Ways to deal with Illinois’ huge pension debt problem

Sunday, May 25, 2008 8:40 PM CDT
By Ryan Keith
Associated Press

SPRINGFIELD — Illinois has the nation’s worst pension debt problem, and everyone involved agrees a solution is needed now.

But there are myriad ways to deal with it and no easy choices. A look at the pros and cons of the most-talked about ideas:

1. PENSION BOND: Under this plan pushed by Gov. Rod Blagojevich, the state would borrow $16 billion in lower-interest debt and pump the money into the pension systems.

PROS: The administration says the state could save $55 billion over the next 33 years by essentially trading the 8.5 percent interest pension debt for lower interest debt. This would lower the massive $42 billion debt and make the systems 75 percent funded, providing retirees more certainty about the future.

The state made the same move in 2003, borrowing $10 billion and bringing the systems from 48 percent to 61 percent funded. Blagojevich officials say market conditions are right for another pension bond.

“Something’s got to be done,” said John Filan, Blagojevich’s top budget adviser. “The current situation is just not tolerable.”

CONS: Critics, including business groups and Republicans, say borrowing to pay off old debt, even if it’s at a lower interest rate, isn’t wise. It just puts off the problem.

They say there’s also too much risk in a pension bond. It only works if the invested proceeds from the bond get a better return than the interest rate on the amount borrowed, which could be 5 percent a year. In a shaky stock market, critics warn, nothing is guaranteed and the state’s pension debt could get even worse.

“This is a craps game, and you shouldn’t operate the state’s finances based on taking those kinds of risks,” said Eden Martin of the civic committee of the Commercial Club of Chicago.

2. INCOME TAX INCREASE: Under this idea backed by some Democratic lawmakers, the state would raise its income tax rate by a couple of percentage points to raise several billion dollars to spend on needs, including paying down pension debt.

PROS: Backers, including some state employee unions, say the pension debt and other budget problems were caused because Illinois simply didn’t have enough revenue to cover its bills for many years.

Raising the income tax would bring in enough cash to significantly pay down the pension debt, allowing lawmakers to possibly restructure yearly pension payments and free up cash for more school funding, paying off health care bills and making other needed improvements. Illinois’ income tax is low compared to other states, they argue, and citizens would support an increase if the proceeds went to the right priorities.

“We’ve got to do all those things, and we’ve got the capacity to do it,” said Ralph Martire of the taxpayer watchdog Center on Tax and Budget Accountability.

CONS: A big obstacle is Blagojevich, who has repeatedly vowed to veto any general income or sales tax increase because it’s unfair to working people.

Other opponents include Republican lawmakers who argue the state’s tax burden is already too high, and raising taxes in a slow economy is foolish. They fear the extra money will go to create new state obligations rather than paying off existing ones.

3. NEW BENEFIT SYSTEM: Under this plan backed by business groups and Republicans, Illinois would switch to a 401(k)-style retirement program that requires the state to pay a defined contribution each year rather than providing employees set benefits.

PROS: Advocates say it would be cheaper to run in the long run because benefit packages could be slimmer. It would ensure the state pays its share of retirement costs each year and give employees more say over their invested money. It would also provide more flexibility for universities to attract out-of-state professors and for employees to take their pensions with them if they leave state employment.

“People get really afraid when you talk about a defined contribution system, but they really shouldn’t be,” said Sen. Bill Brady, R-Bloomington. “I can’t see frankly a downside to it if you do it right.”

CONS: Critics, led by teacher and state employee unions, say a contribution system would be more expensive because the state would have two tiers — one for current employees and retirees in the existing system and a new system for new hires.

They contend employees would get worse benefits and would be more vulnerable to poor investment performance. They say it could hurt recruiting into state employment and would do nothing to reduce the current $42 billion debt.

“I just think we’re putting people in jeopardy and our economy at stake,” said Cinda Klickna, secretary-treasurer of the Illinois Education Association.

State pension solution not easy to implement

May 25, 2008
By RYAN KEITH The Associated Press

SPRINGFIELD — Finding a possible solution for Illinois’ massive pension debt problem isn’t difficult. Tax increases, more borrowing, selling state assets, trimming future benefits — all are on the table for discussion.

But seeing any of those become reality is a much bigger hurdle. None are easy to adopt.

Sen. Bill Brady, R-Bloomington, talks about the state pension debt while on the Senate floor during session at the Illinois State Capitol in Springfield on April 1. Illinois has the nation’s worst pension debt problem, and everyone involved agrees a solution is needed now.

Some polarize policymakers and advocates at their very mention. All are major undertakings because of the price paid — either with taxpayers’ money or state officials’ political popularity.

In fact, about all they agree on now is that Illinois’ pension debt can’t be pushed off any longer.

“It’s a lot easier to put the problem off on somebody else. You can’t do that forever,” said Eden Martin, who heads the civic committee of the Commercial Club of Chicago.

Avoidance has been a problem for years. Illinois’ pension debt now tops $42 billion, more than doubling since 1995. The debt grows by nearly $5 billion a year because of interest and the cost of benefits earned.

The state is more than 10 years into a 50-year plan designed to steadily whittle away at the debt. But that means more money is needed each year to pay pension expenses, taking from the pot of tax money available for other needs such as education, health care and law enforcement.

So lawmakers and advocates say the debt has to be dealt with today. But how?

Bonds, tax increases, system switch

The Blagojevich administration backs borrowing $16 billion in lower-interest pension bonds, potentially saving the state $55 billion over the next few decades.

“Anything you pay off sooner is cheaper and better,” said John Filan, Gov. Rod Blagojevich’s top budget adviser. “We really have to make some sizable, significant decisions, and a pension bond will help an awful lot.”

Others say an income tax increase would help solve the pension and other state money problems. And there’s a push to switch from a pension system that guarantees employees certain benefits to one that promises the state will pay a certain contribution each year in a 401(k)-style setup.

All face a difficult road that could become a dead-end.

“What it’s going to take is some tough decision-making,” said Rep. Kurt Granberg, D-Carlyle. “Members have to stand up and say, ‘We have to resolve this issue.’”

That’s not a preferred path for many lawmakers, especially with top leaders fighting over more high-profile issues such as budget spending and priorities.

In the shadows

To some extent, the very nature of pension funding and its public interest is at fault.

Lawmakers know voters are tuned in to issues such as schools, roads and health care. But pension systems largely are in the shadows. They don’t spur passionate debate that can lead to action, like with electric rate and medical malpractice insurance increases.

For years, lawmakers favored other needs rather than paying off the pension system debt and even now may not tackle the issue.

“It’s the elephant in the living room, and we’ve grown very accustomed to ignoring the elephant,” said Sen. Don Harmon, D-Oak Park.

Some argue the 50-year plan has Illinois on the right path to get most of its pension debt paid off over time, as long as lawmakers commit to fully funding the required payment each year.

“We think it will work,” said Nick Yelverton, a legislative director for the Illinois Federation of Teachers. “The problem is providing the resources in order to make it work.”

Drawbacks to each solution

Each possible solution comes with a backlash.

Critics say another pension bond is foolish because new borrowing to pay off old debt only pushes the problem to future generations. An income tax increase is adamantly opposed by Blagojevich and many Republicans whose support is needed for it to become law.

Switching to a 401(k)-style retirement plan is harshly criticized by the politically powerful unions as unfair to employees and costly to the state.

“You can only cut back so much,” said Cinda Klickna, secretary-treasurer for the Illinois Education Association and a Springfield high school English teacher. “We reach a point where there isn’t enough money and you’re going to have to deal with some of these other solutions. Cutting benefits isn’t going to work.”

So what could be done?

Legislators could continue to follow the 50-year plan, which calls for putting more than $3 billion in money into the funds this year. They could take another pension “holiday” as they did in 2006 and 2007 when they cut back the annual payments to cover other budget needs.

Or they could try to reach agreement on one or more of the options outlined above.

Some predict pension debt will continue to grow until Illinois leaders feel true pressure to turn it around.

“This problem’s not sexy enough,” said Ralph Martire of the taxpayer watchdog Center for Tax and Budget Accountability. “We’re at a pretty horrible place, and we need to fix it.”

Copyright 2008 Associated Press.

GOP Senators storm out of budget committee

Daily Herald  |  Posted by JP on Thu, 05/22/2008 – 18:41

Angered by the treatment they’d received from the majority Democratic lawmakers, Senate Republicans stormed out of a Revenue Committee meeting Thursday evening that’d been called to debate and vote on a massive pension borrowing scheme Senate Democrats and Gov. Rod Blagojevich hope to use to balance the budget.

The state owes itself billions in pension payments that have been skipped over the years. It’s kinda like skipping your kid’s college fund payments, the longer you let it go and more you skip, the more it’s gonna cost down the road. Imagine skipping billions in payments … for years.

But it’s “soft” debt, money the state owes itself so it’s often overlooked.

The pension borrowing deal would convert it to hard debt. Illinois taxpayers would owe the billions to someone other than themselves. Keep in mind it’s your tax dollars that will fill this pension hole. While teachers and state workers have contributed their share to theirpension funds over the years, state lawmakers and governors chose to spend the state’s share – your tax dollars – on other things.

Imagine if you found out your employer had been spending the retirement fund contributions on something other than your retirement.

If nothing else, converting it to hard debt ensures no payments will be shorted or skipped, that is if the state hopes to have any financial credibility.

But there are all kinds of games that can be played with the borrowed billions, games that result in the borrowed money going to plug current budget holes or pay for program expansions rather than pension debt, or the borrowing can be back loaded so the state has added billions to spend now and doesn’t have to worry about these “hard” payments for several years. And the commission on these deals is huge, which opens the potential for all kinds of shenanigans and corruption.

Daily Herald Capitol reporter Nick Shields stayed late Thursday to check in on the committee action and watched as the GOP members chose to bolt rather than stick around and watch the inevitable approval by the Democratic majority.

The Republicans left after the acting committee chairman – Elgin Democrat Michael Noland – cut off their line of questioning regarding ethics.

“You’re not going to respect one of us. You’ve disrespect all of us, just because you don’t like the question that’s being asked. When we don’t say what you want us to say then you shut us down. I think it’s dead wrong,” said state Sen. Chris Lauzen, an Aurora Republican.

State Sen. Bill Brady, a Bloomington Republican and expected GOP candidate for governor in 2010, led the exodus. The other Republicans — including Roselle’s Carole Pankau — followed soon after.

A Senate vote on the borrowing scheme is expected Friday. It’ll take 36 votes for approval in the 59-member Senate. Democrats have enough votes if every member supports it.

The last time the Democrats did this, they needed Republican help and found a few GOP members willing to back the governor’s pension borrowing plan, including Hinsdale Republican Kirk Dillard.

State senator wants voter input on recall

By Bob Susnjara | Daily Herald Staff
Published: 5/3/2008 12:15 AM

An Illinois state senator says he’s pushing an idea that would allow voters to send a message to lawmakers on the idea of recalling elected officials.

Republican Bill Brady of Bloomington said he wants a November advisory ballot question in all 102 counties asking whether the General Assembly should allow voters a chance to decide if a recall provision is needed for the governor and others elected to statewide office.

Brady’s action comes in the wake of the Democrat-controlled Illinois Senate’s rejection Thursday of a proposal to let voters determine whether to amend the state constitution so there can be recall of public officials. Critics of the idea say it’s being stoked by animosity toward Democratic Gov. Rod Blagojevich.
While the votes in an informal advisory referendum don’t count, the result would be noticed by the General Assembly, said Brady, who plans to run in the Republican primary for governor in 2010.

Blagojevich and Democratic Senate President Emil Jones were criticized for their “arrogant antics” by Brady in his letter to Republican leaders seeking their support for the November advisory referendum.

“I’m asking for your help to take this issue to the people,” wrote Brady, who failed in his effort to be the GOP’s nominee for governor in 2006. “I’m asking each of you to contact your local county board president or individual county board members to get their support and give our citizens a powerful voice on this issue.”
Jones’ spokeswoman, Cindy Davidsmeyer, declined to comment Friday, saying she had not seen Brady’s letter.

County boards can place up to a maximum of three advisory questions on the ballot not less than 65 days before the Nov. 4 election. Brady said he’ll be soliciting all of the state’s county board leaders in letters next week.

Brady said his advisory referendum effort isn’t related to his desire to be governor. He said it’s about giving Illinois voters a voice on the recall debate.

Lake County Republican Party Chairman Daniel Venturi said he’s willing to assist in getting the advisory measure on the ballot in his area.

State senator wants voter input on recall

By Bob Susnjara | Daily Herald Staff
Published: 5/3/2008 12:15 AM

An Illinois state senator says he’s pushing an idea that would allow voters to send a message to lawmakers on the idea of recalling elected officials.

Republican Bill Brady of Bloomington said he wants a November advisory ballot question in all 102 counties asking whether the General Assembly should allow voters a chance to decide if a recall provision is needed for the governor and others elected to statewide office.

Brady’s action comes in the wake of the Democrat-controlled Illinois Senate’s rejection Thursday of a proposal to let voters determine whether to amend the state constitution so there can be recall of public officials. Critics of the idea say it’s being stoked by animosity toward Democratic Gov. Rod Blagojevich.

While the votes in an informal advisory referendum don’t count, the result would be noticed by the General Assembly, said Brady, who plans to run in the Republican primary for governor in 2010.

Blagojevich and Democratic Senate President Emil Jones were criticized for their “arrogant antics” by Brady in his letter to Republican leaders seeking their support for the November advisory referendum.

“I’m asking for your help to take this issue to the people,” wrote Brady, who failed in his effort to be the GOP’s nominee for governor in 2006. “I’m asking each of you to contact your local county board president or individual county board members to get their support and give our citizens a powerful voice on this issue.”
Jones’ spokeswoman, Cindy Davidsmeyer, declined to comment Friday, saying she had not seen Brady’s letter.

County boards can place up to a maximum of three advisory questions on the ballot not less than 65 days before the Nov. 4 election. Brady said he’ll be soliciting all of the state’s county board leaders in letters next week.

Brady said his advisory referendum effort isn’t related to his desire to be governor. He said it’s about giving Illinois voters a voice on the recall debate.

Lake County Republican Party Chairman Daniel Venturi said he’s willing to assist in getting the advisory measure on the ballot in his area.

Let the People Speak

Let the People Speak

On Thursday, the Democrat majority of the Illinois Senate rallied to protect their embattled Governor and killed any chance the citizens of Illinois could have this year to recall incompetent state officials through an amendment to their Constitution.

Polls that show more than 70 percent of Illinois citizens support a recall process.

The people of Illinois – Republican and Democrat alike – are disgusted and embarrassed by their government in Springfield today. We’re bombarded with explosive testimony in a federal courthouse in Chicago about the Blagojevich Administration’s involvement in pay-to-play schemes and rewarding of campaign contributors with jobs. The governor’s approval rating has nose-dived to 13 percent in a recent survey; that’s proof enough of what the people think about state government today.

Yet, the Democrat majority in the Senate turned a deaf ear to the people of Illinois, voted down recall, quick-gaveled an immediate adjournment and fled the state capital.

But all is not lost for the people of Illinois. We still have the ability to give voters an opportunity to be heard this November in advisory, non-binding votes. We cannot amend the Constitution by voter initiative, but local officials can give their citizens the opportunity to speak out loudly and clearly in advisory referendums on recall in each county of the state.

I’m asking for your help to take this issue to the people. I’m asking each of you to contact your local County Board President or individual county board members to get their support and give our citizens a powerful voice on this issue.

Let’s let the people speak their mind at the voting booth on recall this November. Let’s let the people show Governor Blagojevich and Senate President Emil Jones that they are fed up with their arrogant antics in Springfield.

Each county can have as many as three public questions on the ballot, and the mechanics for putting an advisory referendum on individual county ballots are actually fairly simple. All it takes is a resolution or ordinance passed by your local county board at least 66 days before the November election. That gives every county board almost four months to pass a resolution, present it to their local election authority and allow their citizens to express their opinion on recall.

It does not involve getting signatures on petitions. No concentrated petition drive. Just convincing your local officials that this issue of public policy is important enough for them to put in on your local ballots.

The question can be as simple as, “Should the General Assembly pass a resolution asking if voters wish to amend the Illinois Constitution to allow for the recall of state Constitutional officers and members of the General Assembly?”

Can the people of Illinois count on your support in this endeavor?