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Saturday, May 09, 2015

Another Act Coming to Illinois Pension Theatre

As I predicted in March, 2014, http://mikekr.blogspot.com/2014/03/illinois-pension-crisis-prediction.html the Illinois Supreme Court struck down the 2013 Illinois pension reform bill. It was a unanimous decision, widely expected.

So what was accomplished?

On the pension front, there's been negative progress.  Illinois public pensions have had two more years to get deeper in the hole.

On the political front, the pension reform bill has to be considered pretty much a success. During the November, 2014 elections, the pension mess wasn't much of a topic. Democrats kept control of both houses, with Madigan and Cullerton still in control.  Pat Quinn, a nice man but an accidental and somewhat inefffective governor, almost got re-elected.

It was all pretty much theatre, designed to kick the can down the road yet one more time, after the next election.

It's hard to see what will happen in the next act. Rauner's making noises about forcing things that, again, probably aren't constitutional.   Governor Rauner has suggested that Chicago might look into declaring bankruptcy.   Nobody seems to be thinking the obvious: if  the phrasing in the constitution is the problem, maybe we should amend the constitution.

Our suggestion

We might suggest a amendment along these lines: figure out what pension a patrolman with 30 years would get -- a job where you can be shot and killed. Set that at the maximum, with no double dipping. That maximum would apply backward in time as well, and the maximum would be adjusted for inflation.

For the legislature, we have something special. It's tempting to eliminate legislative pensions entirely. After all, generations of legislators created this mess.  But let's be a bit kinder. They would have the additional maximum limit of only getting back out what they put in, plus inflation.

I note that the pensions for some newly hired Illinois workers -- teachers being one example -- don't meet even this criterion.

Tier 2 workers' benefits cost about 7 percent of their pay, but they contribute 9.4 percent toward their retirement. Veteran workers, on the other hand, also contribute 9.4 percent of their pay, but their benefits tend to cost more than 14 percent, teachers retirement fund analysts said.
"Right now, a Tier 2 member pays for more than the cost of their benefit," Ingram said. "We're subsidizing the state's pay down of the unfunded liability."
 So, it's hard to feel much sympathy for the legislators.

Illinois could also eliminate the tax break -- the pensions are exempt from Illinois income tax.

This probably isn't enough, given the size of the hole. I lack the numbers to figure out how much this helps. Tax increases may still be needed. Maybe future pension contributions should all be 401k based, as most now are in private industry (including my own). But it would at least indicate some of the rampant abuse present in the system, and give more pain at the high end of the pension benefit ladder, where the pain can be more easily borne.