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Illinois has the highest pension burden among all 50 states, said Fitch Ratings’ 2017 state pension report released Tuesday.
According to the report, Illinois’ unfunded pension liabilities amounted to 22.8% of residents’ personal income at the end of fiscal year 2016, compared to a median 3.1% for all states and 1% for Florida, the least burdened state.
The median 3.1% for all states is higher than the approximately 2.9% reported in fiscal year 2015, which Fitch attributed in the report to weak asset performance, reduced discount rates, inadequate employer pension contributions, and “ongoing unfavorable demographic and actuarial trends.”
Douglas Offerman, senior director at Fitch Ratings, noted that a number of states with the highest pension burdens — Illinois, Kentucky, New Jersey and Massachusetts — help cover the cost of local teachers’ pensions. Teachers make up one of the largest populations of public-sectors workers, Mr. Offerman said.
Under Fitch’s calculations, Illinois’ net pension liabilities totaled $151.5 billion at the end of fiscal year 2016; New Jersey, $91.8 billion; Massachusetts, $48.9 billion; and Kentucky, $32.8 billion. For this year’s report, Fitch used a 6% discount rate to calculate net pension liabilities, down from 7% last year.
Oy.
…Adding… Click here to see the payment ramp through 2045.
*** UPDATE *** I didn’t write this novella, I’m just posting it, so don’t blame me…
Yesterday, the Wall Street Journal published an article, Illinois Drives People Away, that said, “Fitch Ratings reported this week that Illinois’s unfunded pension liabilities equaled 22.8% of residents’ personal income last year, compared to a median of 3.1% across all states and 1% in Florida.” State Representative Jeanne Ives, a Republican Candidate for Governor, issued the following statement:
“In 2014, Governor Rauner ran on a reform agenda that would grow Illinois’ economy. The report in Wall Street Journal, one of the most reputable and well-respected newspapers in the nation, dramatically highlights Benedict Rauner’s betrayals on his fiscal promises.
“During the 2014 C-Span Gubernatorial Debate against Pat Quinn, Governor Rauner, in his closing statement said, ‘We need to grow our economy, which is the single most important thing we can do. And we are failing miserably under Pat Quinn to grow our economy and create jobs… I’ll drive that. I’ve been a business builder my whole career.’
“But, the WSJ reported, ‘The Prairie State lost a record $4.75 billion in adjusted gross income to other states in the 2015 tax year, according to recently IRS data released. That’s up from $3.4 billion in the prior year. Many of the migrants were retirees who often flock to balmier climes. But millennials accounted for more than a third of the net outflow in tax returns.’
‘While Florida with zero income tax was the top destination for Illinois expatriates, the Illinois Policy Institute notes that Illinois lost income and people on net to all of its neighbors—Wisconsin (6,000 people based on claimed exemptions), Indiana (8,200), Iowa (1,900), Missouri (2,000) and Kentucky (1,100).’
+++
“In 2014, Governor Rauner promised roll back the income tax rate to 3 percent over four years.
“Yet, the WSJ reports, ‘Illinois’ corporate tax rate is 9.5 percent, and pass-through business owners pay 6.45 percent.’ Additionally, Illinois’ personal income tax rate is at 4.95 percent, 32 percent higher than when Rauner took office.
+++
“In a 2014 campaign ad, Bruce Rauner blasted Pat Quinn for Illinois’ high property tax rates, which he claimed were the second highest in the nation. The ad said: ‘The second highest property taxes in America, and Pat Quinn wants to make his 67 percent tax increase permanent. Pat Quinn: He just doesn’t get it.’
“The ad debuted about a month after Rauner proposed a freeze on local property taxes with no increase allowed without voter approval.
“Today, according to the Wall Street Journal, ‘Property taxes in Cook County and Chicago’s “collar” counties are the highest in the country outside of California and the Northeast. The average homeowner who moves from Lake County, Illinois, across the border to Kenosha County, Wisconsin would receive an annual $3,200 annual property tax cut.’
+++
“In 2014, Governor Rauner repeatedly said he would replace traditional pensions for public workers with 401(k)-style retirement plans common in the private sector. This was a plan advocated by the Illinois Policy Institute that would have cut the state’s unfunded pension liability in half in 2014 and eliminated the state’s unfunded liability by 2045.
“According to the WSJ report, ‘Taxes may increase as Democrats scrounge for cash to pay for pensions. Fitch Ratings reported this week that Illinois’s unfunded pension liabilities equaled 22.8% of residents’ personal income last year, compared to a median of 3.1% across all states and 1% in Florida.’+++
“In their 2014 endorsement of Governor Rauner, the Chicago Tribune Editorial Board said, ‘From the get-go, Rauner has campaigned on the urgent need to shatter the self-serving political power structure in state government and promote a dramatically different agenda to get Illinois growing again. He knows that the answer isn’t more tax increases. Unlike the ruling class in Springfield, he doesn’t see employers as enemies useful only to be milked. He wants government to be of a size taxpayers can afford… We believe a Gov. Rauner would explore changes made by governors of other states with balanced budgets, solid retirement systems and lower unemployment rates. He’s obviously competitive. He would strive to do what Quinn cannot: Make Illinois competitive again.’
“Yesterday, the WSJ reported, ‘Illinois’s economy has been stagnant, growing a meager 0.9% on an inflation-adjusted annual basis since 2012—the slowest in the Great Lakes and half as fast as the U.S. overall. This year nearly 100,000 individuals have left the Illinois labor force. The University of Illinois Flash Economic Index, which measures corporate earnings and investment as well as personal income, hit a five-year low in October. (See nearby for the recent labor force trend in Illinois and Wisconsin.)’
posted by Rich Miller
Wednesday, Dec 13, 17 @ 12:39 pm
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remember folks, pensions are a promise.
a very very very expensive promise.
Comment by Iggy Wednesday, Dec 13, 17 @ 12:41 pm
Then convert that promise to a 401k. A promise that’s more reasonable
Comment by Anonymous Wednesday, Dec 13, 17 @ 12:44 pm
Insurmountable.
Comment by Blue dog dem Wednesday, Dec 13, 17 @ 12:45 pm
@Iggy - imagine purposefully not paying your mortgage for a decade, and then complaining that you can’t pay off the $75,000 (at least) bill you have coming due. That’s what your whining is like. It’s a big number but mostly because it hasn’t been properly funded for decades.Remember the BGA article a few months back that said that large pensions was a drop in the bucket of the pension mess?
Comment by Perrid Wednesday, Dec 13, 17 @ 12:48 pm
How on this good green earth can people see that comparison and not realize that blue state politics has doomed us?
Comment by cdog Wednesday, Dec 13, 17 @ 12:49 pm
Speaker Madigan is correct about one thing- the pensions are unsustainable but he will not call Senator Cullerton’s pension bill for a vote. Does JB agree? Who knows, he is running to oppose Donald Trump and has offered no specifics.
See a correlation between this and the wealth and jobs that are leaving Illinois while politicians twiddle their thumbs?
“The Prairie State lost a record $4.75 billion in adjusted gross income to other states in the 2015 tax year, according to recently IRS data released. That’s up from $3.4 billion in the prior year. Many of the migrants were retirees who often flock to balmier climes. But millennials accounted for more than a third of the net outflow in tax returns.”
“llinois lost income and people on net to all of its neighbors—Wisconsin (6,000 people based on claimed exemptions), Indiana (8,200), Iowa (1,900), Missouri (2,000) and Kentucky (1,100). What’s the matter with Illinois?”
“Property taxes in Cook County and Chicago’s “collar” counties are the highest in the country outside of California and the Northeast. The average homeowner who moves from Lake County, Illinois, across the border to Kenosha County, Wisconsin would receive an annual $3,200 annual property tax cut. Taxes may increase as Democrats scrounge for cash to pay for pensions. Fitch Ratings reported this week that Illinois’s unfunded pension liabilities equalled 22.8% of residents’ personal income last year, compared to a median of 3.1% across all states and 1% in Florida.”
“This helps explain why Illinois’s economy has been stagnant, growing a meager 0.9% on an inflation-adjusted annual basis since 2012—the slowest in the Great Lakes and half as fast as the U.S. overall. This year nearly 100,000 individuals have left the Illinois labor force. The University of Illinois Flash Economic Index, which measures corporate earnings and investment as well as personal income, hit a five-year low in October. (See nearby for the recent labor force trend in Illinois and Wisconsin.)
“Illinois taxpayers have seen the warnings on the wall, which became even more stark after the Democratic legislature this summer overrode GOP Gov. Bruce Rauner’s tax hike veto. Democrats in Springfield and Chicago think they can defeat Mr. Rauner next year and raise taxes again, but they may succeed mainly in driving more people out of state.”
https://www.wsj.com/articles/illinois-drives-people-away-1513125224
Comment by Lucky Pierre Bot Wednesday, Dec 13, 17 @ 12:51 pm
CDog-
New Jersey and Mass have had several Republican Governors. Just as Illinois did for 34 of the last 46 years. And Kentucky? Give me a break.
Nice try though. Facts matter.
Our issues are almost entirely because of an especially significant unwillingness to make tough decisions, and what the rating agencies call “capacity to govern”.
Comment by LilLebowskiUrbanAchiever Wednesday, Dec 13, 17 @ 12:53 pm
So 22.8% of residents personal income for FY 2016.
It would be higher now as we have lost 100,000 from the Illinois workforce this year, per the wsj editorial board yesterday who were lamenting our pathetic outmigration numbers.
Comment by cdog Wednesday, Dec 13, 17 @ 12:54 pm
===noted that a number of states with the highest pension burdens — Illinois, Kentucky, New Jersey and Massachusetts — help cover the cost of local teachers’ pensions. ====
It would probably be hard to put together put it would be interesting to see how some of these other states would fair if their local unfunded pensions were able to be accumulated. Sometimes these reports are apples to oranges.
Comment by Been There Wednesday, Dec 13, 17 @ 12:55 pm
I have a question for the pension experts out there (RNUG). I am not suggesting this is a wise path, just curious on the possibility of it.
I know under the federal bankruptcy laws that states cannot file bankruptcy. Likewise, I know currently governmental units in Illinois cannot file bankruptcy, per state statute. What is the possibility in the future that the state pushes all of the liabilities related to TRS back to the schools, and changes state statute to allow school districts to file bankruptcy? Is this a legal possibility (while ignoring the political ramifications of this idea)?
Comment by Smalls Wednesday, Dec 13, 17 @ 12:58 pm
Can somebody breakdown the employee contribution per specific public sector worker. Firefighters, police, state worker, teacher. Just like to get an idea what percentage they contribute a year.
Comment by Almost the Weekend Wednesday, Dec 13, 17 @ 12:59 pm
Ok Cdog. When are you moving to a more suitable place?
Comment by MAYWOODIAN Wednesday, Dec 13, 17 @ 1:00 pm
=Ok Cdog. When are you moving to a more suitable place?===
I hear Kentucky has low pension debt, which as we all know is the #1 factor folks consider when choosing where to live.
Comment by PJ Wednesday, Dec 13, 17 @ 1:01 pm
==Then convert that promise to a 401k.==
You can put new employees on a 401K. But, you can’t convert existing employees.
Comment by Demoralized Wednesday, Dec 13, 17 @ 1:05 pm
Not saying it is right or wrong, but changing the discount rate from 7% to 6% has a pretty big effect on the numbers.
Comment by RNUG Wednesday, Dec 13, 17 @ 1:06 pm
Governors and the legislature are decades behind in funding the pensions. Let this be a lesson to the power of compounding interest.
Comment by Ducky LaMoore Wednesday, Dec 13, 17 @ 1:06 pm
I’ve moved beyond blaming to just wanting politicians to a) stop kicking the can and b) deal with the reality of the pension crisis.
That means all branches (including the judiciary) need to treat this problem with a sense of urgency.
Comment by Chicagonk Wednesday, Dec 13, 17 @ 1:06 pm
Madigan’s candidate..I mean JB will fix this. I love the fiscal reforms he is proposing…
Comment by Anonymous Wednesday, Dec 13, 17 @ 1:07 pm
Is there a study on how generous each state’s pension benefit is? For example, if an Illinois teacher gets about the same as a Minnesota teacher after 30 years of service, than it’s not the benefits that are out of whack, but Illinois’ failure to pay its bills in a timely manner to keep its debt under control. And that failure came with Governors and Legislatures from both parties.
Comment by chi Wednesday, Dec 13, 17 @ 1:08 pm
== Then convert that promise to a 401k. ==
You can’t forcibly convert existing workers … and that is where the debt is, primarily Tier 1.
Tier 2 was put in place in 2011 and it does mostly fix the problem going forward with new hires.
Comment by RNUG Wednesday, Dec 13, 17 @ 1:08 pm
“Pension Burden”? I guess, from the context, this “burden” is the sum of the normal cost of the pension benefits earned each year, plus the debt from past service that was not fully funded. Illinois “burden” is due overwhelmingly to underfunding. Our normal cost is about average. We have a high burden now because we had a low burden previously, when we funded State government by not making actuarial sound pension contributions. What we have a a debt problem, the “pension burden” is a function of our history of short-funding the pensions. Maybe the Fitch report makes that clear but the section quoted does not!
Comment by Anonymous Wednesday, Dec 13, 17 @ 1:09 pm
@RNUG
Ever get tired of explaining that?
Comment by Ducky LaMoore Wednesday, Dec 13, 17 @ 1:10 pm
==You can put new employees on a 401K. But, you can’t convert existing employees.==
Waiting for that to happen any day now. Michigan, with a similar population and demographics (and income tax situation) did this 20 years ago and their debt is much more manageable.
Comment by Anonymous Wednesday, Dec 13, 17 @ 1:12 pm
This made my heart sink– bad for the State of Illinois. We need it…BADLY. This isn’t popular, but I think we should be taxing pensions (over a certain amount of course). There people double and triple dipping into pension funds without paying any state taxes. That’s a problem for the long term. Based on the system as is, we will be in debt for an infinite amount of time. Serious question- why are people so against pension reform again?
Comment by ILDemVoter Wednesday, Dec 13, 17 @ 1:12 pm
Weekend,
Here is info from the state’s annual financial report.
For State Employees/Teachers:
GARS 11.50% (General Assembly)
JRS 11.00% (Judges)
SERS 4.00% - 12.50% (State Employees)
TRS 9.40% (Teachers)
SURS 8.00% - 9.50% (State Universities)
And for municipal employees, it is:
Police - 9.91%
Fire - 9.455%
General Employees (IMRF) - 4.5%
There may be some slight variations from these amounts for various reasons, but these are the base amounts.
Comment by Smalls Wednesday, Dec 13, 17 @ 1:14 pm
==How on this good green earth can people see that comparison and not realize that blue state politics has doomed us?==
How on this good green earth could some who can apparently read and write in whole sentences not realize that the vast majority of pension payment skips came under republican governors of this blue state? While also having a republican state senate in this blue state?
Does the collection of letters that form words like Thompson, Edgar, Ryan and Rauner cause you confusion? Are the words “Pate Phillip” too hard for you to remember? I mean, “Pate” is a pretty memorable name. Were you maybe living in Indiana all the years this was taking place, and only recently got here in the last three years?
Comment by Lester Holt’s Mustache Wednesday, Dec 13, 17 @ 1:14 pm
===Based on the system as is, we will be in debt for an infinite amount of time===
Nope.
Here’s the payment schedule: https://capitolfax.com/wp-content/PagesfromPensionmortageschedule.jpg
Comment by Rich Miller Wednesday, Dec 13, 17 @ 1:15 pm
I’m amazed at the disparity. 22.8% is huge and then compared to the median of 3.1%! Am I correct in assuming that 22.8% is still growing?
Comment by Maximus Wednesday, Dec 13, 17 @ 1:17 pm
“Can somebody breakdown the employee contribution per specific public sector worker. Firefighters, police, state worker, teacher. Just like to get an idea what percentage they contribute a year”
When I left state employment at the end of 2008 my contribution was at, I believe, 12.5%. I am in the alternative formula (police).
Unlike the state I never missed a contribution to the retirement system. Also, I’m not eligible for social security.
Comment by Leave a Light on George Wednesday, Dec 13, 17 @ 1:17 pm
“This isn’t popular, but I think we should be taxing pensions (over a certain amount of course).”
As has been explained before on this blog, this would likely be unconstitutional unless all retirement income was treated equally.
In my opinion, this makes sense if done with lower incomes being exempt and only taxing above a certain rate, say the social security max. I for one would gladly share this burden if the tax was out towards paying down Illinois’ debt. Unfortunately, I could see the powers that be redirecting this increased revenue to things other than debt reduction.
Comment by Ole' Nelson Wednesday, Dec 13, 17 @ 1:20 pm
What is the discount rate
Comment by NIck Wednesday, Dec 13, 17 @ 1:22 pm
That’s for posting that schedule Rich.
It’s not apples to apples, but to get an understanding, go home and pull out your mortgage schedule and look at the total outstanding debt each year and how that number grows.
The trick is to keep making the payments, which is basically what the IL Supreme Court keeps telling us.
Comment by Michelle Flaherty Wednesday, Dec 13, 17 @ 1:22 pm
Smalls thank you.
Comment by Almost the Weekend Wednesday, Dec 13, 17 @ 1:23 pm
Rich,
Would you be willing to place a friendly wager on that payment schedule and being 90% funded by 2045?
Comment by Smalls Wednesday, Dec 13, 17 @ 1:23 pm
There was a recent California appellate court ruling allowing the state to roll back several pension benefits which is astounding given CA has the same impairment issue. The Court ruled that as long as the legislature didn’t entirely eliminate the Stats pension program it was free to modify benefits to reflect fiscal realities. Granted it’s nof the CA Supreme Court but golly Illinois courts have do hamstrung the States ability to confront the pension problem that it is forcing Dpringfirld to gut all other programs. Pritzger may think there is an appetite to significantly raise taxes but he will likely find out he is stuck with the 5 percent flat tax on personal income
Comment by Sue Wednesday, Dec 13, 17 @ 1:24 pm
== I think we should be taxing pensions (over a certain amount of course).==
Interesting how “over a certain amount” never applies to regular income. Is there some magical difference between a $60,000 salary and a $60,000 pension, other than the salary guy has more deductions coming out of his net pay?
Comment by City Zen Wednesday, Dec 13, 17 @ 1:24 pm
What’s missing from the political debate is the need to address our long term fiscal challenges. For years too many in this state, both Republicans and Democrats, have been content with either minor improvements or slow destruction. Rauner didn’t create the state fiscal mess, but he certainly make it worse. I suspect that any candidate who advocated the kind of revenue generation and spending restraint we really need, would make Profts run for Governor appear wildly successful by comparison.
Comment by AC Wednesday, Dec 13, 17 @ 1:24 pm
They should seize the assets of every past and present state legislator that helped create this mess (and further enriched and empowered themselves) and then recalculate.
Comment by Tequila Mockingbird Wednesday, Dec 13, 17 @ 1:24 pm
== What is the possibility in the future that the state pushes all of the liabilities related to TRS back to the schools, and changes state statute to allow school districts to file bankruptcy? Is this a legal possibility … ==
Maybe. It takes it into the realm of the Federal courts. Those courts would have to decide that it did not retroactively violate the 1970 State Constitution Pension Clause.
If it stayed in the State court system, I don’t think it would work. In the Federal system, it would raise a number of different issues. Right now I couldn’t guess where the Fed courts would go with it.
However, the examples we’ve seen to date of state municipalities and US territories in bankruptcy proceedings have shown the retirees doing pretty well and the other creditors doing pretty poorly. Remember, if you take a school district into bankruptcy, everything is up for grabs … things like school funding reserves, buildings, land, equipment. You aren’t just dealing with the pension debt; this would not be a private corporation shuffling assets into ‘hidden’ shells before gutting what was left in a venture capitalist move.
In other words, be careful what you wish for; you may not like the results.
Comment by RNUG Wednesday, Dec 13, 17 @ 1:25 pm
So some states don’t include teachers so should we just look at the surs debt to compare Apple’s to Apple
Comment by Not a Billionaire Wednesday, Dec 13, 17 @ 1:29 pm
The only solution is to fire every single Tier One Worker and offer them their jobs back the next day with a pension plan the state can afford.
It is insane for the Illinois Constitution to protect future pay and benefits for their employees above every single government program.
We are in a hole and still digging and 1/4 of our state’s revenues just pay the interest on the pension debt. The problem will not go away if we pretend it does not exist like we have been doing for decades .
What percentage of Illinois residents are aware of this problem?
Comment by Anonymous Wednesday, Dec 13, 17 @ 1:30 pm
== Can somebody breakdown the employee contribution per specific public sector worker. Firefighters, police, state worker, teacher ==
It’s all documented in the Employee Handbooks and the annual reports. You can find them on the web sites of the various retirement systems.
If you just want the percentage, look in the Handbooks. Remember, percentage varies by both system and enrollment in Social Security. Hint: JRS, GARS and SERS can all be found on the SRS site.
If you want total dollars per year by system, then you need to dig into the Statistical section of the Annual Reports for each system.
Comment by RNUG Wednesday, Dec 13, 17 @ 1:30 pm
- Ducky LaMoore -
LOL
Comment by RNUG Wednesday, Dec 13, 17 @ 1:32 pm
LOL
Once you’re in a pension system always in the same pension system so if you are fired one day and rehired the next. Still on the original pension
Comment by Nick Wednesday, Dec 13, 17 @ 1:32 pm
==The only solution is to fire every single Tier One Worker and offer them their jobs back the next day with a pension plan the state can afford.==
Doesn’t work that way. If you were hired under the Tier 1 rules, leave the state, and come back later you are still under the Tier 1 rules.
Comment by Demoralized Wednesday, Dec 13, 17 @ 1:34 pm
===The only solution is to fire every single Tier One Worker and offer them their jobs back the next day with a pension plan the state can afford.===
Illegal.
===It is insane for the Illinois Constitution to protect future pay and benefits for their employees above every single government program.===
No. The pesky constitution is written the way it is in part because hurting workers seems to be the first choice for some and in 1969-1970 they had the forsight to know protecting pensions was needed, warrented, and will be tested.
===We are in a hole and still digging and 1/4 of our state’s revenues just pay the interest on the pension debt. The problem will not go away if we pretend it does not exist like we have been doing for decades .===
Read McKinney, then Rich Miller’s “recent” piece on it too. Staples to fully grasp what’s gone on for “decades”
I dunno how many people “know”.
Comment by Oswego Willy Wednesday, Dec 13, 17 @ 1:35 pm
We should absolutely tax retirement income over a certain income thresshold ($50k?). It’s a travesty that we don’t. This specific tax should be dedicated solely towards paying down the states pension liability, and then sunset as we become fully funded.
I fully anticipate there having to be a retirement income tax by the time I’m ready to retire, so let the jerks who put us in this mess chip in some too. The sooner, the better.
Comment by Phenomynous Wednesday, Dec 13, 17 @ 1:36 pm
== which is astounding given CA has the same impairment issue. ==
Legally speaking, CA’s protection is quite a bit weaker. Only NY and AZ have protection the level of IL.
Comment by RNUG Wednesday, Dec 13, 17 @ 1:36 pm
@ “Ole’ Nelson” - Not really, set the rate for all retirement income at one level, and then give an exemption/tax credit for the first, say, $60,000 of it. So effectively everyone is charged the same rate (which is what the constitution requires), but people with less than 60,000 in retirement income pay nothing on it.
Comment by Perrid Wednesday, Dec 13, 17 @ 1:39 pm
== The only solution is to fire every single Tier One Worker and offer them their jobs back the next day with a pension plan the state can afford. ==
Would still be Tier 1 if rehired.
Comment by RNUG Wednesday, Dec 13, 17 @ 1:41 pm
Anonymous at 1:30
Can’t fire them without cause. Desiring to avoid pensions isn’t just cause. Labor board would have a field day with that. This financial situation has been discussed for decades. Anyone who truly cares about being informed is. Everyone else just hates state employees.
City Zen-
Retirees are on a fixed income, often have no means of increasing that income, and pay more for medical and housing expenses. Check out the cost of assisted living. As a future retiree, I’m ok with paying taxes on my retirement income.
Did any of you ever call your politicians and chew them out for. not making the pension payments? Did you call and complain about a new building or community asset being paid for with state funds rather than private donations? No, you just stole the state employees pension money to keep taxes low.
Comment by Thoughts Matter Wednesday, Dec 13, 17 @ 1:41 pm
Taxing retirement
Who do you think that will hit
Not the majority of state employees Most them won’t have pensions over 50k. They still won’t be paying towards the debt
Comment by Nick Wednesday, Dec 13, 17 @ 1:43 pm
Just once in my life, I want to be as happy as some folks seem at the prospect of firing all the tier 1 people, or stripping them of their retirement.
Comment by AC Wednesday, Dec 13, 17 @ 1:45 pm
There is such a disconnect in the way the IL Const is respected regarding pension impairment (Art.XIII,Sec5) as compared to the funding of system of public education being the primary responsibility of the State (Art.X,Sec1).
Both are clearly written, yet the latter is off the chain.
Comment by cdog Wednesday, Dec 13, 17 @ 1:46 pm
Every comment that RNUG has made in this thread is right on point.
Comment by Retired SURS Employee Wednesday, Dec 13, 17 @ 1:50 pm
===- NIck - Wednesday, Dec 13, 17 @ 1:22 pm:
What is the discount rate===
In this case, it is the assumed rate of return on the investments. Illinois was slow to lower its rates in response to the declining trend of long-term growth.
If you assume the fund will earn 7% for the next 20 years and it only earns 6% over that term, you could find yourself nearly $60-70million short. BUT, if every year you keep assuming a long-term average of 7%, your fund won’t look as underfunded as it actually is, because your actuarial report will be based on the fund having a 7% discount rate. The State could change the discount rate to 9% and probably make the unfunded pension liability disappear on paper, but it will not have actually gone anywhere, the pension checks will still have to be written some day, whether you’ve earned 20 years of compounding interest at 4% or 10%.
Comment by Shemp Wednesday, Dec 13, 17 @ 1:51 pm
@Perrid
Okay by me. Your way would seem to have the same result. I just don’t want to see an increased tax burden on people struggling to live on social security level retirement incomes.
Comment by Ole' Nelson Wednesday, Dec 13, 17 @ 1:59 pm
The legal and fiscal term for Illinois is “What would you be if you were attached to another object by an inclined plane, wrapped helically around an axis” (kudos to Big Bang Theory) Thanks to the pols (all parties) who didn’t pay the pension bill for years we are in this mess. The only just punishment would be to not re-elect any of them still in office. But we know that won’t happen!
Comment by NeverPoliticallyCorrect Wednesday, Dec 13, 17 @ 2:07 pm
So at some point, we might need to tax and regulate the heavily taxpayer subsidized Liquor and Casino industries?
Comment by Anonymous Wednesday, Dec 13, 17 @ 2:07 pm
Rich,
I think my one long reply to -Smalls- got hung up. It’s not showing up on the desktop or phone. Don’t remember using any banned words …
Comment by RNUG Wednesday, Dec 13, 17 @ 2:11 pm
Tax pension income to help cover this gap!
Comment by Dan Johnson Wednesday, Dec 13, 17 @ 2:17 pm
==Can somebody breakdown the employee contribution per specific public sector worker.==
More importantly, those percentages today are based on assumptions made in the 1950’s and prior. For example, TRS employee contribution rate was 6.0% back in 1950. It wasn’t raised due to increased pension costs, rather because benefits were enhanced: survivor benefit added, reduced final salary years calculation from 5 to 4 years, service years calculation increased from 1.67 to 2.2. Similarly, AAI (aka COLA) has always been 0.5% employee contribution but has been doubled and formula changed from simple to compounded interest.
In 1950, a retiree at the age of 60 typically lived into their mid-70s. Today, that person lives 6 years longer. No one has ever re calibrated the employee contribution rates to take age expectancy changes into account, or any other changes since then (health care, private sector comps, etc).
A Tier 1 employee today has a pension based on assumptions made 70 years ago. Most states didn’t wait 60 years to create a Tier 2. Imagine if Tier 2 (or something similar) was created in 1970 when the state wrote the pension guarantee into the constitution. Much different picture today.
Comment by City Zen Wednesday, Dec 13, 17 @ 2:21 pm
The California case, which involved an anti pension spiking law, was brought under the state’s contract clause (the state shall pass no law impairing a contract). California does not have a provision in their constitution similar to Article XIII sec 5 of the IL constitution.
Comment by The one Wednesday, Dec 13, 17 @ 2:21 pm
The sky is not falling; while the unfunded liability problem needs to be solved, keep in mind that the TOTAL pension liability for IL is about 18% of Gross State Product. I don’t know what the numbers are for NJ and MA but my guess is the debt to GSP ratios are similar. KY on the other hand is probably in real trouble.
Comment by Angry Republican Wednesday, Dec 13, 17 @ 2:31 pm
===Nope.
Here’s the payment schedule:====
As bad as some of the numbers in this table look I think it is again apples to oranges. The salaries listed in the table I believe include the teachers salaries which are paid by the districts or universities but their pensions cost is picked up by the state. There should be a breakout to what is the state’s cost for salaries.
Comment by Been There Wednesday, Dec 13, 17 @ 2:43 pm
Thank you Rich. It turned up just a few minutes ago.
Comment by RNUG Wednesday, Dec 13, 17 @ 2:45 pm
=== I didn’t write this novella, I’m just posting it, so don’t blame me…===
This wins the day, lol
Comment by Oswego Willy Wednesday, Dec 13, 17 @ 2:46 pm
==Retirees are on a fixed income, often have no means of increasing that income==
You’re implying it’s easy for the working guy to increase his income. Is his income increasing 3% compounded each year like a pensioner? Maybe not. Of course, not every retiree gets that benefit.
All I’m saying is a retiree doesn’t have 9% coming out of his pension check for a retirement contribution nor 7.65% for a payment into SSI/Med. House is most likely paid for, kids out of the house. Whatever special consideration you give the retired guy should go to the working guy of equal means.
Comment by City Zen Wednesday, Dec 13, 17 @ 2:51 pm
“Then convert that promise to a 401k. . .
The only solution is to fire every single Tier One Worker . . .
Michigan, with a similar population and demographics . . .”
You know, we could use an FAQ section for people who can’t even bother to pick a nickname. I’m sure RNUG is tired of answering the same old questions as much as I’m tired of reading them.
Comment by Skeptic Wednesday, Dec 13, 17 @ 2:51 pm
== House is most likely paid for, kids out of the house. ==
Maybe, maybe not. Personally, got multiple mortgages, still helping son and family. Want to buy a house? Need to sell a couple.
Comment by RNUG Wednesday, Dec 13, 17 @ 3:25 pm
Good novella from West Point Ives.
Good post from LP Bot, I missed earlier.
Numbers don’t lie, baby.
“The University of Illinois Flash Economic Index, which measures corporate earnings and investment as well as personal income, hit a five-year low in October.”
If there is a technical definition of “death spiral” this fact, the outmigration numbers, non-existent GDP growth, are all probably components.
Comment by cdog Wednesday, Dec 13, 17 @ 3:27 pm
This holiday season, give yourself the perfect gift: permission to ignore anonymous posts.
I’m rapidly approaching two years of ignoring the anonymous posts of people too lazy to pick a nickname — and I haven’t regretted a single moment.
You can use the time you save to engage with the more thoughtful members of the community. Or to take a nap.
– MrJM
Comment by @misterjayem Wednesday, Dec 13, 17 @ 3:32 pm
When the decision is made to include retirement income as taxable for state income taxes, I hope our legislative leaders use some common sense. While it will be necessary as part of the long term solution, if they get heavy handed it will only worsen the population exodus.
Comment by Anonymous Wednesday, Dec 13, 17 @ 3:32 pm
MrJM: “engage with the more thoughtful members of the community. Or to take a nap.” Good ideas.
Comment by Skeptic Wednesday, Dec 13, 17 @ 3:36 pm
==Is there a study on how generous each state’s pension benefit is? For example, if an Illinois teacher gets about the same as a Minnesota teacher after 30 years of service, than it’s not the benefits that are out of whack…==
That’s a tough cookie to crack. Minnesota teachers get social security and the local school districts are on the hook for the employer pension contribution, not the state. Salaries in their wealthier districts tend to run lower than in Illinois (probably because of these added costs). Furthermore, MN uses the top 5 salary years, not 4 like IL. And that same teacher would have to work around 40 years to receive 75% of their final salary as a pension vs 34 in IL.
Comment by City Zen Wednesday, Dec 13, 17 @ 3:46 pm
==Did any of you ever call your politicians and chew them out for. not making the pension payments? Did you call and complain about a new building or community asset being paid for with state funds rather than private donations?==
Not only did most of the folks here not do these things, they also voted against the last guy to actually make the required pension payments. Better in their minds to vote for a fraudulent grifter who promises to “shake things up”, and complain later on Capfax. Great job you guys!
Comment by Lester Holt’s Mustache Wednesday, Dec 13, 17 @ 3:51 pm
Yea tax retirement income. This group is already the largest leaving the state. Tax retirement income above a certain level and these are the people, who can afford to leave the state, and will do so in larger numbers. Taxing retirement income is a sure way to increase retirees, leaving a debt ridden state.
Comment by Anonymous Wednesday, Dec 13, 17 @ 3:56 pm
@RNUG - I hear ya. All generations have their own share of expenses. I didn’t mean to imply retired folks have it easier.
If I absolutely had to come up with a progressive solution to tax retirement income, I’d do something like a 30/60 rule. First $30,000 of retirement income is tax free, then you lose a $1 deduction for every $1 up to $60,000 (the average salary in IL). On top of that, I make social security entirely tax free since income taxes were already paid on those earnings while working. Those combined deductions should be more than enough to protect the poor retirees while everyone pays their fair share based on their means, not their age.
Comment by City Zen Wednesday, Dec 13, 17 @ 4:08 pm
==Yea tax retirement income. This group is already the largest leaving the state.==
According to the US Census Bureau, they are the fastest growing segment of the population in Illinois. Since 2010, persons under 18 dropped 1.5 percentage points, persons over 65 gained 2.0.
Comment by City Zen Wednesday, Dec 13, 17 @ 4:12 pm
RNUG,
Thanks for your insight on the TRS and school districts. Not saying I am hoping that happens. I just see that as one of the few relief valves the state may have with this debacle.
Comment by Smalls Wednesday, Dec 13, 17 @ 4:18 pm
You are buying into the narrative of those who want to eliminate pensions. Not everyone is going to retire at the same time, so the pensions don’t need to be fully funded, similar to Social Security. Big scary numbers are used to undermine the premise of pensions.
Comment by Teach Wednesday, Dec 13, 17 @ 4:21 pm
Here’s a novel idea. Tax the rich. And don’t say it’s against the constitution. So is reducing pe sions. But you all seem to have no problem with that.
Comment by Generic Drone Wednesday, Dec 13, 17 @ 4:24 pm
==Not everyone is going to retire at the same time, so the pensions don’t need to be fully funded==
That’s irrelevant. Those who consume the services should pay for them. That’s for not only the financial protection of future generations, but the retirees themselves.
==Big scary numbers are used to undermine the premise of pensions.==
No, numbers are used to show the scope of the problem. The numbers used are big and scary because the numbers are indeed big and scary. Math has no fear.
Comment by City Zen Wednesday, Dec 13, 17 @ 4:31 pm
Tax the rich, elect JB, with the off shore trust accounts and property tax shenanigans. No irony there whatsoever. The sheep will buy it with some slick marketing and endless robocalls.
Never mind that is politically virtually impossible so let’s just tax the middle class to death so they leave the state to protect every Democratic sacred special interest group.
Change nothing, elect JB so Mike Madigan can get everything his special interests ask for.
Comment by Lucky Pierre Bot Wednesday, Dec 13, 17 @ 4:46 pm
@- ILDemVoter - Wednesday, Dec 13, 17 @ 1:12 pm:
===This made my heart sink– bad for the State of Illinois. We need it…BADLY. This isn’t popular, but I think we should be taxing pensions (over a certain amount of course). There people double and triple dipping into pension funds without paying any state taxes. That’s a problem for the long term. Based on the system as is, we will be in debt for an infinite amount of time. Serious question- why are people so against pension reform again?===
A new tax on pensions to pay off pension theft by previous administrations? No. That is like the bank telling you someone at their bank drained the money out of your 401k, so they will require you to pay back the missing funds.
At least Quinn paid what was due to the pension funds. I read Rauner has resumed shortchanging the funds again. $400 million? Does anyone know if that is correct? Did some of that money get used to pay some of these consulting contracts?
Comment by DuPage Wednesday, Dec 13, 17 @ 5:05 pm
- Smalls -
One of the biggest issues a Federal court would have to address is the 1970 IL Pension Clause EXPLICITLY stating the pension is a contract. Most pension deals are implied contracts, very few flat out state they are a contract.
Assuming the Feds buy into that part of it, there exists a whole body of Contract Law that could be argued. Yes, I know almost every transaction done by an entity is a contract of one kind or another, but a lot of them are implicit / assumed / implied. Bonds are one of the few other transactions that are always written contracts. Get into Federal B court and the arguments on both sides are going to get really creative. Too many cases to dig through. As a general rule, the Fed courts want government to live up to their obligations … part of the reason for a ban on States ducking out on their debts.
Comment by RNUG Wednesday, Dec 13, 17 @ 5:15 pm
===Furthermore, MN uses the top 5 salary years, not 4 like IL. And that same teacher would have to work around 40 years to receive 75% of their final salary as a pension vs 34 in IL.===
75% of salary is not out of line. Oregon has (or had) a 401k type plan where the state matched. Many of their retirees ended up with pensions that were more then 100% of their salary.
Comment by DuPage Wednesday, Dec 13, 17 @ 5:27 pm
== Is there a study on how generous each state’s pension benefit is? ==
When you adjust for various factors, on average IL is not that far out of line on the pensions. What tends to skew things some is the large number of school districts with highly paid administrators, some of the on their face ridiculous salaries of professors at the colleges, and prison guards working excessive amounts of overtime almost doubling their normal salary due to understaffing.
Comment by RNUG Wednesday, Dec 13, 17 @ 6:02 pm
Pensions are a pretty useful tool for passing the price of over-spending onto future generations. Imagine if children had to pay for the spending sins of their parents in this manner?
This is exactly why bankruptcy exists in the real world…generational debt of this degree is completely unethical and debilitating.
Comment by Liandro Wednesday, Dec 13, 17 @ 7:48 pm
==75% of salary is not out of line.==
Neither is working 20% longer to reach that threshold.
Comment by City Zen Wednesday, Dec 13, 17 @ 7:50 pm
Liandro, you have been around here too long to make a comment that silly. Properly working pensions are funded by each generation, which then goes on to reap the benefits of the pension. The problem we have is Illinois’ failure to fully fund its accruing liabilities for multiple generations. Don’t blame “overspending” on this. We’ve been running this State pretty lean for quite a while now.
Comment by Arthur Andersen Wednesday, Dec 13, 17 @ 8:23 pm
Normal state employees max out at 75% after 44 years. Highway worker, first responders and prison guards at 34 years. Let’s talk accurate numbers.
Comment by Thoughts Matter Wednesday, Dec 13, 17 @ 9:42 pm
A progressive income tax or millionaire surchage is needed very much to help pay for pensions and debts. It shouldn’t be a hard argument to make. We can actually lower lots of people’s income taxes, based on the recent tax hike, if we raise them on the highest earners.
Responsibility, compassion, fairness. Paying our bills and debts, investing in economic growth. Paying for social services, health insurance and education. Making sure the wealthiest pay a higher state income tax, while decreasing the tax for many middle class and lower income people. Progressive taxation can be sold like this.
Comment by Grandson of Man Thursday, Dec 14, 17 @ 7:13 am