Workers’ public pension contributions are up. Employer contributions are down. Illinois (surprise!) is the worst in the nation.

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Pensions and Investments (Yes. I read this shit) reports that the average funding ratio of the 100 largest U.S. public pension systems slipped to 71.9% in fiscal year 2017, the lowest since 2005.

The funding ratio describes the pension systems’ liability, what is owed, the unfunded portion of the pension systems.

There are essentially three sources of revenue into a pension system. There is the employee contribution. There is the employer contribution. And there is the return on investment.

Nationally, pensions have received increases in two of those areas and have received less funding in one of those areas.

Shall we guess?


Investments showed a median 13.22% return for fiscal 2017, compared to 1.25% in fiscal 2016. Five-year annualized returns were also up in 2017, at 9.1%, compared to 7.29% the previous year, while 10-year returns of 5.55% came close to the 5.7% notched in fiscal 2016.

Contributions were up as well, driven entirely on the employee side. In fiscal 2017, employee and employer contributions totaled $143.7 billion, up 1.2% from the previous year. Employer contributions for 2017 dipped 2% from the previous year, to $99.2 billion, while employee contributions rose 9.14%, to $44.5 billion. 

Illinois is the worst of the worst, according to P&I.

At the bottom of the list are state and municipal plans in Illinois, including the three plans overseen by the $17.6 billion Illinois State Board of Investment and the Chicago Municipal Employees’ Annuity and Benefit Fund. Those plans are the Illinois General Assembly Retirement System, the Illinois Judges’ Retirement System and Illinois State Employees’ Retirement System, which had funding ratios of 14.9%, 35.6% and 35.5%, respectively, as of June 30, 2017, the most recent data available. The $4.5 billion Chicago Municipal Employees’ Annuity and Benefit Fund had a funding ratio of 27.4% as of Dec. 31, 2017.

Illinois’ Teacher Retirement System is funded at about 40% with Tier 1 employees making a 9% contribution every paycheck.

Daley and Emanuel have left us with a huge pension problem.

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WTTW Chicago Tonight’s Carol Marin with Alderman Scott Waguespack, Ralph Martire and Amanda Kass.

Rahm Emanuel’s decision to jump ship should not be all that surprising. Like his predecessor Richard Daley, Rahm is leaving it to the rest of us to solve the financial and social mess he created.

Whoever the next mayor will be, they will face a huge pension debt, accumulated over decades of funny bookkeeping and neglect and inadequate revenue.

Big pension contributions will be due from the city. The payments due to the funds will be increasing sharply over just the next few years.

The Illinois Supreme Court has made it abundantly clear that those who are currently members of the various public pension systems must be paid what was contractually promised.

There is no current state law that allows the city or the state to solve the problem though filing for bankruptcy.

Whoever the new mayor will be will be constrained by state law and the constitution from changing the tax structure. Illinois’ constitutional prohibition on progressive taxation impacts the city as well as the state.

That is why we have to hold JB to his promise to work to change the constitution on this point.

At the urging of his Wall Street Rahm whisperer, Michael Sacks, the mayor is proposing the sale of $10 billion in pension obligation bonds (POBs).

I wanted to watch the segment of last night’s Chicago Tonight about Rahm’s proposal because moderator Carol Marin invited three smart people: Alderman Scott WaguespackRalph Martire and Amanda Kass.

Scott’s main point was that there has been no transparency about the plan, no opportunity for alderman to ask questions He is concerned that this is another parking meter deal.

Ralph, on the other hand, thinks the bonds, which he says is not new borrowing, but is similar to refinancing a mortgage at a better rate, has possibilities.

Amanda has concerns that a downturn in the market will end up having the POB’s be an added burden to the city and taxpayers.

These are cliff notes and you should watch the entire 15 minute convo. I have probably butchered their positions.

However, my take away from it is that NOTHING should happen unless there are full and open hearings on it and probably it would be best to do nothing while Rahm is in office.

He is like a reverse Midas, turning anything he touches into a bigger problem.

Any pretender to the fifth floor should be challenged on this.

Missouri voters reject right-to-work. In Illinois state teacher salary caps are right-to-work creep.

Good  news:

Unions notch win in deep-red Missouri with rejection of right-to-work law

The irony is that while unions in Missouri beat back right-to-work legislation in a popular election, Illinois is facing stealth right-to-work creep by undermining local bargaining rights and passing teacher salary caps.

When the Democratic legislature and Governor Rauner finally agreed on a full year state budget last Spring for the first time since Rauner was elected, they included a salary cap of 3% on teachers.

The Democrats, when pressed, explained that they needed something to get Republicans on board.

Naturally, the first thing that came to mind was teacher salaries.

There is nothing that gives Republicans a boner more than the opportunity to screw public school teachers.

But, folks, this is right-to-work wine in a different bottle.

Again, if pressed, Democrats will refer to the wage restriction as a pension cost shift.

This is more than a semantic difference.

Both the Governor and Speaker Madigan have advocated shifting the cost of pensions from the state to the local school districts for years.

That is what is meant by a pension cost shift.

With so many of the state’s school districts on financial watch, such a plan would be devastating to education programs and school quality.

But the 3% salary cap is something quite different than a pension cost shift.  Democrats will tell us that by limiting pensionable wages to 3%, the local district will then have to pay the actuarial cost of any pensions based on raises over the cap. They say that makes it a pension cost shift.

That won’t happen. Union bargaining teams will be sitting at the table with one arm tied behind their backs. They will try to get a cost of living adjustment over 3%, but good luck with that. The board will respond that the penalty of paying the actuarial cost of each teacher pension will be a budget buster.

And it most cases, they will be right. The actuarial cost is the cost of the pension for the life of the teacher.

By the way, the rate of inflation is already knocking on the door of 3%. Cost of living increases that don’t exceed 3% will be a loss of real dollars to employees.

Teachers took to the streets last year in right-to-work red states where local bargaining is against the law and the legislature determines teacher salaries and benefits.

But how is that different than what happened in Illinois when Republicans and Democrats in the legislature joined together and established a salary limit on the state’s teachers?

They may claim they acted to prevent what they call pension spikes. That is the practice of increasing salaries in the final four years to boost pension payments.

But pension spiking is a myth. There has been a limit on so-called pension spikes for years.

I will go into why limiting end-of-the-year retirement incentives was a dumb idea in the first place in a future post.

The state’s unions have been asking for the legislature to reverse the wage limits. Nothing will happen until after the November elections.

But it seems to me that there is a deafening silence on this issue, even among progressive legislators. Maybe it would have been better for the legislature to have passed right-to-work outright. Then, like in Missouri, the voters would have risen up and rejected it.

In Illinois it is slow, stealth right-to-work creep and they are hoping nobody notices.



What flavor of kool-aid does Greg Hinz prefer?


Crain’s Greg Hinz drinks IPI kool-aid.

A new report out today from the Illinois Policy Institute concludes that the cost of worker pensions is soaking up a larger and larger share of your property taxes, on average 45 cents of every extra dollar levied by school districts, city halls and other local government statewide between 1996 and 2016.

I’m not going to argue over whether the IPI numbers are correct or not.

There is no question that state public employee pension funds have been underfunded for decades and now the bill has come due.

For years, pension payments were diverted to pay for state government costs while keeping taxes artificially low.

The problem now is the same as it ever was.

It is a revenue problem.

This is a low tax and low spending state, except where the poor and working class are concerned.

The rich are wildly undertaxed.

We over tax the poor and working class, who can least afford it.

The definition of poor is that you have no money.

Ken Griffin, the richest man in Illinois pays the same income tax rate as any working stiff. And now he is about to get a billion dollar gift from the feds on his taxes on capital gains.

Even Hinz agrees that IPIs only suggestion is a constitutional amendment to reduce pension benefits.

Let me explain.

Nothing prevents the legislature from reducing benefits now. No constitutional change is necessary. They have already changed the benefits of future teacher retirement benefits for the worse.

No change to the pension protection clause will reduce the amount already owed. In Illinois that number is over $100,000,000.

That is what happens when the state doesn’t pay its pension bill for seven decades.

A focus on the constitutional pension protection language will only extend the time until we address revenue and start taxing those who can afford to pay more.

Articles like the one today by Hinz are not intended to make serious proposals. They are intended to create resentment of those who have done no wrong.

Like teachers.

It is cheap and it is shameless.

Amazon paid no federal taxes. So lets tax retirement income.

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When I write about how the state of Illinois doesn’t raise enough revenue to pay for the basic services the people of the state deserve I inevitably get someone writing to me to complain that retirement income in Illinois is not taxed.

Which it is not.

By the way, that’s true for everybody’s retirement income income in Illinois. Not just teachers, which is what I think they think it means.

The truth is that if the state were to end the crazy practice of taxing everybody else’s income at the same rate, rich or poor, JB Pritzker and the housemaids at the Pritzker family Hyatt Hotels, and enact a progressive fair tax, I would have no problem having my pension included as taxable income.

But then I hear from Bernie Sanders that Amazon paid no federal income tax last year.

Yep. That Amazon.

Jeff Bezos’ Amazon. The Jeff Bezos who is now the richest man in the world.

The Jeff Bezos who wants more tax breaks to bring his second headquarters to a city near you.

Politifact reports:

Amazon lists two line items that likely got them here: tax credits worth $220 million and stock-based compensation worth $917 million.

These reflect the normal workings of the tax system, according to Annette Nellen, professor and director of the Master of Science in Taxation program at San Jose University.

“I would stress Amazon is just following the provisions that are in the law,” Nellen said.

Companies aren’t required to spell out which tax credits they claim in their annual report, but Nellen said they likely include write-offs for research and development, domestic production, and equipment depreciation for Amazon.

Stock-based compensation, on the other hand, is spelled out a bit more clearly. Stocks are often handed out as a form of compensation to employees (usually executives) at small startups without much cash on hand. It’s also a common incentive for executives to make the company more profitable.

Companies are taxed on their income, which is revenue minus costs. When stocks are offered as compensation, they are counted as a cost. This reduces the company’s taxable income.

The trick for companies? They get to write off the value at which the stock was later traded, not the original price for which they sold their stock to employees.

In a related issue, read about the working conditions at Amazon.

Now I get that with this argument I am mixing state and federal tax laws. But it is even crazier that retirement income is taxed by the feds and Amazon pays nothing.

The average teacher pension in Illinois is $50,000 a year with no Social Security.

Even if you taxed it, how in the world does this address the revenue shortfall in the state when we are giving it all away to companies like Amazon?

The Chicago Tribune and the 3% teacher salary cap.

Chicago Tribune editorial board.

When the legislature passed the state budget a couple of weeks ago, they included a 3% cap on raises for teachers.

The notoriously anti-labor Chicago Tribune editorial board loved it.

You may not have heard about the salary cap (unless you read this blog or got an after-the-fact email from the IEA or the IFT). It was inserted in the bill at the last moment, although not without the knowledge of most of the legislators who voted for it.

Y’know. Just in case you thought that citizens might be given the chance to have a say in these matters.

The Trib says the salary cap prevents pension spiking.

A brief explanation about the complicated nature of teacher salary schedules and pensions: Pensions are calculated based on the average of the best (usually the last) four years of employment.

The Tribune claims it is a practice for school boards to give huge raises to teachers the year before they retire in order to “spike” the pension, costing taxpayers millions.

The old law capped the raises at 6%. Anything over that and the local board pays a huge penalty, equal to the actuarial cost of the individual pension.

Now the cap is 3% with the same penalty.

The Tribune presents examples of huge pension spikes to make their case.

A recent analysis by the Daily Herald’s Jake Griffin found that from 2015 to 2017, 86 suburban districts paid more than $2.7 million total in penalties for violating the previous 6 percent per year cap. Statewide, including that suburban contingent, school districts were charged a total of $11.2 million in penalty costs.

During that time period, according to the Daily Herald, Elgin Area School District U-46 paid $436,542 in fines. Community Unit District 300 in Algonquin forked over $312,949. And Lincolnshire-based Stevenson High School District 125 paid $133,178.

The Tribune doesn’t say that these penalties were paid as a result of teacher pension spiking.

And that is because they are not.

These are spikes to administrator’s salaries. Teacher salaries are part of a collectively bargained contract. Veteran teachers salary increases are usually the same as every other teacher in the district. Administrative salaries, on the other hand, are not. Guess who is getting the spike?

The Tribune supports the legislature’s action, the results of which are twofold:

It means that in the future no board of education will agree to a salary increase for teachers over 3%, no matter the cost of living. That’s not just for teachers in their final year. It will cap the salaries of all teachers in the local district.

Secondly, it is a legislative interference in the right of local boards and teacher unions to reach a salary agreement through collective bargaining.

And, of course, it will do nothing to reduce the $130 billion dollar Illinois pension liability.


Retired teacher Jeri Shanahan is not annoying. She’s right about getting screwed and still getting screwed.

“I’m sorry about being so annoying,” Jeri Shanahan said.

I knew it was her. Her name was right there on the phone’s screen when  I got the call.

I know she annoys some people. They let the call go to voice mail.

Some might be legislators. Like those that made her promises to take up her issue and never did and never called her back and now don’t take her calls.

In case you forgot, here is Jeri’s story.

Jeri figures she is out about $100,000 now. That’s not petty cash to those like me who are retired teachers.

I know the politicians and the Illinois Policy Institute think we retired teachers are living large.

But, not so.

Every couple of months Jeri calls me and I take the call. It’s funny because she says she can’t read my blog because since I changed my format all she gets is the picture of my face.

I can understand why she doesn’t go there often.

She won’t be able to read this and won’t know for sure that I brought up her case again.

She says the IEA, IFT and the IRTA won’t return her calls.

I’m sure they find her annoying.

I hope they do. I find they can be annoying too.

Jeri says that part of the problem is that the few politicians who have actually tried to do something for her are leaving the legislature. She has been on this for about 14 years.

“I have to start my story all over again every time one leaves,” she says.

It’s really a waiting game everyone is playing.

Maybe there are 300 teachers left among the group that Jeri Shanahan is a part of.

To be blunt, it won’t be long before they are all dead.

So I look forward to Jeri’s next call.


The cap on Illinois teacher’s salaries. Don Harmon and the Illinois General Assembly act like Janus.

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Oak Park Democratic Party Illinois State Senator Don Harmon and JB Pritzker.

While patting themselves on the back for passing a year’s state budget for the first time in a while, Democrats and Republicans in Illinois included a 3% cap on teacher raises that can be applied to our pensions

A few years ago they followed the direction of their leader, Michael Madigan, and enacted a 6% cap. By doing that they managed to be both punitive to teachers and do absolutely nothing to address the $130 billion dollar pension liability. 

If a 6% cap can be both punitive and do nothing to the pension liability, imagine what a 3% cap can do and not do at the same time.

In a previous post I speculated that the General Assembly’s bi-partisan leadership snuck the 3% cap into the budget bill when nobody was looking.  Perhaps the rank-and-file members of the GA didn’t know about it or hadn’t had time to read the part of the bill that put a cap on teacher salaries.

It appears I was wrong. The members of the General Assembly in both parties appear to have known exactly what they were doing.

As a Springfield observer wrote me, “The limiting raises to 3 percent, was a
significant part of multipart deal that far more than just the leaders
signed off on. It was an ingredient baked into the cake that you will find
cannot easily be removed.”

Take State Senator Don Harmon, the liberal Democrat from liberal Oak Park and the Democratic Party’s Assistant Majority Leader.

My blogging co-hort John Dillon gets it exactly right when he posts today.

I talked with Sen. Harmon of Oak Park to ask if he even felt a little unsettled about passing a budget in which a 3% limit was included in local districts’ bargaining before the district itself was faced with paying the pension amount to the annuitant for life.

The answer was NO.

In fact, Sen. Harmon’s defense was that some years ago local districts were spiking, so the General Assembly put in a 6% limit which would be a cap and the locals would have to pay anything above 6%.  “Still,”he said, “ there’s been a lot of fudging and manipulation, but we (GA) noticed that the 6% really worked well in keeping people from spiking; thus, why not 3%?

That should work as well if not better than the 6%.”

When I asked about why the arbitrary assignment of 3%, the multi-year contracts that might add up to beyond 3%, the possibility of an inflationary economy, the intrusion into collective bargaining by the General Assembly – he dismissed that as a necessary means to limit the costs of pension abuses.

When I reminded him that the pension abuses were the result of the State’s not paying the required payments so that we are now looking at an unfunded liability of $150 billion for which we all pay an 8% interest, I was dismissed from the discussion.

You sit down with the devil (Rauner), my friends, and you do his work.

Before I was dropped from the echoing conversation, I told Senator Don Harmon that he and the GA were responsible for completing and creating a legacy for the hopefully one-time Governor.

Dillon suggests the Democrats in the Illinois General Assembly who decry the threat of Janus when they talk to teachers are decrying crocodile tears.

Don Harmon and the GA are Janus.

The Illinois teacher salary cap is really, really bad news.

Tim Mapes.

Tim Mapes was given his walking papers minutes after Sherri Garret busted him for sexual harassment. House Speaker Michael Madigan’s chief of staff is eligible to collect a pension of more than $135,000 per year. 

The amount of Mapes’ pension is the result of about 40 unelected years in state government, and he’ll be eligible for annual pension increases of 3 percent.

Mapes is 63.

Yesterday Garret said that Mapes engaged in sexual harassment over years and fostered “a culture of sexism, harassment and bullying that creates an extremely difficult working environment.”

Mapes is legally entitled to his pension. I have no problem with that.

The irony is that his boss, Michael Madigan, just worked to pass a budget that included a major hit on the pensions of career teachers who are retiring.

I’m not talking about the pension buyout. That is baloney. No teacher who has a brain in their head would take that deal unless they had a few weeks left to live or owed a bookie a bunch of Franklins and needed quick cash.

But the legislature also passed as part of their pension action a 3% cap on teachers who will retire after their current contract expires.

This means that no teacher can receive a cost of living increase of more than 3% without their district paying a huge penalty.

What’s so bad about a 3% cost of living raise?

There are some who argue that any raise for teachers is a bad idea. 

But because teaching is a career that depends on us staying in the classroom, younger teachers are placed on a salary schedule that rewards them for doing that. There is no such thing as a promotion for teachers unless it is to become an administrator.  

Oh, man! Here is where I get weedy.

Teachers receive an increase for each year of service (a step increase) plus a cost of living increase that is collectively bargained.  Senior teachers only receive the cost of living increase.  No step increase.

If a teacher takes on extra duty work in their final four years and it is applied to their pension calculation or takes a college class that adds to their income, it is not difficult to earn more than the new cap allows.

I can see a scenario where in the face of inflation and a consumer price index that rises above 3%, no board will bargain a raise that exceeds 3%. No matter what. No matter to who.

It will be a constraint on collective bargaining, advantaging the board, hurting all teachers. But especially veteran teachers.

For a career teacher this is an F You for committing to a lifetime of service to educating young people.

It also undermines a fundamental principle of collective bargaining, which is a process that involves the union representatives of the employees and management. 

Not the legislature.

Bargaining with the legislature is what led to strikes in the red states where there is no local collective bargaining.

If the point was to save the state money, it fails on that point as well.  Forbes estimates the cap will save the state only $22 million. 

Targeting veteran teachers like this is really despicable.

I am reminded of a teacher I knew back when I was union president. Our collective bargaining agreement required a performance review and a rating every two years.

This lady had taught for 34 years, had always received excellent performance reviews and was in her very last year of teaching.

If evaluation is for the purpose of improvement, it is hard to see how being evaluated months before you retire has much purpose.

The evaluator was her principal who was new at the job and was clearly trying to impress the higher ups. There was pressure from the central office about too many teachers getting good reviews. So he ranked her as satisfactory rather than excellent.

Her final year.

She was devastated. A knife in the back after a career of service.

That’s what a cap on our final salary is.

A knife in the back after a career of service.