Spreading the Blame and Spreading the Pain of Illinois Pensions

Posted by Jeffrey Brown on May 11, 2010

Filed Under (Retirement Policy)

Last week I made a post indicating that the Illinois pension problem was much worse than it appears due to faulty accounting that is sanctioned by the Government Accounting Standards Board. It was one of the most read posts ever made on this blog, and it received quite a few comments along the lines of “blame the politicians.”

This week, I thought I would make a few observations both about who is to blame as well as who should share in the pain of filling the yawning fiscal chasm that faces the State of Illinois as a result of its enormous structural deficits (an issue that is broader than just pensions – but clearly the pensions play a role).

So, who is to blame?

First on the list – the politicians. Indeed, it is almost too easy to blame the politicians – doing so is like shooting fish in a barrel. But it is easy precisely because it is largely true. For many decades, governors and legislators from both parties found it all too easy to ignore pension funding in order to address more “immediate needs” (or, shall we say, “more politically expedient wants”?)

As I have pointed out in a previous blog, my colleague Fred Giertz did some back-of-the-envelope calculations that showed that – in a world in which (a) past governors and legislatures had made the required funding contributions, and (b) these same politicians had refrained from the temptation to use the better funding levels to promise more benefits to state workers – then our pensions would be ever-so-slightly over-funded. Of course, believing either point (a) or (b) is a bit like believing in unicorns – pleasant to think about, but totally unrealistic.

I could stop this blog right here and have most of the readers of this blog cheer for more. But I don’t think it is entirely fair to stop here, because others are also to blame.

Second on the list – the “keepers of the statistics.” This was the focus of last week’s post – namely, to blame the actuaries and accountants who provide political cover to the politicians by the use of inappropriate assumptions for calculating the liabilities. Roughly speaking, the liabilities in Illinois are roughly double the official reports.  (To be precise, the analysis by Novy-Marx and Rauh indicates that in 2008, Illinois total public pension liabilities were $151 billion when valued using GASB rules, and $288 billion when using a treasury discount rate.  Assets were only $65 billion at the time).  

So even if unicorns existed – that is, even if our past legislatures had funded according to Fred’s calculations and resisted the temptation to increase benefits – the State of Illinois would still only have about half the money it needed to be funded according to an economically sound calculation!

Third on the list – a pension governance system that allowed key parameters of the benefit formula – such as the Effective Rate of Interest (ERI) – to be set by a board (e.g., the SURS Board) whose members have a fiduciary obligation to act only in the interest of pension participants, and thus give no voice whatsoever to taxpayers. I can’t help but think that this is one of the reasons that the (ERI) was set as such a high rate for the past 30 years, leading to a situation in which the majority of retirees under SURS got a higher benefit under the money purchase option than through the traditional benefit formula.

Fourth on the list – participants themselves. Yes, I realize that my readership will not like this. But let’s be honest – during good economic times, public employee unions fought hard – and successfully – for pension benefit increases. Increases that could not subsequently be “undone” due to the non-impairment clause in the Illinois constitution. Despite the fact that, at the time when these increases were enacted, pensions were already underfunded. One cannot really fault the unions for looking out for their self-interest (that is what all economic actors are supposed to do in a market-driven system.)  But I think taxpayers have a legitimate reason to be irked by the fact that the unions and the legislature “negotiated” higher benefits that are locked-in by a constitutional guarantee without considering the full impact and long-term cost of doing so.  Having said this, let me be clear that much of the anti-public-employee and anti-pension rhetoric that we have been hearing lately is misplaced – the vast majority of public employees are simply doing their jobs and want to be paid what they have been promised. But I also think that public employees (yes, I am one too) cannot totally escape our collective responsibility for pushing for more guaranteed benefits without fully accounting for the long-term costs.

So enough of the blame-game. The fact is that our pensions are underfunded. There is a hole that needs filled, and somebody has to share in the pain of filling that hole.

Because many generations of state taxpayers have shared in the gains from our pension deferral, it makes sense that most of the pain should be shared by as broad a base as possible. Thus, fixing this problem through spending cuts and tax increases will have to be the primary solution. But does that mean that participants in our public pension plans should have no responsibility above-and-beyond paying their own taxes? Not necessarily. There is no question that benefits earned-to-date (i.e., accrued benefits) are protected by the constitution. So we don’t need to have that conversation.  For those of you already retired, this means you are totally protected – nobody can or will touch your pension benefits (although health care is another story). 

And we already know that the state plans to cut benefits for future employees that have not yet been hired.  What about benefits not-yet-earned by current employees? I will leave it to the lawyers to sort the interpretation of the impairment clause. But from an economic policy (not a legal) perspective, it seems this is a legitimate issue to have on the table. After all, Social Security benefits (even accrued ones) can be changed by Congress. Defined Benefit pensions in the private sector are exposed to risk (and not fully insured by the PBGC). Why should one particular subset of the nation’s workforce – state and local workers – be immune from sharing in the collective painful decisions we have to make about the size and scope of government?

Having said this, it is equally important to realize that we cannot simply cut future benefits without consequences. Cutting pensions is cutting compensation, and many of our public employers (such as universities) operate in an exceedingly competitive labor market. If we want to continue to attract and retain the very best, we have to compensate them. So cuts in pensions may require spending more money elsewhere (e.g., salaries) in order to be competitive. As I have noted before, I am pretty skeptical of the claims of how much savings such changes can create.  But that does not mean they are not a legitimate policy option to consider.  Sorry, colleagues.

I’m sure this post will generate a lot of discussion. I’d encourage you to post your comments – I always learn from reader responses. But please, let’s keep the dialogue respectful.

25 Responses to “Spreading the Blame and Spreading the Pain of Illinois Pensions”

  • susanne kroeger says:

    I do not think it is unreasonable to have retirees pay for some health insurance.

  • Barney says:

    Several years ago,I had asked. At what time do we tell the State to excuse it’s self from the campus? Given the reduced funding for operation and now benefits I would suggest looking into a “break point”. Proper planing and investing is the difference between federal Social Security and SURS. I understand that interest that is made by Social Security investments is not returned into that account. SURS does return the interest into the account. I believe that to be a major difference and the reason we should be “immune” to the pain of poor bookkeeping (investment) pratices. SURS, as I understand has out performed its ERI in its investments so I am not understanding the statement of if being excessive. I would love to be able to tell the state to draw a line pay what you owe us including interest. I heard it put this way. “It is better to make interest than pay interest”. At that time the State can pay the Feds what they owe in Social Security mandated law, blame the feds and not a hand full of University Employees for thier failure. I would then join your side of the debate and encourage State Universities to continue to work with (new name here) URS. They have done a fantastic job of investing for long term returns. IMRF does it and they have no problem. Why not us?
    Please keep in mind that I am just a pipe fitter, some words may be misspelled and my grammear may not be precise, but I think you get my point.

  • Jim says:

    By and large, I agree with you, Jeff. I do find myself feeling hypocritical to advocate income tax hikes when I don’t pay income tax on my pension, but it’s not fair to put that burden all on others. Perhaps pensions above a certain, fairly high annual amount should be taxed, thus sharing the pain with our dear friends at the Commercial Club, among others loudly calling for cuts to our benefits.

  • goudy1 says:

    Ms. Kroeger,

    For those who say retirees should have to pay for health insurance, two comments.

    First, realize that from the time I entered employment through my entire career, I was always told that I would receive free health insurance. Obviously this even affected my retirement as I might have waited longer. Also since I was hired many years before Medicare was required, I do not receive that.

    Second, Ms. Kroeger, you have made a broad statement that has little real meaning. HOW MUCH should they be charged according to you? Please be precise.

    Mr. Brown,

    From the day I entered employment to the day I retired, the DIJA earned an average of 9.29% annually. And that still included several negative years after the 2000 crash. The money purchase formula almost was always 8.5%. Sorry if I don’t feel guilty. I do agree that if you go that route, you should assume the risks good and bad.

    Any comments Mr. Brown?

    And finally, I would like to point out that the single biggest culprit of the financial mess is Medicaid. This program has grown from $2 billiion in 1990 to $6 billion in 2000 to $15.5 billion for 2011. Quinn is proposing a $600 million increase this year and wants to expand the program while cutting benefits for people who have worked the state for 30 years. (Hoping Ms. Kroeger reads this)!

    In addition, Illnois spends 40% of the Medicaid budget on OPTIONAL services NOT REQUIRED by the FEDS. (That was in 2008) That’s right, billions spent on optional services.
    And according to DHS, 49% of the births in the state are paid by for by welfare health care!.

    Medicaid is breaking the state and no one wants to talk about it. I have had conversations with Eden Martin of the Civiv Committee. on this matter. In the final analysis, he agreed it was a major problem but really did not want to explore that avenue to any real degree. Thus, in my opinion, he is basically saying I would rather attack public employees than deal with any other single finanical issue.

  • Subhash Bhagwat says:

    Future retirement benefits to current employees are subject to “contract law”, in my opinion. Pensions , whatever their nature, are a part of the employment conditions offered to and accepted by those who are currently employed. This fact alone is reason enough to insist that pensions must not be unilaterally changed. As for the others referred to as responsible for the situation, be it SURS or the Unions or the accounting rules, the same logic that excludes the Governors, Legislatures and the Taxpayers (“There is nothing that can be done” logic) can also be applied to them. A much more solid economic argument is that for decades the money that should have benefited the pension funds actually benefited the taxpayers at large. Whether or not such payments would have sufficed is an entirely moot question. Now it is time for the taxpayer to pay!

  • Debbie says:

    The matter at hand is definitely up for debate. I’m 51 with two kids, 13 and 18, a single parent and had 31 years in the University Retirement system when I decided to retire so I could get another part-time job and maybe enjoy the time that was taken from me to spend with my kids. My retirement amount is less than $1900 mo. and I getting ready to pay for college for my daughter. Yes, she will get 1/2 tuition but full fees on a single income. And no, I can’t find another part-time job without working nights and leave my son home alone. Now if the Governor does everything he says he’s going to do, I will have no choice but to go on somekind of state assistance. My daughter is an honor student but unfortunately, was turned down on all scholarships because she was either not the right fit or the fund was broke because the state hadn’t paid this year’s money. 0 from FAFSA because I make too much money to qualify. Okay, now let’s look at what will happen if I have to pay hundreds of dollars for healthcare for me and my two kids. First, my daughter won’t go to college and its a wasted effort by my daughter to dream she could get a good education. The future is in our kids people. Give them a good education. They will be making the decision when we are rocking in our rockers. Secondly, my daughter will have to get a full-time job to help our the family until she gets her own family. Times are tough and we do have to take on a little extra to get over this hump but not at the expense of our young ones. Third, how can any family live on so little a month. I will be forced to give up my house and then where will I go. I’ve basically had it with Illinois. If I can find a good job out-of-state, I’m gone. There is no future here if the Governor and legislators aren’t willing to live up to the promises made made for 30+ years or willing to invest in the young people. I”m willing to pay a couple hundred for insurance but I can’t pay 500-800/mo. That doesn’t take an Einstein to realize that is just a stupid move. Yes, I’ll say it another way, 90% of the Illinois government is less than intelligent, and they don’t even need any college coursework to run for office. Take a look at those elected and see how many only have a high school education. What are their qualification to make decisions for thousands of people? I think they better make gradual cuts to the current employees while they can, retirees pay small premiums on health insurance, and bite the bullet and raise taxes (I don’t like it anymore that the next person but its necessary). Doing this is easier than bankrupcy and having nothing.

  • ISU73 says:

    The blame can be spread arounf as much as you like, but the RESPONSIBILITY and the AUTHORITY belong squarely on the poiticians. They ignored the problem from its inception and instead mortgaged the future of the pension programs to pay for all of the pork projects, state airplanes, and $90,000 annual salaries for members of advisorsory committees. What will Governor Quinn’s pension be when he retires?
    Check out the book “QBQ!”. It deals with personal responsibility. The gist of it is that we shouldn’t play the blame game, but ask one question – “What can I do to make this situation better?”. Maybe if our legislators would apply this simple question, they might actually get something accomplished. The lack of personal responsibility by these politicians may be the undoing of Governor Quinn.
    Governor Quinn may think he’s the highest elected official in Illinois, but he’s wrong. Michael Madigan calls the shots in this state. Mr. Madigan can stop any legislation or ram anything through. That’s not a democracy.

  • Old Man says:

    I agreed to about 8% of pay for retirement and additionally 4% from the State. The terms offered might have been 8% & 4% more wage
    but it wasn’t an option (after the
    first 3 years). I held my end of the contract.
    ——–
    Also, there was a mentality that the
    state would grow perennially so
    fresh income would most always
    offset a little debt. This fall-forward
    mentality hypnotized an admittedly
    sleazy gaggle of legislators into
    get-it-while-you-can mode, and a
    diffident general public who knew
    and tolerated the massive corruption of civic infrastructure.
    ———-
    Illinois corporations, which generated
    wealth via employment, flew out
    of the country for cheaper labor
    and fresh markets, leaving a big
    dent in State employment and wealth.
    Without taxpayer money flowing into
    the Department of Commerce and
    the Dept. of State to set up global
    protocol for financial and legal
    commerce structures, this could
    not have happened on a large scale. We payed for it- and were compensated with promises of better jobs, retraining and a robust
    service economy. We learned that what criticism characterizes State politicians also applies to their Federal counterparts.
    ———-
    Now we are out of money. The
    outsourcing of personnel, jobs and now benefits has left even the middle-class to fend for ourselves. Societal wealth has been dislocated by industry and relocated to financial factories that manufacture synthetic securities- a blend of our pension
    and mortgage investments and paper money sold to high bidders in pretty, pretty empty, packages.
    ———-
    Now the Federal government is the
    last resort. Like the European bailout
    package to salvage a hope of recovery of their sleepy nation-states and thus the European coalition, and our own Federal failing, too-big-
    to-fail, bankster bailout, Illinois now
    needs emergency funding for our
    contractual obligations (including
    retirement funding), in return for
    ‘never-again’ diligence to oversee
    the lame legislators’ money-handling,
    so our state will not slip into debt
    again. Honest accouting procedures
    (GAAP) would go a long way in
    guidance.
    ———
    So where does the Fed get the
    emergency funds? As has been
    discussed this month in Congressional hearings (you do
    monitor CSpan.org, don’t you?),
    revenue can be substantially increased by

    1) implementing a ‘value-added’ tax so that about half of our largest corporations will no longer avoid paying taxes under a labyrinth
    of lobbyist-written tax exemptions

    2) documenting and regulating
    synthetic and derivative investments
    that have no social value other than
    to generate inflation, so that

    3) a “Tobin Tax” can be applied to
    each such transaction to return value to society in general and the States
    in particular.

    Some activity is now going in this
    direction in Congress but with our
    encouragement it stands a better
    chance of saving us from hell.
    Unless there is a quick and dramatic upturn in the economy, I think this
    might be our last best hope of survival.

  • Jeffrey Brown says:

    Hi Subhash,
    Let me once again disclose that I am not an expert at contract law. But I will note that while only 7 – 8 states have explicit non-impairment clauses, the vast majority of states do provide some protections of benefits under constitutional contracts provisions. However, in most of those states, the case law has determined that the provision only protects accrued benefits (i.e., those earned to-date). It is rarely (if ever?) interpreted as implying that the state cannot change future benefit accruals.
    Thanks for your comment.
    Jeff

  • Jeffrey Brown says:

    Goudy,

    You have given me an idea for another future post – namely why looking only at “average” returns can be misleading. The timing of returns also matters tremendously when there are annual contributions being made to a fund. I realize this previous sentence may not make sense, but hopefully I can make it clearer in a future post.

    One other point – if we are going to credit people with what is essentially a zero-variance ERI, then we ought to use something that looks like a zero-variance return, for example, something closer to a government bond rate. We know that investing in equities is risky, and that the higher average return is the compensation for bearing that risk. What SURS has done is given the higher return to the participants, and given the extra risk to the taxpayer. If this is such a good idea, then why stop at 60% stocks. Why not go to 100%, or even better 300% or 1000% by borrowing hundreds of billions (or more) and then investing it in the stock market. The expected return on the stocks would exceed the interest rate SURS would pay on the debt, so the “average” return on this portfolio could be as high as we want it to be! Heck, by this logic, we could justify paying retirees 100% return per year. If this seems absurd, then you are beginning to see why crediting the expected return without making the participants bear the risk is, indeed, absurd.

    This is the same twisted logic that leads to all sorts of “free lunch” proposals – such as “eliminating” our pension debt by issuing pension obligation bonds, or thinking that investing the Social Security trust funds in the stock market (or doing it via personal accounts) will somehow eliminate the enormous debt overhang that arises from an unsustainable pay-as-you-go Social Security system. This financial fallacy permeates public thought – unfortunately.

    Oh, and speaking of risk-adjusting … the DJIA is not the right benchmark for a SURS portfolio that is invested in a broader class of stocks as well as a heavy bond portfolio …

    Thanks for giving me more ideas to write about in the future!

  • Jeffrey Brown says:

    Except we won’t do anyone any good if we end up with such a high tax burden on high income folks that they all decide to move over the border into Indiana or Wisconsin! :-)

  • Jeffrey Brown says:

    Hey Barney,
    As bad as things are, I can pretty much guarantee you that SURS participants are better off in SURS than they would have been in Social Security all these years. While SURS was handing out 8-9% annual returns, the internal-rate-of-return on Social Security for most of today’s workers is in the 0 – 3% range (this is because of how demography affects Social Security, not because of how Social Security is invested. In essence, there is no meaningful “investment” in Social Security. That program simply transfers money from today’s workers to today’s retirees. Because we have more retirees-per-worker over time, the “return” on your SS contributions goes down – fast.)
    See my reply to Goudy on why I think the ERI is excessive.
    And by the way – I’ve got plenty of tradesmen in my family – including an uncle who, like you, was a pipefitter. There is no “just a pipe fitter” about it. I really appreciate you taking the time to comment.
    Jeff

  • Jeffrey Brown says:

    Old Man (I love the login name!),

    I am actually a big fan of a VAT. For many reasons it is a far more efficient tax system than the existing income tax. The problem is that if we introduce one, I can pretty much guarantee that it will be used on top of the existing income tax, rather than as a replacement for it.

    Jeff

  • Noiram2 says:

    Is it not just a big Ponzi scheme that is falling apart? It is legal for the government to play a numbers game, but not the private sector. I gave up a big chunk of the SS (benes) that I paid in for twenty years to get the benefits the state was offering as retirement package. I traded one for the other, I considered it a binding agreement that I would continue to get no less than what was offered at the time of employment offer. Loss of about 60% of the earned SS benefit is substantial trade for state employment!

  • Barney says:

    Thank you Mr. Brown you are to kind. One other thought. Wasn’t Social Security supposed to be a “supplement” to retirement? I will also state that Debbie’s comment about politicians has set at least my wheels turning. A call to retirees. Run for office!! If your legislator is unreasonable. You have the time, you are not (or should not) be prone to pay off deals so that you may reflect your constituency.

  • goudy1 says:

    Jeffrey Brown,

    I read your comments and they make absolute economic and common sense.

    I was only pointing out that SURS had invested heavily in various more lucrative (and thus risker) markets than just putting our money in a savings account. Those of us wh knew anything at all knew that.

    We should not now be penalized for the success of SURS. Another example of “heads you lose, tails you lose” for employees whenever the politicans so deem that you should lose and they should win.

    I have long stated that investment funds should be diversified. But I looked at SURS returns over the time period I was employed and they did well enough to justify the 8.5% annualized return. SURS did a good job!

    And they did a good job with mony contributions. If the state had done what it was supposed to – no problem. And everyone, even Eden Martin knows that!

    As to the the past decade and the future, well that is a different story. I totally agree that it will be most problematic to maintain anything close to an 8% return. With the type of debt this state and this nation is running up we could be only a little better off than Greece in 10 years if the spending does not stop.

    I notice, you did not comment upon the Medicaid financial albatross which could well get worse under the health health care legislation to go into effect in 2013. Again, all observant and knowledgeable people have seen how it has sucked up the state budget making it very difficult to allocate state tax dollars to the pension funds when that should have been done. (Note the expenditures I reported with 50% of those being state dollars)

    This needs to be pointed out and I beleive that your institute has a prime responsibility in doing so. Otherwise, we are just carving our pensioners up like turkey on Thanksgiving.

    Any comments?

  • goudy1 says:

    And I do agree with Mr. Brown on the VAT. I support it. But only if there is a Constitutional Amendment to kill the Federal Income tax. Remember it took a copnstitutional amendment to implement it in the first place.

    Without that, it is just more tax dollars for politiicans to spread totheir friends and political allies.

  • RA says:

    I wishour tax dollars were allotted to the pension funds each year on a pay-as-needed basis instead of putting the tax dollars into a pool to buy equities that might drop in price and possibly wipe out what was just contributed. The situation recently where the state borrowed money to make the contributions and the pension funds bought some of the debt is downright ludicrous.

  • goudy1 says:

    Illinois Auditor General William Holland reported today that 70% of the costs for the ALLKids program went to children of illegal aliens

    Illegal you say. Well, the state just does not ask immigration status- and they do that purposely.

    And by the way, AllKids is funded striclly with state dollars- no federal matching.

    So while attacking retirees who have worked for the state honorably for many, many years, the illegal alien crowd are rewarded.

    Makes me sick. If it doesn’t others, I don’t know what to say.
    Come to think about it, I do know what to say, but it is not printable.

  • Andrew Szakmary says:

    Jeffrey,

    As I have indicated to you before, I believe your one-man crusade against the SURS Board for how they set the effective and prescribed rates of interest is misguided. The Illinois State Constitution says the following:

    “Effective rate of interest”: The interest rate for all or any part of a fiscal year that is determined by the board based on factors including the system’s past and expected investment experience; historical and expected fluctuations in the market value of investments; the desirability of minimizing volatility in the effective rate of interest from year to year; the
    provision of reserves for anticipated losses upon sales, redemptions, or other disposition of investments and for variations in interest experience.

    In other words, in plain English, the constitution explicitly requires the SURS Board to set the ERI such that the past and projected investment returns earned by the system are distributed to member accounts. It does not prescribe a “certainty equivalent” approach, as you advocate, and introducing any such thing (which would probably result in at least a 20-30% benefit cut for the typical retiree) would be a patently obvious violation of the impairment clause of the state constitution. Legally and morally, it would be the equivalent of unilaterally cutting the coupon rate on a previously issued, non-callable bond because you think that the coupon rate you agreed to pay in order to sell the bond is too high. You simply can’t do that. You can change the system for new hires, but that was already done 5 years ago when people hired after July 1, 2005 could not use the money purchase formula.

    Legal arguments aside, I find your use of selective and incomplete data to justify cutting the ERI to be preposterous. Yes, over the ten years ended February 2010, SURS has earned only a 3.4% annual return, but you neglect to mention that over the (approximately) previous 10 years (June 1990- June 2000) SURS earned an average annual return of 12.7%.

    More significantly, from June 1971 (when SURS first began investing meaningfully in stocks) through February 2010, the geometric mean annual return of SURS’ Investment portfolio has been 8.38%. If that is not enough history for you, then based on the well-regarded Ibbotson data, a 70% large company stock and 30% long term corporate bond portfolio (which closely approximates SURS’ typical asset allocation)earned a geometric mean return of 9.08% per year from December 1925 to December 2009. Note that these are geometric means, which are lower than arithmetic means and account for the large variance in year-to-year returns.

    If you look at ALL the data, there is simply no basis for your assertion that the ERI has been too high, or that the 8.5% prescribed rate of interest used to determine monthly retirement annuities (which, according to the constitution, is supposed to equal the long run average ERI) is excessive. I do not believe that very many experts would argue that the last 10 years of investment experience are likely to be representative of the future, and that 75 years of previous history should be tossed aside in forming expectations of long term returns.

  • Jeffrey Brown says:

    Hi Andrew,

    Yes, you have made this point before, and all I can say is that I respectively disagree with your economics. (I will grant you the 10-year versus 20 or 30-year horizon issue, but that is not really the point at all). The main point is that there is a massive asset-liability mismatch and this mismatch is especially troubling when one group of individuals (the pensioners) receive the upside of that mismatch, while another group of individuals (the taxpayers) bear all of the downside of that mismatch.

    In essence, the legislature has given the pensioners a free “put option” on the taxpayer. And because such options are never accounted for appropriately, most of the public was oblivious to the true economic cost of doing so.

    A much fairer calculation would be to take the rate of return that SURS earned over this period, and then subtract out the appropriate price of the implicit option. If we did this, you would find that the risk-adjusted return was much lower.

    This is not a one-man crusade. Frankly, it is a pretty straightforward application of financial economics.

    As for the 70/30 portfolio to which you refer – the real question to me is why anyone thinks it is a good idea to create risk-free liabilities and try to fund them with a highly risky portfolio. That is akin to me borrowing $10,000 from the bank and investing in a 70/30 portfolio. Sure, in expected value, I come out ahead. But only because I am ignoring the enormous utility costs on the downside.

    And by the way – I was not blaming the members of the SURS board. I was blaming the design of the governance structure that allows representatives of pensioners to set their own benefit while passing the cost on to taxpayers.

    Anyway, we obviously disagree. But I still appreciate you challenging me on this. Stimulating debate is exactly what this blog is supposed to do!

    Jeff

  • goudy1 says:

    All well in good, but until Medicaid , various pork barrel projects, and the wave of illegals flooding our schools, hospitals and prisons issues are resolved we are just “re-arranging the deck chairs on the Titanic” and blaming the victims.

    And the vicitms are state employees who have honorably contributed to the system and who do not even have SS as a partial backup.

    And that is reality!

    Big deal about pensions in every newspaper, and talk show but very little or nothing about the $15.5 billion Medicaid budget (over half of which is state dollars and all of which is tax dollars)

    Mr. Brown. Has your policy center considered the costs of Mediciad and an estmated 200,000 children of illegal alines in our schools alone.

    If not, why not?

  • Mark Schwendau says:

    Jeff,

    Dude! I think you are missing the point!

    When I was sworn in to be an Illinois municipal alderman (three times), I took an oath of office to uphold the laws and constitution of the United States and State of Illinois.

    Teacher pensions are required by law! I was required to pay into them the last 35 years of my life and the idiots in Springfield were required to fund them.

    Any politician who has not held up this LEGAL obligation has been in violation of Illinois law. My question is; When will we see them prosecuted and by whom, the FBI?

    This may be a big joke to those not in education but for those of us who have given so much of ourselves to this state and the generations in it, it is disgusting!

    My cousin Kathy will retire from teaching in the state of Indiana next year. They do not have Illinois’ issues. It is time for an invesigation of wrongdoing and violations of Illinois laws.

  • Jeffrey Brown says:

    Hi Mark,
    I don’t think I am missing the point – at least the one you are making – because the Illinois courts have already determined that while the state of Illinois has an obligation to pay benefits, it does *not* have an obligation to advance fund them. Technically, the state could choose to run the pension program like Social Security does – on a pay-as-you-go basis, and as long as they make good on those payments, they would not be in violation of their oaths.
    Perhaps we need a constitutional provision that requires funding. But we do not have one today.
    Thanks Mark.

  • Jeffrey Brown says:

    Goudy,

    You are right that Medicaid costs are rising rapidly. I have done some work on the long-term care component (yes, I know, this is not the issue you are raising about illegals and kidcare) and I share the view that Medicaid costs are rising at an unsustainable rate. Indeed, the National Governor’s Association put out a report several years ago pointing out that many states now spend more on Medicaid than on K-12 education, a statistic that I found stunning.

    Perhaps one of us who write for this blog will make a post about Medicaid at some point in the future – there certainly are plenty of issues to discuss on that front, including some of the questions you have raised.

    Jeff