biss’ plan won’t save a freaking dime if it’s kicked out by the courts.
* The breakdown…
These Democrats voted against the bill: Jennifer Bertino-Tarrant, Melinda Bush, James Clayborne, William Delgado, Mike Frerichs, William Haine, Linda Holmes, Toi Hutchinson, Emil Jones III, Dave Koehler, Dan Kotowski, Terry Link, Andy Manar, Iris Martinez, Pat McGuire, Julie Morrison, John Mulroe, Tony Munoz, Kwame Raoul, Martin Sandoval, Ira Silverstein, Steve Stadelman, John Sullivan and Donne Trotter.
These Republicans voted against the bill: Jason Barickman, Dave Luechtefeld, Sam McCann, Kyle McCarter, Dale Righter and Chapin Rose.
And these three Democrats voted “present,” which is tantamount to voting “no”: Democrats Jacqueline Collins, Tom Cullerton and Mattie Hunter.
There are some hardcore conservatives amongst those GOP “No” votes. But they also have state facilities in their districts.
* Sen. Rose was one of those “No” votes, but he wants to cancel spring break…
“I see all of this as a gradual progression,” said Sen. Chapin Rose, R-Mahomet. “If you start tweaking this cost of living adjustment cap on people who have already retired, you started putting this thing together.”
Rose said he wished the Legislature would stay in session for the next two weeks — when it is scheduled to take a recess — “on joint House and Senate meetings and just focus on this and not anything else. I would take everything else off.”
Sen. Jason Barickman, R-Bloomington, criticized the “piecemeal approach” of Cullerton’s bill.
But Barickman also voted against the more comprehensive bill.
* The Biss bill died because the Republicans, prodded by Ty Fahner and the business groups, killed Cullerton’s hybrid SB1 bill, which included his language and Biss’ language. It was a politically possible bill. Now, we’ve got a stalemate. The Sun-Times remains optimistic…
Illinois’ $97 billion unfunded pension bill demands a big, sweeping solution. If there was ever a time to make it happen, it’s now.
The answer lies in a separate bill that failed in a Senate vote Wednesday.
That plan, sponsored by Sen. Daniel Biss, is the only plan out there that truly reforms public employee pensions. It significantly cuts benefits — we won’t sugarcoat that — but does so in a fair and targeted way by phasing in an increased retirement age, shielding the pensions of the lowest income retirees from cuts and giving the retirement systems the right to sue if the state fails to pay its share.
Biss’ bill fell short by seven votes. Insiders tell us it simply can’t pass and it’s time to get real.
No doubt there is truth to that claim. But Illinois lawmakers can do better.
And really, 23 votes on a bill that wasn’t pushed by the Senate president is a pretty good showing the first time out of the gate. Picking up seven more votes as the spring legislative session continues is doable, particularly since Biss’ bill appears to be the favored approach in the House. A similar House bill is sponsored by Reps. Elaine Nekritz and Tom Cross.
There is almost no doubt in my mind that if Ty Fahner and the Tribune editorial board hadn’t stuck their big noses into this thing, Cullerton’s SB1 would’ve passed the Senate.
I’m starting to think that somebody doesn’t want anything to pass until 2015.
* And while I fully understand the criticism of Cullerton here (that he ought to just give up on his consideration idea and go with something else that might be able to pass like a stand-alone Biss plan), I’d point out that the Senate President strongly believes Biss’ bill is unconstitutional. So, this is something to keep in mind…
SECTION 3. OATH OR AFFIRMATION OF OFFICE
Each prospective holder of a State office or other State position created by this Constitution, before taking office, shall take and subscribe to the following oath or affirmation:
“I do solemnly swear (affirm) that I will support the Constitution of the United States, and the Constitution of the State of Illinois, and that I will faithfully discharge the duties of the office of …. to the best of my ability.”
Discuss.
posted by Rich Miller
Thursday, Mar 21, 13 @ 10:37 am
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For some of us, the problem isn’t so much the “no” vote, as the fact that those voting “no” have failed to offer any alternative.
We keep coming back to the fact that in Illinois so many seem to think that the key job of an elected is to win an election.
They don’t seem to understand that once you are elected, you need to serve and sometimes that means making tough decisions.
I don’t know of any of the “no” votes that have offered an alternative plan. That’s the real problem. They are taking their salaries for being elected officials but they just are not doing the job.
Comment by Skeeter Thursday, Mar 21, 13 @ 10:53 am
I say let the state go thru a pre-approved bankruptcy and start over.
Comment by Downstater Thursday, Mar 21, 13 @ 10:54 am
Granted, nobody can know for sure how the courts will rule on any of these bills.
I’m starting to think though that a bill such as the Biss bill passing and then getting defeated in the courts is the only way any real solutions will come about - such as raising revenues, cutting spending, changing the debt payment schedule, and negotiating with the state employees.
Comment by Joe M Thursday, Mar 21, 13 @ 10:55 am
Before we make Cullerton a saint, I’d like to point out that he didn’t mind ignoring the constitution when he approved multiple unbalanced budgets. Consistency goes both ways.
Comment by Devices Thursday, Mar 21, 13 @ 11:00 am
Everybody keeps looking for the silver bullet that will let the state get off the hook for failing to fully fund the retirement systems and to keep the legal promises that were made.
But everyone knows that just saying we don’t have the money today because we spent it on something else yesterday is just not going to get by the courts.
The state has the power to increase its income to meet its obligations and that is where it will eventually end up when the sound and fury subsides.
This is the reality that faces the state. It will just take awhile to get there.
Everything until then is just noise.
Comment by Cassiopeia Thursday, Mar 21, 13 @ 11:01 am
It’s time to stop nibbling around the corners. A big picture solution is needed that includes revenue not only for pensions but to pay our bills. It’s time to channel The Dude.
Comment by Calhoun Native Thursday, Mar 21, 13 @ 11:03 am
I think it is pretty clear that the pension underfunding is caused primarily by the state not paying the employers obligation into the pension system not necessarily overlly generous benefits being promised to employees(witness IMRF where they mandated the employer contribution, it provides a generous benefit and is still funded). The reason the state did this is the legislators over the years have not dealt with the systemic problem which is they want to spend more than they generate in revenue. Now it is time to correct the error of their ways which will require multiple sacrifices from both employees, retirees but also the legislators. I ask that their sacrifice be they give up their spring vacation, sit down to hash this matter out without their reading emails, tweets, or talking with a single interest group. They make the decision that is not needed not the one the Civic Federation or the Tribune necessarily wants, but a sound decision. This may also require their needing to really address the revenue and spending issue. Okay, I had my delusional dream of the day. Back to reality and gridlock.
Comment by illinifan Thursday, Mar 21, 13 @ 11:09 am
It seems the only reasonable (and likley constitutional) approach is to end the ERO (early retirement option)when it comes up this June (or shift the entire cost to local schools), base pensions on lifetime contributions rather just the last four years salaries and prohibit “end of career spiking”, create a 401K equivalent plan for new employees that will match the first 3% of contributions shared equally between the state and local districts.
There also should be no Health Insurance subsidy for employees retiring before the minimium “Non-ERO” retirement date, and a sliding scale contribution plan up to Medicare age. Pensioners would oay 10% H.I. premiums for pensions less than $35K and pay 100% starting at cummulative public pensions of $80K.
One of the big incentives for the extremely costly early retirements is letting teachers teach in public schools up to half the year as substitutes while pulling in a TRS pension. That should be abolished to give young people trying to get teaching gigs a chance to get trained in the system.
The double dipping of public jobs while collevting a pension also has to end for new employees on that second public job. New employees should only be eligible for single pension regardless of how many public “careers” they’ve had. They should, however, be able to bridge their public pension for the years spent in the second public job, provided they don’t take an early pension and deducet payments from their second job to pay into the public pension plan in which they intend to participate.
Finally, we need to end the practice of retiring from a public job and taking a public pension on a Friday and starting back doing the same job as before, with the same public oranization, as a “consultant”, often at a higher rate of pay and at a MUCH higher cost to the taxpayers. I think a three year waiting period before cosulting for the organiation is appropriate.
Obviously I haven’t scored this, but it seems the least likely plan to be overturned in court and end the abuses and excesses in the system that’s driving it to implosion. It alos seems to be able to best protect benefits for current retirees.
Any body got a problem with this?
Comment by Palos Park Bob Thursday, Mar 21, 13 @ 11:09 am
In the end (and I do mean when all else has failed) the legislature retains the power to appropriate, and no court will overstep and assume that authority. So in the end there will be across the board cuts to programs and pensions that spread the pain to all those who receive state benefits. The longer this tough decision is delayed the more severe the needed cuts will be, and the greater the need for some tax increases, but both are coming as sure as day follows night.
Comment by wishbone Thursday, Mar 21, 13 @ 11:10 am
Amend “make the decision that is NOT needed” to the decision that IS needed.
Comment by illinifan Thursday, Mar 21, 13 @ 11:10 am
I agree with Rich’s comment about somebody wanting to wait until 2015. Possibly MJM would then release “The Daughter newly elected as Governor” and the problem would suddenly become important, the starts all align, and a vote to pass some type of pension plan would sail through the House and the Senate and “The Daughter” would get the glory for making it all happen.
Comment by East Central Illinois Thursday, Mar 21, 13 @ 11:12 am
should be “stars” not “starts”
Comment by East Central Illinois Thursday, Mar 21, 13 @ 11:14 am
ECI, I’m not sure she’d want that “glory.”
Comment by Rich Miller Thursday, Mar 21, 13 @ 11:15 am
I was reminded of what you wrote about Jim Thompson, Rich, while listening to Sen. Biss speak on SB 35 yesterday. He praised public employees and said straight-up that his bill “isn’t fair” to them (with, I think, the implication that neither is SB 1, and neither are the results of doing nothing). He said he hoped no one voted for his bill “joyously” or “easily.” Good points all.
Comment by Yossarian Lives Thursday, Mar 21, 13 @ 11:27 am
While I don’t support his approach either, at least Cullerton is attempting to craft a bill that is constitutional. Biss’ bill doesn’t do a thing to solve any problem if its thrown out by the courts.
Comment by Norseman Thursday, Mar 21, 13 @ 11:29 am
For the life of me I don’t understand why they don’t start the reform by re-amortizing the pension payments as Ralph Martire has proposed. The state is not a business, will not go out of business and will not have to pay out all future obligations at once. It would pass the constitutional test because no benefits are being taken away. It will satisfy the markets because something proactive will be done and it will improve the business climate of the state by introducing stability and by paying down on the state debt. It would also give politicians (no leaders seem to be around) breathing room to address the structural fiscal problems. The only downside seems to be the legislature wouldn’t be able to torment employees and retirees.
Comment by Past the Rule of 85 Thursday, Mar 21, 13 @ 11:31 am
I understand that no one knows where the courts will come down on the constitutionality issue.
I agree with Rich that the language appears to be pretty plain. Thererfore I don’t understand how some folks can be so sure that he “consideration” approach will pass muster. If both options are a diminishment, offering a choice is definitely a diminsihment.
Analogy; Forcing an individual to choose a fruit is against the law. So I am going to offer them the choice of an apple or an orange. The fact that there is no option that isn’t a fruit means the law is being broken.
I think the passage of the bill yesterday was buoyed by the court ruling on the Maag lawsuit. But I can’t imagine that won’t be appealed and the ultimate decision could be completely opposite.
The bond rating houses were pretty specific that they would not be pleased with pension reform that could be contested in the courts for years.
This also might be what some of the
GA members are thinking about.
Comment by Irish Thursday, Mar 21, 13 @ 11:32 am
===It will satisfy the markets===
I don’t think it would because extending the payments would skyrocket the unfunded liability.
Comment by Rich Miller Thursday, Mar 21, 13 @ 11:33 am
I agree with ‘Past the Rule’ - why aren’t they even taking a look at Martire’s proposal?
Comment by East Central Illinois Thursday, Mar 21, 13 @ 11:36 am
illinifan;
Your initial presumption may not be accurate for TRS and the gimmicky end of career raises school districts used to boost pensions. And it’s not the “error” of the current legislators’ ways (for the most part) but their predecessors who are long gone. Of course, your suggestion to work thru break is a good one which will probably go unheeded.
Comment by Original Rambler Thursday, Mar 21, 13 @ 11:37 am
It may not completely satisfy the markets, but it would probably calm them down seeing something constitutional being done.
Comment by Past the Rule of 85 Thursday, Mar 21, 13 @ 11:37 am
==In the end (and I do mean when all else has failed) the legislature retains the power to appropriate, and no court will overstep and assume that authority.==
They did in the Jorgensen case, involving the judges’ COLA. And that makes sense, too. If the constitution requires a payment, but the courts can’t enforce the constitution, it’s just a piece of paper.
Comment by Anon. Thursday, Mar 21, 13 @ 11:44 am
Just heard rumor about robo-calls where people are being asked to contact their representative to support a cut in State pensions. I have no other information to substantiate this. Has anyone heard this or received such a call?
Comment by Sgt Schultz Thursday, Mar 21, 13 @ 11:46 am
There is a distinction between the general “support” of the Constitution and legislator advancement of legislation that may be declared unconstitional by the judiciary, no?
Comment by Jake From Elwood Thursday, Mar 21, 13 @ 11:47 am
Everyone seems to agree on what the constitution intended on the pension. They’ve alerady put in place a lower pension for the employees hired after Jan 1, 2011.
Why don’t we scrap the attempts to adjust the pension benefits for employees hired before Jan 1, 2011 in favor of doing something that is consitutional… whatever that might be?
Comment by mythoughtis Thursday, Mar 21, 13 @ 11:48 am
already. Can’t type.
Comment by mythoughtis Thursday, Mar 21, 13 @ 11:49 am
“Benefits cannot be changed unless the Legislature offers public employees and retirees a choice and the opportunity to consider and accept that offer….”
The choice: reject your the rights provided by the state constitution by accepting the diminished benefits; if you don’t the credit agencies say we’re a bad, bad, bad, bad state and it will at least seem like everyone in the nation will blame you.
Comment by Anonymous Thursday, Mar 21, 13 @ 11:52 am
There is momentum to pass law on this issue and nobody should underestimate or discount the power of the MO!
Unfortunately, when there is momentum and a sense of real crisis around the capitol they usually push something through that creates problems rather than solve them. I don’t think anyone should count on nothing happening until 2015. They will do something before the summer and kick the can across the street to the courts.
Comment by Supply Sgt Thursday, Mar 21, 13 @ 11:52 am
Sure wish you had an edit feature for posters.
Comment by Kasich Walker, Jr. Thursday, Mar 21, 13 @ 11:52 am
In the Supreme Court case over pension funding, the court ruled the plantiffs did not prove the systems were in danger of being underfunded and the constitution guaranteed the benefit-
This could backfire on the legislature who may vote to cut benefits only to prove the system is in danger of not being able to provide the constitutional benefit…..
Comment by Liberty_First Thursday, Mar 21, 13 @ 11:57 am
What is the basis of the $150 billion and $18-40 billion numbers? The Tribune doesn’t cite a source, or specify how they calculated the figures themselves.
Aside from that, wouldn’t it be more meaningful to focus not on savings over 30 years, but on how much the present unfunded liability is decreased? The amount of unfunded liability is the principal factor used in calculating how much the state must contribute to the pension systems each year.
Comment by drew Thursday, Mar 21, 13 @ 11:57 am
Keep this in mind their are cracks in cullertons crystal ball also. There is strong case law with the supremes when you try to freeze salary’s for pension calculation. Offering two diminished choices? I’ll quote the great gov Jim Edgar “the state ultimately may have no choice except to just pay what’s owed”
Comment by foster brooks Thursday, Mar 21, 13 @ 11:59 am
I should add that an estimate of the annual reduction on retiree healthcare spending would seem to be relevant in this instance as well.
Comment by drew Thursday, Mar 21, 13 @ 12:01 pm
First what has been promised and earned to date must be paid. That seems to me to be fair and constitutional. It is a bitter bullet that I would prefer not to bite, but there it is.
I cannot see how we allow future benefits to current employees accrue in a way we cannot afford. Judge Mikva opined in the Tribune that we cannot adjust future benefit being earned, that once in the plan the plan is the plan forever. This has to be addressed and the courts are the place to do it.
Pay plans get adjusted all the time. If you don’t like, it take what you have earned (all of it) and find something you do like. The courts may find that constitutional I don’t know. Judges like to get paid too.
Comment by jeffing in Chicago Thursday, Mar 21, 13 @ 12:01 pm
Instead of spending time on pension reforms that are not going to work or are going to be challenged lets take the position that we are all in this together as the “Dude” was quoted as saying.
Put together a commission. Get Jim Thompson to chair it. Bring in the leaders of the unions and the four tops. Okay, there is a contract, but it might not get the appropriations it needs. The GA holds those cards. The union’s cards are the contract and the health insurance increases if the money isn’t approved. I would suggest they come up with an agreement that includes an increase in pension donations by the employees of 2% over a specified time period, change the COLA to be tied to the CPI, and sunset these items when the funds reach 80% funding. Change the pension ramp, approve the gaming bill and dedicate 75% of those funds solely to making pension payments. Then add a binding clause that if the state misses a payment on the pensions the increased employee costs in the agreement named above will end immediately instead of when the funds reach 80%.
Comment by Irish Thursday, Mar 21, 13 @ 12:04 pm
===Judges like to get paid too.
Taney & Pilate aren’t alone.
Comment by Kasich Walker, Jr. Thursday, Mar 21, 13 @ 12:07 pm
Downstater ….I say let the state go thru a pre-approved bankruptcy and start over. This sounds like a solution proposed by someone who is:…a member of the Chicago Business community or a person who is not connected to the issue. For 30 years I have planned my eventual departure from State employment. I have monitored everything regarding my pension benefits ( far from lucrative by the way ) and planned accordingly. The legislature has failed MISERABLY and ignored their their own mandate to fund the pension payments. I have yet to hear or read of a legislator…or the Governor….to acknowledge their culpability in this egregious act of malfeasance. If there is a poster child of this pathetic lack of governance it is Mike Madigan. Keep in mind that he legislated a severe and substantial pension sweetener for himself…..Emil Jones as well. Can we get a recall procedure utilizing a statewide ballot to remove these abundantly inept individuals?
Comment by Jasper Thursday, Mar 21, 13 @ 12:08 pm
I am a big Biss fan, but here’s the thing: It is not the legislators’ job to provide judicial review. If judges are not legislators in robes, then state senators are not supreme court justices in mufti.
There have been a boatload of different legal opinions out there about pension reform - and yes, I do find Eric Madiar’s analysis most persuasive. But Sen. Biss does NOT violate the Constitution by offering a solution that could solve a serious financial problem for the State and that has at least some chance of Court approval. (And with a severability clause, I believe it could save substantial dollars even if part of the bill is declared unconstitutional.)
I know for a solid fact that Sen. Biss takes the constitutionality issue very, very seriously, and I credit him for offering leadership in this hornets’ nest.
Comment by soccermom Thursday, Mar 21, 13 @ 12:13 pm
Soccermom… I agree with you…kudos to the few who are trying to work through this mess. I may not agree with the result but at least they are making an effort.
Comment by Jasper Thursday, Mar 21, 13 @ 12:19 pm
Looking at SB1 it seems that the teachers are being given a choice of givign up their inflation protection (the AAI a/k/a COLA) which is a deminshment or their retirement health insurance (which they’ve been getting a payroll deduction for) and a cap on the calculation of their pension amount which also appears to be a diminshment.
I haven’t yet seen anything to indicate a teacher who chooses to keep the AAI gets the health payroll deductions refunded (let alone with interest).
Comment by titan Thursday, Mar 21, 13 @ 12:28 pm
Just because Cullerton’s plan is less unconstitutional does not mean that it IS constitutional. Capping the salary on which your pension is based is a blatant diminishment. Again, “consideration” under the law is not the same thing as “choice.” Although many here appear to be bamboozled.
Comment by fedup Thursday, Mar 21, 13 @ 12:36 pm
I beleive the GA should pass SB1 with the option A and back up option B but just for the genreal assembly pension system. Let that case go before the IL SC and see what they do. I suspect option A will be rueled out and if they accept option B then pass it for all. If they rule both a and b out then the GA has the cover to re amertize debet, change tax code, cut spending, whatever it needs to do to pay exisiting pensions.
Comment by facts are stubborn things Thursday, Mar 21, 13 @ 12:40 pm
Irish,
Pretty sure you can’t mess with the COLA … the rest of it could pass muster but I don’t see enough money in the plan.
Comment by RNUG Thursday, Mar 21, 13 @ 12:42 pm
facts are stubborn things
They took the whole part A / part B out. All that is left after A3 as passed is Part B only for active teachers.
Comment by RNUG Thursday, Mar 21, 13 @ 12:44 pm
A couple thoughts-
1) States can’t declare bankruptcy, so take that idea, and any worries about it, off the table.
2) PP Bob, please stop this nonsense about alleged abuses of TRS. The ERO current contributions are funding nearly 90%
of the incremental benefits according to a recent actuarial study. If ERO is extended, contributions will rise to ensure 100% funding. Additionally, the number of retirees returning as half time subs is minuscule and has no effect on the unfunded. Once the teacher is outta that classroom, most are in no hurry to jump back in. I’m against 401k’s, the “lifetime earnings” is punitive” and unconstitutional, and aside from that, great plan.
Comment by Arthur Andersen Thursday, Mar 21, 13 @ 12:45 pm
Arthur Andersen,
States cannot declare bankruptcy but they can stop paying people and meeting their obligations. Or in the case of the state of illinois, the already existent practice of not meeting its obligations can grow dramatically, dysfunctionally worse.
Comment by unbiased observer Thursday, Mar 21, 13 @ 12:48 pm
RNUG -
Good point..understood. What I am advacating is the old SB1 that had the option A Nektriz/Cross part and the option B which as you well know is the Cullerton “consideration” idea. You are correct and I appreciate you forcing me to properly explain what I am saying.
Comment by facts are stubborn things Thursday, Mar 21, 13 @ 12:50 pm
Downstater @ 10:54 am:
You do understand that State’s can NOT declare bankruptcy?
A State can try to use the ‘police power’ argument to void debt and contracts, but it has a very high legal barrier. Believe is has only been used successfully once in the last century, and that was one state during the depression … but only allowed by the courts AFTER the state had drastically raised taxes and severely cut spending.
Right now, while still adding over $2B of new programs in the last month or so, nobody can argue with a straight face that Illinois has cut spending or increased revenues beyond sustainability.
Comment by RNUG Thursday, Mar 21, 13 @ 12:53 pm
Did the Cullerton passed bill on TRS include everybody or only those who reitre after July 1, 2014?
Does anybody know? It is a huge distinction.
Comment by Fultonfarm Thursday, Mar 21, 13 @ 12:53 pm
RNUG - If it was an Agreement even the COLA passes muster. I would want a representitive or two from the Retiree union groups. Many of them still belong to those types of groups. As a state employee I really don’t want any diminshment either. And as a very near future retiree I am not happy about a reduced cola. However I would rather get out front in the solution and somewhat control the final plan than hang back and eat something totally undigestable. And I think the plan offers a little more than the plan Cullerton is trying to push through plus it gives some incentive to the state to make the payments.
Besides it is just ideas, but I think the collaboration idea beats what is going on now. Without pension reform I don’t think the appropriations are made. And I personally don’t want to wait several years for that all to be ironed out.
Comment by Irish Thursday, Mar 21, 13 @ 12:55 pm
There could be consideration for a change in the COLA based on the CPI. However, that would only be if the COLA were allowed to rise above 3% during times of inflation. An employee then could actually receive something of greater value in return for abandoning the flat rate. Of course, all of the proposals which claim to be “tied to CPI” have contained caps on the amount of COLA so that it can never exceed 3%.
Comment by fedup Thursday, Mar 21, 13 @ 12:56 pm
facts are stubborn things @ 12:50 pm:
Got ya. The one problem I see about GA only test is if the choice is upheld for the GA, it won’t be a definite answer. While that ruling could hold for GARS, JRS & SERS, there is still a question about TRS since they pay into the THIS fund for health insurance (and SURS that pay into CIP). Of course, if it was slammed down, then that would be definitive for all systems.
Comment by RNUG Thursday, Mar 21, 13 @ 12:57 pm
I called Sneator Koehler’s office. His staff assistant stated that the those who were retired or who had filed a letter of intent to retire would not be affected by the “choice.” All others would be.
Anywasy, that is what he told me.
Comment by Fultonfarm Thursday, Mar 21, 13 @ 12:59 pm
RNUG
Good point on the TRS…makes sense. I beleive it would move the ball quite a ways and perhaps GA would be more inclined to make a vote that by only including themselves might be seen as test vote. Kind of a way to get from a to c by stopping at b.
Comment by facts are stubborn things Thursday, Mar 21, 13 @ 1:02 pm
RNUG for Commissioner!
Comment by Arthur Andersen Thursday, Mar 21, 13 @ 1:07 pm
Irish,
Yeah, if the COLA had no cap maybe that could be agreed to.
But it would have to have a guarantee that the State could never alter or cap the COLA in the future or if the State did change it, everyone under Tier gets the right to revert to the 3% fixed formula and, if that calculation would have resulted in more money over the years, the retiree is retroactively and automatically entitled to a lump sum of that amount plus having his current pension adjusted to the level it would have been.
Comment by RNUG Thursday, Mar 21, 13 @ 1:07 pm
AA,
no thanks … got too many other things on my plate
Comment by RNUG Thursday, Mar 21, 13 @ 1:10 pm
Pushing legislation that is almost certainly contrary to the constitution is delusional and unproductive. Business interests in the State and the welfare of its citizens are not well served by delays or by measures that have a high likelihood of being rejected by the courts.
Delay is very costly with its impact on bond ratings and the deferral of action on revenue-generating measures. (I am assuming that revenue generating measures are being deferred to avoid them being used as part of the pension solution.)
Comment by east central Thursday, Mar 21, 13 @ 1:22 pm
AA,
“PP Bob, please stop this nonsense about alleged abuses of TRS. The ERO current contributions are funding nearly 90%
of the incremental benefits according to a recent actuarial study. If ERO is extended, contributions will rise to ensure 100% funding”
First, I’d appreciate it if you could provide a link to that study. It’s not that I don’t believe you, It’s often that “assumptions” in those reports give false indications of the true costs.
Remember how the “Obamacare” deficits shot up after it became law?
IIRC, the “90% funding” is based upon the group of pension plan members paying in some increased amount. Is it enough? Early models from 20 years ago didn’t realize how many six figure salaried “early retirees” were going to burdening the system in 2013. I would guess that teacher salary acceleration (which has been about double the rate of inflation over the last decade or so) wasn’t properly considered in the past, nor would I guess this was considered when estimating future liabilities in your current report.
Also, IIRC, school districts have to pay 23.5% of salary for each early retirement year, and teachers are SUPPOSED to pay 11.25% for each ERO year. When you consider the 16% increase in pension rate for the 4 years of 6% raises, that doesn’t even cover half the early retirement cost even neglecting Health insurance premiuim subsidies.
Regarding the substitute issue, I agree that that alone isn’t such a big deal, but it’s part a group of ERO incentinves for employees to take early retirements and draw pensions while still working in a public job.
BTW, in my area I’d guess that 60% plus of all subs are on TRS retirement.
Comment by Palos Park Bob Thursday, Mar 21, 13 @ 1:24 pm
Fultonfarm
As passed, it exempts TRS retirees and TRS employees who, prior to 1/1/2013, turned in their irrevocable letter of intent to retire … so you can’t try to sneak under the wire on this one.
Comment by RNUG Thursday, Mar 21, 13 @ 1:26 pm
The initial Maag decision gives the State the opportunity to offer persons in the pension systems a choice between (a) Keep what you have without health insurance and (b) Take a bit less in annuity through a modest downward adjustment in AAI/COLA, get access to health insurance with a subsidy adjusted by income, and contribute something more toward your pension if still employed.
The solution to the pension crisis may have to be a collection of elements of every constitutional proposal out there. Of course the largest, is extending the temporary income tax increase in some form. So reduce the 5% a fraction and say the bond rating agencies demanded the increase be extended.
If the Gov is willing to be a martyr and Democratic legislators are willing to commit the votes, then he could take the lead and most of the blame on the tax. If this gets the pension problem solved and the State back toward fiscal stability, he would be a hero even if it cost him the primary. Let Lisa take over and reward him with a plum federal position.
Comment by east central Thursday, Mar 21, 13 @ 1:35 pm
Declare a five year moratorium on payments and interest on pension obligation bonds. Let the bondholders take a haircut instead of the people who earned pensions.
Comment by chefjeff Thursday, Mar 21, 13 @ 1:37 pm
RNUG,
Thanks for the confirmation.
This might be the way to go for the other systems.
Although there is still that pesky Illinois Constitution.
Comment by Fultonfarm Thursday, Mar 21, 13 @ 1:39 pm
constitutional clarity on schools. and pension equally. clear…and we all recall how the SC handled the schools
Comment by circular firing squad Thursday, Mar 21, 13 @ 1:40 pm
chefjeff -
I think you touch on the slipperly sloap that Biss, Nektritz and others are on. If you are going to use police powers to argue you can break the contract in the pension clause, then why that and not bond holders or those venders the state owns money to etc.
Comment by facts are stubborn things Thursday, Mar 21, 13 @ 1:48 pm
@ facts are a stubborn thing - not a bad idea…I wonder how the Civic Club mandarins would like a plan that shaved off bond debt the same that it shaves off pension benefits.
Comment by titan Thursday, Mar 21, 13 @ 1:58 pm
HB1165 got passed, Nekritz calls it a “shared” sacrifice, I’d LOL if I wasn’t crying. As a “taxpayer” I am paying the 2% increase AND getting my pension diminished. Double whammy for State workers, where’s the “shared” sacrifice for big business, big cuts to unnecessary spending? “Shared sacrifice” means shared only among State employees.
Comment by Huggybunny Thursday, Mar 21, 13 @ 2:04 pm
state is already not paying vendors…..they are over a year behind to many hospitals, and as you fiscal types know, late payments are diminished payments.
the state is already not paying the tax base poor districts the entire allotment of state aid, they are just skipping payments. the school districts have been told to expect this to get worse.
the state is already not meeting its obligations and this will continue to worsen dramatically unless significant changes are made.
Comment by unbiased observer Thursday, Mar 21, 13 @ 2:05 pm
Art XIII of the state constitution appears to be about the only clear thing in this debate. The GA is dealing with contractual rights, and the lawyers in the GA I presume understand that the GA cannot unilaterally negatively impact those rights.
The only out (other than agreement of the stakeholders,or a miraculous and long lived US economic recovery, or increasing taxes on an already stressed state) I see relies on the courts, but not to magically go blind to the constitution and their own retirements and approve a pension diminishment based on any law.
Instead, maybe there is some way the GA could petition the court for reformation of the pension programs due to mutual mistake. Or perhaps a citizen could initiate such litigation and implicate collusion between the bargaining parties for a reformation.
But still, I just can’t see elected judges taking a novel approach which could become a focal point for union retribution.
Looks to me like the GA will do nothing and let the problem escalate. Maybe the game plan is to let the pain increase in the private sector until the hue and cry is so loud that the pensioners come to the table and agree to modification.
Comment by Cook County Commoner Thursday, Mar 21, 13 @ 2:14 pm
Well HB 1165 passed to limit COLAs until 5 years after retirement or age 67 and $750/$600 a year if covered or not covered by Social Security. This now goes to the Senate. Pension cuts are occurring through 1000 different little cuts
Comment by illinifan Thursday, Mar 21, 13 @ 2:15 pm
@Soccermom @ 12:13 pm: Except they swore an oath to uphold the constitution, which is written in simple English they are expected to understand.
Comment by Pensioner Thursday, Mar 21, 13 @ 2:23 pm
I know this is somewhat off the point, but why does the Illinois Constitution, a document that is supposed to provide ethos for all Illinois Citizens, have a provision specific to one sub set of us?
Comment by Proud Thursday, Mar 21, 13 @ 2:25 pm
- which is written in simple English they are expected to understand. -
And which people have to go to school for several years and work for a long time before they’re given the authority to interpret.
The approach of testing constitutions goes back to Andrew Jackson, and was done extensively by Abraham Lincoln.
Biss is one of the smartest guys in the room, and as a liberal Democrat from a liberal area, I doubt he has a personal agenda to screw over public unions.
At least he’s putting some effort into fixing the problem, not many others can say the same.
Comment by Small Town Liberal Thursday, Mar 21, 13 @ 2:32 pm
Soccermom: Amen to your praise of Biss. The same goes for Nekritz IMO.
Everyone can complain, and describe what won’t work, but few stand up with a firm bi-partisan proposal.
Comment by walkinfool Thursday, Mar 21, 13 @ 2:39 pm
@Proud @2:25: Because the delegates in 1970 were aware of just this issue in other states and wanted to prevent what’s going on now. Google Madiar for a pension analysis and quotes from delegates re this issue. Long read but good.
Comment by Pensioner Thursday, Mar 21, 13 @ 2:41 pm
illinifan
I don’t thank it will make it through the senate, but you are correct in that the political process is working its way along. One of the reps was saying that our COLA is really not a cost of living because seldome has the inflation been greater then 3%. If so, then why are they not proposing that our COLA be changed to the CPI period. Of course the answer is they are just trying to answer in a sound bite for the low information voter.
Comment by facts are stubborn things Thursday, Mar 21, 13 @ 4:01 pm
I remember inflation in the double digits in 70s and 80s. Imagine the howling if state had to pony up 12%/yr with a real CPI. 3% is the historical average.
Comment by Pensioner Thursday, Mar 21, 13 @ 4:15 pm
http://inflationdata.com/Inflation/Inflation_Rate/HistoricalInflation.aspx
Comment by Pensioner Thursday, Mar 21, 13 @ 4:21 pm
=== state is already not paying vendors…..they are over a year behind to many hospitals, and as you fiscal types know, late payments are diminished payments ===
unbiased observer, are you aware that the state has to pay interest on those late payments?
Comment by dupage dan Thursday, Mar 21, 13 @ 4:25 pm
PP Bob-
trs.illinois.gov has the study.
TRS was required by the last ERO extension law to conduct the cost study. It was completed late last year iirc.
Comment by Arthur Andersen Thursday, Mar 21, 13 @ 5:15 pm
I was amazed when I heard our Gov. say in two years’ time we will be spending more on public pension obligations than education. Whose fault is that? We all face similar issues every day! We have to pay for our mortgage, auto loan, higher education and on and on. Those are obligations/agreements agreed to and we know we must pay those obligations before taking on more debt. I can’t imagine calling the bank and telling them I feel I need to spend more on a new car and a new high speed washer so I am going to reduce the amount of my payment.
The problem with the State of Illinois is, and has been, its politicians! Our last two Governors went to prison! Politicians have used State Pensions like a credit card spending money they had no right to spend and subsequently, the State is now moving to take and/or diminish its obligations to those who have served in good faith, abiding by the rules, and retiring with the belief the State would honor its obligations.
If the State of Illinois is in such a financial shape that we must ask people who serve and have served the bulk of their life to the State of Illinois to give up a substantial portion of their retirement then there should be no pay increases for anyone working for the State, no increases to education, no high speed rail, no bail outs of mass transit, and no additional expenditures above the cost of maintaining minimal State services. Once the State can afford to pay their pension obligations then they can look at other increases such as education and high speed rail.
If I were a politician past or present, I would hang my head in shame! If the State Of Illinois defaults on its obligations to those who have served and are now serving they will have lost much more than a credit rating. They will have lost Honor, integrity and the trust of the people!
Comment by American Thursday, Mar 21, 13 @ 10:01 pm
@Pensioner
I remember the late 70’s early 80’s also. You are so correct. My first house I paid 14.7% interest and thought we got quite a deal.
Comment by facts are stubborn things Friday, Mar 22, 13 @ 7:24 am
@American
Wo well said. I urge you, if you have not already, to write every senator what you posted hear. I have written them many times. I don’t think they can hear enough the simple plain facts that you have so well written about.
Comment by facts are stubborn things Friday, Mar 22, 13 @ 7:27 am