The teacher pension system in Illinois isn't broke--yet. There are serious concerns about the system's viability and whether or not it can meet its obligations, especially to younger teachers.
What should we do to solve the problem?
Teacher pensions in the spotlight
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Me07,
"I doubt the state would have the legal ability to force the school districts to pay for
a deficit they created by not making payments into the system. I can see them having a stronger legal basis to have districts pick-up the forward payments."
Perhaps, but please remember part of the shortfall IS caused by the unrealisic return assumptions of the past 12 years. The money is gonna have to come from somewhere!
Me07,
Check out today's WSJ -- good article on some private pension snafus
(REVIEW & OUTLOOKMay 14, 2012, 7:38 p.m. ET
The Union Pension Bomb
Multi-employer plans look to be in big trouble.)
SOB,
I doubt the state would have the legal ability to force the school districts to pay for
a deficit they created by not making payments into the system. I can see them having a stronger legal basis to have districts pick-up the forward payments.
Me07,
I always meant 15-25% (the 18 was a typo) and at some point I said something like "... Maybe it will be 12-15%.". I am happy to just fix on 15%,
Either is a scary number to me!
The intent was that after 3 years, there would be a major dent in the 43-50 bil shortfall and the new runrate would allow full funding over some longer period as determined by the legislature.
Still would like your opinion as to whether or not you think the state will eat the $43-$50 bil or push it down to the districts?
SOB,
If you had said the following at the get-go, you could have saved a lot of time and energy. Re-writing your first post to be clearer:
“I can see Quinn pushing the total unfunded liability down to the local school districts.Then the legislature will remove the ‘lower of 5% or inflation’ limit on property tax increases, causing our property taxes to jump 18-25% a year for a three yr period.”
Still like to see your math on how the 18-25% (you also use 15-18% - which is it?) is going to pay off district’s unfunded liability. Are you saying that if taxes go up X percentage - pick one - over a three year period then the deficit will be paid off, yes, no?
Me07,
Now hat we both know we are both talkng to our view of what will happen, I have a direct quesition for you:
Do you really believe the state will "eat" the 40-50 bil in TRS pension underfunding, or do you believe they will push it down to the districts?
To be clear, I expect them to first "force" changes to the program (by force, I mean thumb bending, etx., as the state constitution prevents unilateral decisions), THEN push the remainder down with a long phase in thatbwould never be allowed for private industry. "Changes" will begin with "forward" changes, , such as retirement age, contriutions, etc., and possibly a cue from Madigan by eliminating retirement medical coverage as a paid item
If I were a covered employee, I would be more than a little nervous.
Again, JOMO.
Me07,
Understood.
I will encourage you to read my initail post, though: there was no declaration of fact.
I thought it read as my view of what will happen.
"Same as the old boss (SOB) | May 1, 2012 10:16 PM | Reply
Wait for Quinn to push the liability down to the loal school districts, than the legislature will remove the "lower of 5% or inflation" limit on property tax increases, than our property taxes will jump 18-25% a year for a three yr period.
The result will be a hit to property values even here in Naperland."
As feedback for you, it appeared that your first post to me on "math" related o the 15-18%, not the concept of itbeven happenng.
:)
SOB,
It's dangerous to post something that represents what you think as fact. Had you initially said, "this is what I think could happen" as opposed to implying this is what is going to happen, we could of saved a lot of energy.
So tell us, oh me07, whatdo YOU think will happen concerning the $40-$50 billion shortfall?
How WILL it get funded?
How WILL the districts pay anything extra if restrictive tax laws aren't loosened?
Any thoughts you have must have a link since everything is apparently on the intnet!
I will assume this thread is over, but remember it when this pension problem gets "fixed".
SOB,
You can disagree all you want, but I think Tom Cross - Illinois Republican House Leader - knows what he is talking about. The potential cost to District 203 is $10 million a year which is the forward payment amount and there is no discussion of allowing districts to pass through the cost to the taxpayer.
Real simple. If you have a state official talking about legislation, or even bringing up the idea of yours that the state is going to push the entire unfunded amount onto the taxpayer, please give us the link.
Me07,
We disagree on the first assumption -- no problem. See how easy it is when being civil?
Let me try to persuade you --- You understand the hole the state is in, that the funds are underfunded by a sloughload ($40-43 bil or so). Inthink we agree on that.
Now, that 43 bil shortfall needs to be made up, funded, put in the kitty, whatever. As I said, the shortfall is made up of the state not funding (illegal in corporate America, but not public financing) and a steep shortfall in returns on the funds investments (more on that later).
The problem?
Twofold: First, The state is broke. The money can only come from taxes. I don't believe the taxes will be made available for the shorfall from sales or income taxes, so that leaves real estate taxes.
Second, the state can try to force unions and other employees to make changes o their contracts. Since the state constitution says the state cannot do this unilaterally, the state needs cooperation. I doubt they will get it to the extent the shortfall can be fully funded. If you saw todays news, Madigan is taking away retirement medical (not covered by the constiuion), or at least changing the retirees share by a lot!
As far as Tom Cross, I believe he is incorrect or is being misinterpreted or he actually believe he has power in the state and can change the economic facts. The article last week in SunTmes (and the Sun?) pointed out that in 203 the 65 or so recent employees whose raise caused a "penalty" payment WOULD have cost 203 anoher $10 millon if the rules demanded the districts cover it all. Note that even the $10 mil would be a 5% increase beyond normal spending, thus the probable need for either a referendum or a change in state law concerning real estate tax increases.y
I said I would address fund returns --- the Illinois TRS uses an assumption of 8.5% returns in its actuarial projections. You refer to a 30-40 year return rate, but that was then and this is now. I posted a reference to the past decade of performance --- Over the past 10 years, the return for TRS has slipped to 6.0%, slightly better than the 5.7% median. This makes the 8.5% look way out of line, yes?
But wait! There is more! Two of the other three major state pension funds use 7.5 or 7.75. If TRS changed theirs to this more believable number, the underfunding jumps to over $50 bil. I will add that there are clear laws on this rate in the private sector, and you would be hard pressed o find any in today's environment using a number over 7.75%. In fact, I suspect finding too much over 7% would be a challenge. Let me add that Warren Buffett has been qoted as saying 8,5% is just plain too high.
What to do? Well, if the fund managers don't change the assumption downward to more correctly reflect reality, they will need to take bigger and bigger risks to get the 8.5% returns. Mortgage secured loans, perhaps? As we both know, risk drives return and the current risk free rates are closer to 2%. As Rick Perry so famously said, "Oops!".
Since others on this blog like links, see the following article representing a 4 month study/research from Crain's Chicago Business:
http://www.chicagobusiness.com/article/20111217/ISSUE01/312179972/pension-peril-illinois-trs-goes-higher-risk-with-investments
A great article, and if you surf further you will find a lot of posts and articles, etc. that either support Crain's or skewer them.
As you already know I support the Crain's aricle. By the way, I truly hope you are right and the hit is "only" $10 mil a year.
Perhaps Dan Denis could chirp in on the underfunding? In the past it has seemed he understands this public sector stuff.
Me, good for you, the valuations in my neighborhood skyrocketed. I guess this means that we are not neighbors.
The values in my neighborhood are way down, but the tax bill still went up. Go figure.
I could add it it up, but a quick estimate is that I have paid an additional $75,000 in taxes over the past 10 years. Some lucky teacher is driving a Ferrari that I purchased for them.
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
"DA
I keep all my tax bills. My share for 203 went from $4600 to $6025 in the last ten years. That's a 30% increase."
DA
I keep all my tax bills. My share for 203 went from $4600 to $6025 in the last ten years. That's a 30% increase.
Sob,
Where to start?
How bout, your initial assumption is faulty. The proposal is for districts to pick up the forward pension contributions, 8-9% of wages, not the past unfunded portion. Cross’ statement that 203’s share – all in – would be $10 million a year is accurate, there’s a recent article in one of the local papers where a 203 official verified the amount. I can find it probably if need be. Needless to say the rest of your figures are irrelevant, and as I said before they aren't talking about allowing districts to levy for the amount.
I read on the TRS website that they have averaged over 9% returns over the last 30-40 years.
My property taxes increased 100% in the last ten years, this was as a result of the "only $400 increase" that we were sold via bait and switch so that the Teachers could afford to live in Naperville. In real numbers my taxes increased by $9500 per year.
Look at the voting map, the Chicago machine wants to shift the cost of unions to the Republican controlled areas and away from their voters, plain and simple. aka spread the failure.
Me77,
Well, if we are done with the insults and the lazy work ethics, I can say that I actually DO know what I am talking about. Can you say the same?
You have been a decent, though not even close to a good, sport, so here is an extremely simple analysis for you:
>Illinois teachers pension (TPS) has a $40 to $43 billion shortfall (Y)
>there are 879 school districts in Illinois
>203 is the fifth largest at 18762 students (4th when you back out CPS, which are not part of the equation with 435000 students)
>there are 2119707 students in Ill. Backout Chicago and we are sitting at 1684707 students covered by TPS
> the ratio of active teachers to reired ones is well under 2:1 (not good!)
203 represents a percent (X %) of the total students in Illinois. So, If one assmes a linear relationship (not necesarily six-sigma accuracy, but close enough for horsehoes) you could muliply the shortfall (Y) by X and get a crude "worse case scenario" idea of the shortfall 203 is responsible for.
It is a lot of freaking money that will need to be funded above and beyond current spending rates, plus the forward, ongoing coverage on a per year basis.
This shortfall is a combo of two major events:
1) the State has allegedly been spending funds and not adequately funding the teachee pensions, and
2) the actuarial tables have been assuming crazy returns, somethng around 8%.
As I said, 15-2% MIGHT be a little high (I don't think so), but it will be a huge number!
Southeast side,
Well, in case you missed your own post, you brought in the concept of businesses, and businesses not only have an income tax (with deductions, etc., ) but also has the personal property replacement tax, which is clearly progressive. As far as individuals, though the rates are flat (for now), the deductions, and lack thereof, make it progressive (though currenrly not as progressive as the feds).
So, alas, they ARE an issue you uneducated, ignorant (by your own defnition) little liberal dweeb. By the way, I am a registered indee, but I suspect your narrow little liberal mind cannot comprehend anything that is not in goose step with yourr own dogma. Thus, one must either be in exact agreement with you, or be the enemy. Nice tent (not!).
My grammar? It is fine, thank you, though I do find typing on this tiny 4 inch screen to be, at best,trying.
Uh, perhaps your reading is also compromised (or your comprehension). I posted Quinn would "...push the pension shortfall...". The implication is clear IF you have any understanding of government: the top dog wants something done, and he pushes it through (ie bends thumbs, etc,to get through). I did not say he could just do it. Of course, you are so married to our dogma that your only intent is, as I predicted, to insult as that is the extent of your "toolbox". You know, if all you have is a hammer......
By the way, it was clearly stated we were discussing INCOME tax rates, not medicare, social security, etc. There 's that "reading and comprehending" thing again! You really need to work on that! Sad.
Also, you seem to disbelieve that the wealthy pay an extreme share of the fed income taxes --- where is our data? I ask only because you are grossly wrong and I hope to lead you down the path of getting accurate data for yourself.
Finally, You ask to show my math. No. I clearly stated how me77 could do it on his own. Your litlle game of 'no link = a lie' is just that ---- a little girl's tea party game.
Grow up.
There is no game here. IF the pensions get pushed back to the districts, we will have an unbelievable real estate tax increase. Do you seriously believe the legislature won't back it if it is the only answer remaining?
Did you hear Rahm today? If there are no major changes to Chicago pensions, HE stated Chicago RE taxes will increase 150%.
Tell us again how sure you are that my off the cuff warning is grossly wrong and how we need not worry about huge tax increases if the pensions are pushed down, you idiot!
Enough!
Me77 needs to learn to read!
I posted "Wait for Quinn to push the liability down to the loal school districts, than the legislature will remove the "lower of 5% or inflation" limit on property tax increases, than our property taxes will jump 18-25% a year for a three yr period."
If you can read coherently this time, you will note i said "the legislature will remove....", NOT Quinn.
You will also note I posted a three year increase of high percentages, not that the entire cost would be phased in over three years.
If you read the SUN, you will note that extra cost just for the 35 "excess" teachers would be 10 million. Now, imagine all the pension costs for all teachers, current and retired, being pushed back to 203.
Newsflash, flash ----- way more than 10 mil!
You're right --- you have no idea what you are talking about, I truly hope my 15-25% is too high, but if you are naive enough to think the increase is ignorable you are truly one of he zealots our politician's depend on o keep getting re-elected. So maybe it will be 12-15%, but that is still unacceptable. Of course, it sounds like you totally support the mighty Quinn, so you got dat going for ya!
You were asked to show your math. To produce some evidence that you weren't pulling you argument out of your ...ear. You didn't. You wouldn't.
"No link means it is a lie." Period.
Put up or shut up. This is how the game is played.
SOB:
Enough!
You say: “Wait for Quinn to push the liability down to the loal school districts, than the legislature will remove the "lower of 5% or inflation" limit on property tax increases, than our property taxes will jump 18-25% a year for a three yr period.”
Using District 203 as an example, they receive about $250 million in revenues. Property taxes pay about 80% of that or $200 Million. If property taxes go up 54% to 75% in three years as you claim, that means District 203 in three years will be receiving an additional $108 to $150 million a year. On a one year basis it’s $30 to $50 Million more.
Tom Cross is mentioned in last Sunday’s Daily Herald editorial: “Shifting pension costs to downstate and suburban districts without a phased-in plan likely would mean $10 million more in costs for taxpayers in Naperville Unit District 203, Cross contends.”
Actual cost: $10 million.
At best, you are off by 300% and at worst you are off by 1500%
But wait! It’s even worse for you. You apparently don’t know that currently there is no discussion about allowing districts to levy separately for pension costs as other governmental entities do. It might come to that, but it’s not on the table right now.
Finally, Quinn can’t do this without the legislature going along.
You have no idea what you are talking about.
Speaker of Bull (SOB).
you say that taxes are "pretty progressive" as is - But the State of Illinois Income tax is FLAT. So how exactly is that progressive? This is about ILLINOIS teacher pensions, so Federal tax rates, etc are not really the issue, are they?
But on the issue of Federal rates, Also your stories about being close to historical effective tax rates are just that - stories - unless you provide something to back them up.
Personally, I find it very hard to believe that the 15% rate on capital gains stacks up to the 28% rate between 1986 and 2001. So I think you are trying to be misleading. 15% is just over HALF of 28%. So in 2001, a (wealthy) person who got all of their income from capital gains saw their tax bill nearly cut in HALF. But you were excluding capital gains, right? Just like you exclude payroll taxes ( SS & Medicare ) when you claim the wealthy pay all of the taxes??
http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States#History_of_capital_gains_tax_in_the_U.S.
Also:
1) your grammar is attrocious ,"Both Me77 and southeast side believe" - so your grasp of English is weak.
2) when Quinn pushes the pension shortfalls This would have to done by the entire legislature, not the governor (although he would have to sign it). So your knowledge of government is also very suspect.
3) So we have determined that you are completely uneducated and ignorant about everything except "complaining about taxes". And namecalling. You really excel at both of those.
Let me add for those who have trouble with simple reading (such as is evident with southeast side), I have already laid outbfor me77 how to perform the analyisis. His lack of effort can only be answered by him.
Driveling liberal slops like southeast side always butt in on threads when the direction of the argument does not support their weak dogma.
When absent ant facts or data, slops like southeast side tend to fall back on the limited skillsets of the progressive left tool bag, which consists of personal attacks using snide and/or insulting terms, then getting outraged when their intended target acts in kind.
So to summarize and be clear:
Both Me77 and southeast side believe that when Quinn pushes the pension shortfalls back to the school districts (as was so aptly outlined in previous SunTimes, SUN, and Tibune articles), it will not result in property tax increases.
Good luck with that!
Republican dupes like SOB NEVER show their work. Because they don't have any FACTS. Their only skills are complaining and kissing the butts of their wealthy masters. As Stephen Colbert once said - "Facts have a well known liberal bias".
SOB must be for "Speaker of Bull".
Me77,
As I thought --- ur 2 lazy to do any work on your own.
Sorry, charlie, but I am right amd I don't work for you. Get real and perhaps look for that govt program to helpmu out!
SOB,
As I thought. How bout next time you make claims you can't back up, you think twice about posting it.
Nothng curious about it. Get off of your oversized derriere and do some work for yourself, bucko!
Sitting around your computer, too lazy to do some simple keystroke research, it pitiful, dude. I already told you the "how"!
Waiting for a government program?
SOB,
Curious that you aren't willing to show us how you arrived at your conclusion.
Do your own freaking math!
Smplify it by reading the reports in the SUN & Tmes the other week, look at the 203 or 204 pension data, estmate the shortage that belongs to them, and divide it out! Divide this into otal spending and apply against your tax bill. This will get you close enough for horseshoes.
One could argue why teachers even deserve a pension for what is basically part-time, seasonal work.
However, without getting off into that discussion the same legislation that giveth can taketh away. With a stroke of the pen the legislature and governor can take whatever action is necessary to solve the pension deficit problem.
The number one problem is benefits that over the top in generosity. The second problem is the lack of fair contributions by teachers into their own pension.
The number three problem is that government pensions have not been abolished and replaced with 401(k) type retirement plans as a replacement.
While it may be difficult to deal with some of these issues with current teachers and retirees the very first step should be to enact legislation that will end this nightmare by enrolling all newly hired teachers into a totally new and different retirement plan and system.
It might take a few decades to work our way through the existing teachers but there is a way forward and the longer we wait the bigger the problem becomes.
I can't wait for all the unions to cry foul and say they won't agree to a new contract. Good. Great actually. Fire all the union teachers, privatize the schools, and hire new teachers that work for companies instead of units of government with private sector benefits and pensions.
Every problem has a solution. Our elected official in Springfield need to put on their big boy and big girl pants and start dealing with them.
A good start for Springfield with government pension reform would be with an full outside, federal investigation of the legalities of what Mayor Daley pulled with his own mayoral pension and who in Springfield enabled him along with a complete and total claw back of anything that wasn't legal or above board.
Anonymous,
If you have run the effective numbers, please share with us.
Me07,
YOU might want to do as I suggest and run the numbers ---- top tax brackets are meaningless.
What is meanngful is actualized or effective tax rate (ie total taxes divided by total income).
The elmination of many, many writeoffs along with the loss of writeoffs as income grows (both the results of the Reagan and Bush II admins, by the way) means that the effecive rates right now are within 1-2 points of what they were when top rates were 70%.
Additionally, the top earners are paying the highest portion of total taxes in history.
As I said, pretty progressive as is.
One solution is to admend the IL. State Constitution, to allow for the payment of state income taxes on all retirement plans, public and private. Have a pension? Pay state income tax on the retirement income.
Anonymous,
You might want to brush up on historical top income tax rates for individuals and report back.
As I said, you might want to run the numbers instead of rehashing your dogma. The tax system right now is as progressive as its ever been.
All of the same programs and ideas that drove Detroit and Chicago into the dirt will only work if implemented at the State level. AKA redistribute from the Burbs and Country to the Cities until everyone is bankrupt.
What is really amazing is all of the dupes in the Burbs who will vote to lose their houses via taxation in the upcoming election, I guess that is progress?
SOB,
Please show us your math.
Of course progressive taxation is the answer. It's the only one ever proven to work. Too bad there are so many out there who, without even considering how this works, scream socialism and stop their ears. It's funny because the very people who would benefit from a fair progressive tax system, and with it an educated population, are the very people fighting against it.
Dude,
U might want to run the numbers --- zero chance of being saved by your little socialist suggestion. Simple math.
Wait for Quinn to push the liability down to the loal school districts, than the legislature will remove the "lower of 5% or inflation" limit on property tax increases, than our property taxes will jump 18-25% a year for a three yr period.
The result will be a hit to property values even here in Naperland.
Progressive taxation. Marginally higher taxes on the wealthy would produce a flood of tax revenue, and all would be fine.