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* My Crain’s Chicago Business column…
Ever since former Illinois Republican Gov. Jim Edgar started publicly criticizing current Republican Gov. Bruce Rauner, Edgar has been subjected to a steady drumbeat of criticism from the far right.
The focus of most of that criticism is what’s come to be known as the “Edgar ramp.” The phrase describes the ramping up of state pension payments to the current point, where pension expenses are consuming about a quarter of the state’s budget.
There is no doubt the Edgar ramp was flawed, as all compromises are. The annual pension payment increases were too gradual at the beginning, which made them steeper than they should have been years later.
But we don’t live in an ideal world, nor do we live in a dictatorship. You pass the legislation you can pass. And passing a bill that immediately required huge pension payments just wasn’t possible. After decades of not making adequate pension payments, the General Assembly wasn’t going to start doing the right thing right away.
But subsequent governors and General Assemblies could have fixed that problem. Instead, they did nothing. Worse yet, they didn’t prepare for the ramp’s higher payments by narrowing the state’s spending base and expanding its tax base. And even worse, they deliberately exacerbated the problem.
Click here to read the rest before commenting, please. Thanks.
posted by Rich Miller
Monday, May 8, 17 @ 8:55 am
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Read this yesterday Rich good article.
Comment by DuPage Bard Monday, May 8, 17 @ 8:57 am
Yes, and the fathers expect their sons and daughters to pay for their sins, but there’s 49 other states in the union.
Comment by Ahoy! Monday, May 8, 17 @ 9:11 am
Here’s a novel approach, why not try gradually shifting the burden from the state to the employing bodies and employees. As a state employee I realize that doing so would mean allowing the State (and the taxpayers) to basically renege on our deal but reality is reality. And by gradually I mean no more than .25% on the employee or employer per year. For an employee making $36,000.00 per year this would be less than $1.75 per week. If you were able to shift the burden in this way the State could be out of the Pension funding business in less than 20 years. I’ll bet that’s something that would get Job Creators and Moody’s excited.
Comment by Gruntled University Employee Monday, May 8, 17 @ 9:21 am
I have a ton of respect for Rich Miller (otherwise, I wouldn’t read this website a few times each day) but I just don’t think his analysis holds water on this one.
Let’s start with the initial argument — that Edgar “pass[ed] the legislation you can pass.” Well, sure. As did Ryan, Blagojevich, Quinn and Rauner, not to mention Thompson, Walker and the list goes on.
They all passed what they could pass.
The legislature wasn’t ready to make huge pension payments? The legislature never has. They didn’t under Edgar and they haven’t done so since or before.
Subsequent governors could have fixed the problem? Sure, and so could have Edgar, who deliberately structured a plan to make it easier on Edgar and tougher on them. Other governors could have done their jobs had Edgar done his job.
Ryan inherited a surplus and spent it.
Edgar passed on a surplus rather than paying down pensions.
How is that any different?
Is Edgar completely at fault? No, but he was the first one who clearly recognized a problem and then rather than attempt a real fix, Edgar deliberately kicked the problem down the road.
When we make the list of who is at fault, Edgar definitely makes the list.
Comment by Gooner Monday, May 8, 17 @ 9:23 am
Should read “grandfathers” the issue is so old.
Comment by Come on Man! Monday, May 8, 17 @ 9:24 am
There is not just one person or group to blame for IL pension issues. The only way to fix it is to be honest to the tax payer. Undoubtedly it’s easier to lie to the tax payer.
Comment by Rocky Rosi Monday, May 8, 17 @ 9:27 am
===They all passed what they could pass.===
Except, until Tier 2 and the tax hike, Edgar was the only one to directly address the issue. You’re ignoring history.
Comment by Rich Miller Monday, May 8, 17 @ 9:27 am
Didn’t Edgar pass the ramp to take campaign ammo out of the pocket of Gubernatorial candidate Dawn Clark Netsch? That’s not exactly a profile in courage.
The ramp has Edgar’s name on. He was the engineer behind a ticking time bomb. Sure, politicians could have defused the bomb by doing politically unsavory things, but who really thought that would happen?
Comment by Phenomynous Monday, May 8, 17 @ 9:41 am
==Edgar was the only one to directly address the issue. You’re ignoring history.==
If by “address” you mean note there was a problem, then say to everyone else “you fix it, I’m out”, then sure. The point of calling out Edgar on all of this is to recognize he wasn’t the white knight Governor he tries to portray himself to be. You hit Ryan for not spending a billion surplus on Pensions….neither did Edgar. He’s the annoying kid down the street that loves to blame everyone for things he really didn’t do anything to fix either.
Comment by Anonymous Monday, May 8, 17 @ 9:42 am
Not insisting any “surplus” be required to find the artificially low pension payments was just one of the many flaws of the Edgar ramp.
Notice it is not called the Madigan ramp?
That is one of the other flaws
Comment by Lucky Pierre Monday, May 8, 17 @ 9:53 am
===Notice it is not called the Madigan ramp?===
Because governors own. That’s the ball game.
You and Rauner need to come to grips with owning Rauner’s failures, as Pritzker and Co decide to run Skyhook in Reverse.
Thanks for pointing out governors own.
Comment by Oswego Willy Monday, May 8, 17 @ 9:56 am
Mr. Miller does snark better than almost anyone I know. It’s breathtakingly good. For the sake of his friends and family I hope he restricts that skill to his political analysis.
But I have a serious question in addition to the compliment. I have been told that the big run-up in stock prices in the second half of the 1990s pushed a wave of money into state pension systems and took the pressure off the plans as they were written. I have also been told that for years afterwards both Republicans and Demomcrats hunkered down and hoped it would happen again, since it would keep either side from having to confront the otherwise glaring shorfalls in long-term funding, and forestall a partisan death match if they ever had to try to square their policies with their portfolios. Can anyone tell me if this narrative of the reason for bi-partisan kick-the-can is accurate?
Thanks.
Comment by resistanceisfutile Monday, May 8, 17 @ 9:56 am
=He was the engineer behind a ticking time bomb. Sure, politicians could have defused the bomb by doing politically unsavory things, but who really thought that would happen?=
More like the conductor on a slow moving train. The ramp is certainly flawed but those flaws were exacerbated by an unwillingness to address the spending and revenue realities that followed. Ramp or no ramp those actions played a much larger role in bringing us to where we’re at today.
Comment by Pundent Monday, May 8, 17 @ 10:02 am
+++ Oswego Willy - Monday, May 8, 17 @ 9:56 am:
===Notice it is not called the Madigan ramp?===
Because governors own. That’s the ball game. +++
Not disagreeing with you, but Gov. Edgar didn’t mind calling it the Edgar Ramp back then. They really thought they solved a problem and took a lot of credit for this plan. If you owned it then…you own it now.
Comment by A guy Monday, May 8, 17 @ 10:16 am
===Not disagreeing with you, but Gov. Edgar didn’t mind calling it the Edgar Ramp back then. They really thought they solved a problem and took a lot of credit for this plan. If you owned it then…you own it now.===
Huh?
Governors own wether they name it or not, like Presidents (Executives in governing) ObamaCare Johnson’s War on Poverty, FDR’s New Deal… Ryan’s Illinois First.
Doesn’t matter if they name it, it evolves, whatever….
The executives own their terms. The good and the bad.
Comment by Oswego Willy Monday, May 8, 17 @ 10:26 am
== why not try gradually shifting the burden from the state to the employing bodies and employees. … ==
The courts have been clear; you can’t arbitrarily / unilaterally change the terms, ie, amount of payment by employee like you are suggesting.
It has been suggested the State could use the consideration model of altering contracts to make a change for Tier 1 employees. In theory, that is possible. I can think of a couple of previous examples where that was done: (a) the voluntary opt-in conversion to Social Security for SERS members about 1970 or so with a different employee contribution rate and (b) the voluntary opt-in (all systems, varying dates) to the 3% AAI in exchange for a different employee contribution rate.
But there are also two things you need to note about those deals. (1) It was an increased or new benefit. (2) It was voluntary; you could choose to not take the deal. In fact, some of the SERS employees did opt to stay on the “state only” (non-coordinated in pension speak) plan.
I’ll also note that the State has already shifted the pension funding 100% to the new employees starting in 2011 with Tier 2. So there isn’t anything to cost shift for Tier 2 members.
Most of what has been proposed as “pension reform” in the last year or two has not been voluntary; it has been a choice between diminishment A or diminishment B. Or the incentive to change has been meager compared to the benefit being surrendered.
As to the idea of cost shifting from the State to the employer, that could he done. Let’s take a look at that.
SERS, GARS and JRS are all employed by the State, so you won’t be cost shifting those three. SURS is, again various State entities but in their case you could try to get the money through tuition … but, most likely, you’ll price the schools out of the market. So that leaves only TRS as a really viable candidate for cost shifting.
The local school districts primary funding source is local property taxes. If you shift payment to the local districts without a cooresponding increase in State funding, the likely result is either even higher property taxes or reduced services / class offerings / etc. That does, however, somewhat reduce the money the State is spending on TRS pensions. But the State is still on the hook for the current TRS pension funding shortfall, about half of the total pension shortfall.
If you were to increase State funding to the schools at the same time as doing a cost shift, that doesn’t save the State any money. Yes, you could brag about the “increased” school funding, but that would be a bit of a white lie. Plus, we’ve been down this road before with CPS; how did that work out? I’d guess not so good since CPS has pension funding problems and is looking for a State bailout.
Bottom line, to me, is the State can’t shed the ~$120B pension debt and has to pay it. The State can’t really cost shift about 1/2 of the current pension costs. And if you shift the other 1/2, it just means the local property taxpayer ends up paying it.
Comment by RNUG Monday, May 8, 17 @ 10:31 am
Gooner
“The legislature wasn’t ready to make huge pension payments? The legislature never has. They didn’t under Edgar and they haven’t done so since or before.”
Not exactly. In the Spring 1985 Legislative Session the General Assembly passed budgets that funded Retirement at “100% of payout” (the pre-Edgar Ramp gold standard). To be fair, it was more the Senate (Phil Rock and Howie Carroll) than Madigan, but Madigan did pass it out of the House. Thompson vetoed it to 60% of payout. But, at least once, the General Assembly made the “huge increase” (67% increase).
Comment by Anyone Remember Monday, May 8, 17 @ 10:34 am
Resistance is Futile 9:56
It is no secret that above average stock returns helped the state pension system. Before the 9/11 stock shock and another wave of early retirement, SERS was funded at about 80%. If it were still funded at 80% we would not be having a statewide conversation about how to bail our the pension systems.
Comment by Six Degrees of Separation Monday, May 8, 17 @ 10:36 am
Speaking to the ramp itself, yes, it was flawed. But the flaws were known at the time; they were discounted then. It was expected that future revenue would grow enough to be able to make the increasing payments. Future events that had a major economic impact we’re not anticipated: things like the economic stagnation after 9/11, the major recession of 2007 - 2009 following the mortgage meltdown, and the subsequent extremely slow recovery (about 1/2 of normal).
Rich has pretty much covered the political mis-steps by the various parties. But the fault isn’t completely theirs; the various external economic events didn’t help things.
Comment by RNUG Monday, May 8, 17 @ 10:42 am
I think the only deliberate will here is the incessant chewing the fat as the years go by, watching the debt skyrocket every minute. I guess the real desire is to totally crash this system since no one seems willing to make any effort to pay a penny. Quinn was making payments, was he not?
As each month goes on and the yawing goes on and on, year after year, it becomes obvious that no one cares or ever has, it seems.
I wonder why anyone even talks about it. In my world actions produce results. Talking is fruitless.
Comment by Anonymous Monday, May 8, 17 @ 10:52 am
If the ramp will now be forever known as the “Edgar ramp” than the tax consequences of “starve the beast” must belong to Rauner. You can’t criticize one without the accountability associated with the other.
Comment by Pundent Monday, May 8, 17 @ 10:57 am
== I wonder why anyone even talks about it. In my world actions produce results. Talking is fruitless. ==
The solution is known: pay the pension debt.
Some of the politicians are still in denial about that fact; they are still looking for a way to nullify that debt. Or they are looking to deflect the blame for the eventual tax hike on someone else.
That is where the value of talk comes in. It is setting up the public for the inevitable. Eventually, the debate will come around to how to pay it. Once the GA has a scapegoat they came blame, like the IL SC again rejecting some half-baked “pension reform” plan, there will be a resolution. If the GA is honest about it, they will dedicate x% of any revenue increase to pay off the pension fund shortfall.
Comment by RNUG Monday, May 8, 17 @ 11:05 am
== the tax consequences of “starve the beast” must belong to Rauner. ==
Maybe, maybe not. Arguably, Blago did major damage to the pension funding with his changes and borrowing, but it is still known as the Edgar ramp.
Comment by RNUG Monday, May 8, 17 @ 11:09 am
==Notice it is not called the Madigan ramp?
That is one of the other flaws==
You want to know why? Because it was Edgar’s brainchild.
Comment by Demoralized Monday, May 8, 17 @ 11:10 am
=Or they are looking to deflect the blame for the eventual tax hike on someone else.=
Who’s to “blame” is a bit of a three-headed monster at this point. There are those that have historical responsibility for piling up the debt, those that will be responsible for the resulting tax increase, and those that engage in plausible deniability and make matters worse by pretending there’s a way to skip out on the debt in a way that’s constitutionally sound. Personally I hold the latter group responsible. Each day that they engage in willful denial only makes matters worse.
Comment by Pundent Monday, May 8, 17 @ 11:13 am
=Blago did major damage to the pension funding with his changes and borrowing, but it is still known as the Edgar ramp.=
Agreed but it didn’t define his tenure as governor the way that Rauner’s actions have. In Blago’s case the impeachment, conviction and 14 year sentence tends to mask a lot of things.
Quinn, for all of his flaws, did at least attempt to address the funding issues. Unfortunately for Quinn he had a hard time overcoming all of his flaws.
Comment by Pundent Monday, May 8, 17 @ 11:27 am
If only the Edgar Ramp originally came out with an corresponding state income tax rate ramp required for those increased payments down the road…
Comment by City Zen Monday, May 8, 17 @ 12:29 pm
First,
Great work by - RNUG -, just restaurant quality, adding to already outstanding work by Rich here.
Rich, when I read this, just what needs to be said, right now, for all of us to take pause.
Like the McKinney piece, yours makes quite clear, there are so many persons that need ownership at different levels that their place in state government frame.
Edgar tried to do what he did, and the failures of Edgar, the legislature, other governors, do not negate Edgar’s honest attempt, but in reality highlight the failures where Edgar’s Ramp had pitfalls, and that others, Edgar included, took those pitfalls and made things worse, which was never the intent.
Great read.
Comment by Oswego Willy Monday, May 8, 17 @ 12:34 pm
I too remember Edgar taking credit for ’solving’ the pension problem when the ‘ramp’ was passed. Dawn Clark Netsch tried to warn everyone that it wasn’t the perfect solution. Another thing that is overlooked are the governmental reporting standards that now mandate pension reporting based on actuarially required contributions. Edgars ‘ramp’ didn’t come close to those funding levels, especially in the early years.
Comment by justacitizen Monday, May 8, 17 @ 1:04 pm
===Edgars ‘ramp’ didn’t come close to those funding levels, especially in the early years. ===
What part of “ramp” do you not understand?
It’s not an elevator.
Comment by Rich Miller Monday, May 8, 17 @ 1:05 pm
If both parties agree to a plan and then sign off on a plan as a method to accomplish a goal. It is difficult to lay blame at the feet of the ones who developed the plan. The blame rests with those who failed to follow the agreed to plan. How hard is that to understand?
Comment by NobodysAccountable Monday, May 8, 17 @ 1:54 pm
I will always feel the ISC descion in the IFT funding lawsuit in the 1970’s, where the ISC determined state pensions aren’t legally required to be funded but must be paid when earned, was a green light to future Governor’s/legislators to not properly fund/borrow from/not refund previously borrowed monies.
Comment by Slipping Jimmy Monday, May 8, 17 @ 2:18 pm
- Slipping Jimmy -
You have a point but … I’m going to split hairs a bit on your comment.
The State never directly borrowed from the pension funds. Once the money got in their, from either the employees or the State, it stayed there until used to pay the actual pensions or the operating costs of the pension funds. The “borrowing” consisted of the State making less than the “full” payment (as defined that year either legislatively or actuarially) into the five funds.
Comment by RNUG Monday, May 8, 17 @ 3:05 pm
Thanks RNUG, I stand corrected. Anyway, I first learned of the IFT decision here from you.
Comment by Slippin' Jimmy Monday, May 8, 17 @ 3:39 pm
==the voluntary opt-in (all systems, varying dates) to the 3% AAI in exchange for a different employee contribution rate.==
There is no record of TRS exchanging 3% AAI (simple or compounded interest) for an increase in the employee contribution rate. The only “exchange” for 0.5% employee contribution for 1.5% simple AAI. All other increases in AAI were giveaways.
Comment by City Zen Monday, May 8, 17 @ 4:32 pm
Great job, RNUG. Your table is waiting. Kudos also to our host for writing an accurate history of a time not that far back but for which memories have been slipping since the day the ramp proposal was unveiled.
A couple notes to commenters from someone who crunched alternate scenarios for the ramp on behalf of the principally involved entities:
The late Comptroller Netsch was more than an interested observer of this process. She may have been the first person to suggest a phased approach to increasing pension funding. She didn’t use the “r-word” first and as OW says, “Gov’s Own.”
The almost amazing rise in funding from FY 96 to FY 00 was not accompanied by a long-term “let ‘er ride” attitude at 2 of the 3 major funds. SURS, which did actually reach 100% funding (in theory, but I won’t mess up a good story) during FY 2000 did little thereafter but serve cake and punch at the Capitol. (They shoulda served the cake in the shape of a PowerPoint deck for those who remember the times.)
When the triple-headed monster of the tech wreck, 9/11, and Enron/WorldCom hit in less than 2 years, SURS’ index fund-heavy allocation dropped the funded ratio around 30 points, or a $4-5 billion loss. ISBI and TRS made immediate manager, personnel, and allocation changes and lost substantially less funding points and money.
Comment by Arthur Andersen Monday, May 8, 17 @ 5:54 pm
Teachers pensions should be the responsibility of the districts that employ the teachers. And the state should allow municipal bankruptcy
Comment by Anonymous Monday, May 8, 17 @ 5:57 pm
== There is no record of TRS exchanging 3% AAI (simple or compounded interest) for an increase in the employee contribution rate. ==
As memory serves me, the teachers were the first to get a fixed AAI and it was through contract negotiations. Don’t remember the specifics. The State later codified that change as applying to all of TRS. Then the other branches piled on, asking for the same deal. Memory isn’t as sharp as it was 35 or so years ago, but that is how I remember it.
Comment by RNUG Monday, May 8, 17 @ 7:19 pm
== And the state should allow municipal bankruptcy ==
I would argue that NOT allowing municipal bankruptcy (without explicit legislative approval) keeps local government from overspending and encouraged fiscal restraint … because you know you have to live with the debt you create.
If you think the current mess is bad, imagine a mess where there is no limit on borrowing since you know you can just walk away. And imagine the interest rates that would be charged on general obligation bonds issued by a local government.
It used to be a conservative principal that you paid your debts. That fiscal responsibility actually existed across party lines at one time.
Now it seems like nobody wants to pay for nothin’.
Comment by RNUG Monday, May 8, 17 @ 7:29 pm
==The State later codified that change as applying to all of TRS.==
Interesting. That codification though was for 0.5% employee contribution in exchange for 1.5% simple AAI. That’s no where near what it morphed into today. I’m guessing 3% compounded is worth far more than 0.5%.
Comment by City Zen Monday, May 8, 17 @ 7:43 pm
== Quinn was making payments, was he not? ==
Yes, Quinn did. As did Ryan. And, actually, Rauner is also although a couple of the monthly payments had to be delayed and caught up later in the fiscal year. The only difference is Quinn had extra revenue to make the payments.
Comment by RNUG Monday, May 8, 17 @ 10:24 pm
Thank you RNUG for your clear contributions to this blog. You make things easier to understand. Wish the GA and executive branches in IL govt. would read what you say and act accordingly.
Comment by Big Joe Tuesday, May 9, 17 @ 9:02 am