The latest state budget includes a pension buyout offer. Not a solution.

The Illinois Senate passed what it says is a balanced budget yesterday.

The Illinois House is poised to do the same today.

The Governor says he will sign it.

Everyone down in Springfield is patting each other on the back for their hard work. Passing on time is a relatively new thing for them.

In recent years they have had a difficult time passing a budget at all.

Things move slowly in Springpatch.

It took them 37 years after the deadline to pass the Equal Rights Amendment.

Like nearly all of the Illinois legislators who did or will vote on it,  I have not read the budget bill.

The Trib does report some modest increases in education spending.

We will see.

Reported the Chicago Tribune:

But unlike in past years when Republicans and Democrats railed against each other for using gimmicks to make budgets appear balanced, the spirit of compromise this year allowed lawmakers to see past the plan’s potential shortcomings.

Instead, they congratulated themselves for what Sen. Chapin Rose, a Republican from Mahomet, described as a process that involved “far less partisanship and rancor than I’ve seen in a long time in this building.”

What shortcomings?

The budget is balanced? Because of our regressive flat income tax, we cannot adequately fund basic services without going into debt. As state governments go, we are among the lowest taxing and lowest spending states in the country.

However, I did read what the Chicago Tribune is reporting about the pension portion of the bill.

Most of the savings would come from voluntary buyout programs for people eligible for state pensions. Former public workers who are vested in the pension system would have the option to completely cash out their pensions at 60 percent of the value, which they could then invest on their own. And employees who are entitled to the state’s most generous benefits packages, which includes a 3 percent compounding cost-of-living adjustment in retirement, would have the option to cash that out for 60 percent of the value and continue with a simple cost-of-living adjustment in their retirement years.

The plan also reduces the amount of end-of-career raises that the state will count toward the portion of pensions it pays from 6 percent to 3 percent. School districts can still award raises above 3 percent, but will have to pay for the resulting pension costs on their own.

This pension offer is the non-solution to the pension debt and liability that State Senate President John Cullerton has been a peddling for years.

Right off the bat: The proposal is unconstitutional. They claim there are savings. “Savings” have to come from somewhere. They can claim savings only if there is a reduction in the pension benefit.

The Illinois Supreme Court has already said a reduction in the pension benefit violates the state’s constitution.

Secondly, most of us who are retired are not stupid.

If the buyout is a reduction in our benefit, why would we take it?

I suppose if I found out that I had a short time left, or I had a major gambling debt and some wise guy had put out a contract on me, I might cash out.

Otherwise I’m sticking with with my pension as it is. And so it every other retiree I know.

They are claiming something like $5 billion in savings from this idea.

Not a chance.

But even if they are right, the current liability is $130 billion.

I know it is crazy to call $5 billion chump change. But compared to the debt that these legislators have created by their decades of shorting the system, that is exactly what it is.

Plus, they just blew that number out of their butts.

 

 

 

23 thoughts on “The latest state budget includes a pension buyout offer. Not a solution.

  1. “If the buyout is a reduction in our benefit, why would we take it?”….

    Gad. Are Illinois politicians really that stupid? Their claiming that this will ‘save’ $5 billion is ridiculous. I can’t imagine any teacher falling for this unless there is a dire emergency of some sort.

    How long will this lack of tax money continue? Illinois is run by Democrats who aren’t any smarter than run of the mill Republicans. They can all stop patting themselves on the back for such good work.

    1. Tribune: In previous years, Rauner tried to attach a broader legislative agenda to the budget process, but he kept his demands simpler this time: a balanced budget that included no new taxes. At the same time, the re-election-seeking governor has been on the campaign trail criticizing lawmakers for passing a tax hike last summer that provided the state with about $5 billion in additional funds.

  2. “As state governments go, we are among the lowest taxing and lowest spending states in the country.”

    Fred, what do you base this on?
    There have been any number of articles and studies published that state the exact opposite. Illinois is not at the top but are keeping company with Cal, Conn, NY and NJ as top taxing states in the union.
    Those numbers are not “blown out of their ass”

    As usual numbers that do not favor your stand seem to confuse you.

    1. Local taxes are high because of low state income taxes and low corporate tax rates. What I said is that “as state governments go” taxes are among the lowest. Spending as well, which does not serve the state economy. Low state income taxes forces local taxes up and up even more in poor communities with low property values and therefore high rates of taxation. It may be you, anonymous, that appears to be confused how the tax system works.

      http://www.ctbaonline.org/press-room/illinois-low-spending-state

      1. Fred, the poor don’t pay taxes. They get everything for FREE! Liviving in a poor community affords a person the opportunity to avoid taxes altogether.

      2. Anonymous: Go ahead and move to a poor community if it is such a great experience. I’m sure you’ll love it there, especially if you don’t have the means to ever move out.

  3. With regard to the first comment asking if Illinois politicians really are that stupid, I’m sure they’re sure hoping and betting that we and other state annuitants are!

  4. Without a doubt, taking a buyout from the duplicitous Illinois General Assembly and giving up a defined-benefit pension plan would be a foolish and reckless decision. A buyout is a reduction in benefits that have been constitutionally guaranteed by the Illinois Supreme Court for life.

    TRS Executive Director Dick Ingram told legislators in March 2016 that a “buyout” is a benefit cut that would “do little or nothing” to improve the financial health of TRS:

    “…[I]t must be stated that any buyout – whether it be full or partial, at retirement or before, rolled over into an IRA or used to purchase an annuity – is a reduction in the guaranteed benefit that the member may have earned up to the point of the buyout. You won’t see any significant relief for the unfunded burden we already have created. In fact, the buyouts may actually serve to accelerate the state’s pension obligations…”

  5. Illinois is a Low-Spending State
    JANUARY 23, 2014
    ILLINOIS IS A LOW-SPENDING STATE
    Chicago, IL (January 23, 2014) – The Center for Tax and Budget Accountability (CTBA) released an Issue Brief, “How Does Illinois Spending on Public Services Compare to Other States?” today. The Issue Brief delineates how under objective evaluation, Illinois ranks near the bottom in spending on core services like education, healthcare, human services, and public safety. Over the last 10 years, overall spending on services in Illinois has declined in real terms after adjusting for inflation.

    Please note the 2014 date – before the 32% permanent income tax increase of 2017. Sorry Illinois is currently in the top 5 of most tax state when all taxes are included. We have lawmakers who spend far more than have (for the last 30 years) and then try to find ways to Kick the Can. This Can is so large that even with the increase it moving in the wrong direction.

    1. The date is not the point. We live in a state which undertaxes the wealthy and over taxes the working families through a flat tax that is too low and brings in too little revenue to support the functions of the state. If you are rich, you pay too little. If you are a working person on a fixed salary, you pay too much. So, I repeat. The state government taxes are among the lowest, even with the increase to 4.75%. The cost of services are then shifted to local governments who must rely on excessive property taxes to pay for schools and basic services. If you live in Barrington or the north shore, you can absorb the property tax as the cost of doing business. If you live in Harvey or Robbins, you end up paying twice the rate of property taxes then up north. So the moral of the story is whether you are rich or poor determines if taxes are too high. For the poor: Yes. For the rich: No.

  6. F.Y.I. Anony: To paraphrase something from the Bill Clinton era, “It’s the revenue, stupid!” ILL-Annoy HAS.NO.NEW.REVENUE. This is the case because ILL-Annoy is one of a handful of states that maintains a FLAT Tax (which is exactly what it means: FLAT. Not increasing, not decreasing, not progressive).
    The C.T.B.A. (mentioned above) has repeated this again & again: IL needs a progressive tax. Now–ahem–the legislators: way back when, said this couldn’t be done until 2014. 2014 has come & gone. It was, again, “talked” about, particularly before the March primaries. The 2018 General Assembly will be recessed for the summer…w/o our unfair tax system, creating no new revenue & lots of debt (& NOT due to the pension “crisis”; where are they getting all the money to fix the Edens Expressway?!–yet again, & it doesn’t need fixing!) & having diddly squat to do w/our pensions.

  7. To progressive/socialists the flat tax is always the issue and the progressive tax is always the solution. Regardless of total revenue.

    After 30 plus years of vast over spending the Can (debt) is far to big and the progressive tax is pipe dream. Even if all the extra revenue went to the debt.

    PS – These elected do not have the will or the desire to implement it. They certainly could have if really wanted it.

    1. Well, “someone.” Here is the problem as far as the pension liability is concerned, coming straight from this “progressive/socialist,” and you can quote me. The court says the state must pay our pension. If the state forces TRS into bankruptcy, then the court will order the pension paid anyway. If politicians are too stupid (my guess) to agree to increase revenue, end the stupid flat tax, reamortize the debt, then a judge will order them to pay it anyway. So says the progressive/socialist.

  8. How about we pro-rate the funded dollars based on the present values of accrued benefits (perhaps capped at $70,000 per year for a pension starting at age 65). Then we issue bonds for the present values of the haircuts that people have sustained. Let the bonds bear interest. Make the bonds inheritable by one’s beneficiaries. Also, let the bonds be sold for whatever market price emerges in the marketplace. Then go to work getting taxes increased on whatever basis the legislators and/or the voters approve. Earmark 15% or more of all future government spending to fund the pension plans and pay the bonds. People who won’t take the deal can hire their own lawyers to sue whomever needs or deserves suing — but probably not before they miss a pension payment. Perhaps lawyers will take it on a contingent fee. Sweeten the deal by paying those who want the deal everything in cash up front (except for the bonds, of course). For whoever takes the cash deal, they can pay tax or rollover to an IRA. Maybe the bonds could be rolled over to an IRA also, but if not rolled-over, their value as income would be discounted substantially. Nobody HAS to take any deal, but a certain number of people probably would. Probably no violation of the constitution because those who refuse the deal keep all their rights to get current and future pensions. The plans may or may not run out of money, but that’s a risk that everybody has already.

    1. Nope. Got a contractual deal. Constitutionally protected. If I could even understand what you said, I’m staying with the pension the state and I agreed to when I first started working. Laughing.
      I never agree to a deal I can’t understand.

      1. He/she didn’t say you have to take the deal — many presumably would not. However some might think a bird in the hand with bonds they can leave to their heirs is a better deal. Those already retired might outlast the dwindling pension assets already funded, so they’d more likely take their chances — although they’d be betting against a bankruptcy that cuts them back.

  9. How will this reduction of the end-of-career raises cap to 3% work? What I mean, is, we have a contract that has a benefit of 5.5% raises for teachers in the pipeline. Will this force a renegotiation of the existing contract? Or does it only apply to teacher contracts going forward?

    1. I’m sure the union will advise your local. I suspect that at some point any COLA increase over 3% can be bargained and paid, but only 3% will be pensionable the final year. Anything over 3% will be paid an actuarial amount by your board to TRS. It may be that current CBA’s are exempt, but you will find out soon enough.

      1. I was wondering about that also. Some districts are already looking to cut the end-of-career buyouts to 3 percent, and replace the other 3 percent with a fixed cash dollar amount (for example, $5,000).

        Would that fixed amount count toward your pension calculation?

        Would the reduction from 6 percent to 3 percent be a violation of the pension protections in the state constitution?

      2. There are still things about this recent legislative action on pension that TRS will need to explain. We are still waiting for explanation of the Tier III option that created last year. And Tier two is still a mess. Depending on what is bargained with your union, a fixed dollar amount – a retirement bonus, if you will – would not be pensionable and not calculated in the pension benefit. It would likely be paid the first paycheck after retirement. It would not be subject to a penalty. The cap on final year raises would most likely not be seen as a diminishment. But the rest of the deal – the buyout offer – in my opinion is a diminishment and should be challenged in the courts.

  10. I’m sure there are plenty of schools in IL that are also suffering from this problem. There is money for worthless tests but what about air-conditioning?
    …………………………………………………………………..
    Dear Senator Niemeyer and Representative Slager,[R-IN]
    I’m sending you an informative article about the effects of lack of air-conditioning affecting school children. Since you are very proud of all of your funding, are you aware that children in poverty areas most likely don’t have any in their schools? Have you ever considered looking into this problem and doing something about it? Doubt it. When Gary schools are allowed to have water faucets that are turned off and there is water on the floor and mold in the band room, I doubt that having air conditioning installed is high on the list. Public schools can crumble and ‘all is fine’.

    Bet your offices are air-conditioned.

    Sincerely,
    Carol…
    ………………………………………………………………………………………………
    As anyone who’s ever been stuck in a stuffy classroom or office can attest, it’s hard to focus when you’re hot. A new study finds…

    A working paper (pdf) published by the National Bureau of Economic Research looked at PSAT scores of 10 million US high-school students who took the test at least twice between 2001 and 2014. According to the study, students who took the test after experiencing a hotter year had lower scores compared to their test performance after a cooler year: “Each 1° F increase in school year temperature reduces the amount learned that year by one percent.” The study finds that individual hot days have an impact on learning, too: “each additional school day with temperature in the 90s (◦F) reduces achievement by one-sixth of a percent of [a] year’s worth of learning.”

    What’s behind the correlation between higher temperatures and lower test scores? The study’s authors suspect that heat just makes it harder for students to learn in the classroom. Higher temperatures during the summer and weekends didn’t seem to have an impact on academic achievement.

    https://qz.com/1291997/heat-makes-it-harder-for-students-to-learn-and-thats-why-every-school-needs-air-conditioning/

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