Guest View: Investment needed to improve higher education in Illinois

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The Democratic and Republican primaries are over, thankfully, for many of us. But as the candidates transition into a new gear of spending and inundating us with numbers and claims about each other, we should be closely watching what’s happening to our state’s higher education system.

We cannot escape the reality facing Illinois: People are leaving, in droves. The more our political leaders fight, the more uncertainty and angst is created, and the easier it is for talented workers and their families to find somewhere else to call home.

The same holds true for our college and university students, and sadly, it has for some time. As our state grinds further into fiscal disaster, what’s left behind is a sad tale of exodus:

* In 2002, 29 percent of our college-going high school graduates enrolled out of state. By 2016, that number had grown to 46 percent — nearly half of eligible Illinois high school grads choosing to go anywhere but Illinois for college.

* In 2011, almost 880,000 students were enrolled in Illinois higher education. Just five years later, in 2016, that number had dropped by 100,000 students, or nearly a 12 percent drop.

Why are our college students fleeing? Higher education critics, from policymakers to parents, will claim the cost is too high and our campuses haven’t adapted quickly enough to our ever-evolving economy. One other important number is critically important here: Once adjusted for inflation, state funding for higher education operations (not including pensions) has dropped by $1 billion over the last 15 years.

We cannot pretend that a significant disinvestment in our crown jewel of higher education has not contributed to the challenges of cost, innovation and, most important, a growing perception that students can fare better elsewhere. These draconian cuts, to both student aid and institutions, have created a de facto policy that encouraged our best and brightest to leave. And with every student that leaves — almost 170,000 of them over that five-year period — it should be no surprise that our Illinois higher education rankings slipped from the top to the middle of the pack.

Understand the practical and wide-reaching effects of the exodus of college students. Many college-aged students who do come here from other states for their degrees are just visiting. We don’t have the warm weather of Florida, or the mountain hiking of Colorado, or the lure that other states can offer. So if we cannot keep our students here, and we lose others who graduate and head back home, where will we get our next generation of nurses and doctors, classroom teachers, and skilled engineers to plan our roads and infrastructure?

Our high-quality system of community colleges and public and private universities provide many wonderful choices for Illinois residents now, guides them through completing a degree at nationally high rate, and could do so much more if state government embraced the possibilities instead of thwarting them. The 2.5-year budget stalemate, where higher education was a primary victim, provided a window into the harm done to our students and our institutions.

Illinois colleges and universities employ 175,000 Illinoisans and produce an annual economic benefit of $50 billion, far more return on the state’s investment of less than $2 billion. Our campuses outperform virtually any other area of state investment because of outside private and federal investment, further driven by the high priority businesses place on developing and utilizing a skilled workforce when they invest and locate here.

We need a statewide comprehensive road map for improving higher education that recognizes we have helped create this problem, and can only turn it around through real investment and improved performance. I’m encouraged a bipartisan group of legislators has come together to work on this road map. My challenge to all of our leaders is to make higher education a priority on the campaign trail and at the Capitol, and not just a talking point in the latest ad buy.

Dave Tretter is president of the Federation of Independent Illinois Colleges and Universities.

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April 10, 2018 at 08:16PM

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Guest View: Investment needed to improve higher education in Illinois

Proposed $107 billion bond isn’t the cure for Illinois’ public pension crisis

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A big, bold plan to save the state’s debt-strapped public pension funds is being floated this week in Springfield. But don’t get your hopes up.

It’s not the cure to Illinois’ festering financial crisis.

An influential state employee advocacy group, the State Universities Annuitants Association, is urging Illinois to issue $107 billion in bonds to pay off shortfalls in the state’s five leading pension funds.

Yep, that’s a whopping $107 billion — backed by taxpayers who will be on the hook, especially if this deal goes bad. And the odds of that occurring look pretty good.

“It’s a big gamble,” says Howard Cure, director of municipal bond credit research for Evercore Wealth Management in New York.

While full details of this plan are expected to be unveiled Tuesday before a state panel, bond and public finance experts are already highly skeptical. They’re concerned it will add to Illinois’ pension burdens — now estimated at $130 billion in unfunded liabilities and growing — and further hinder the state’s sorry overall financial health.

Let’s start with the bond market.

At $107 billion in 27-year fixed-rate bonds, it would be the largest amount of debt the state ever sought from investors. Bond experts wonder if Illinois — with its record of political dysfunction, inability to pay its bills in a timely way and $25 billion in general obligation debt — will attract enough hungry investors.

One way to lure wary backers is to spice up the bonds and sell them at above-market interest rates. Such a premium would likely attract risk-taking investors, probably from overseas funds, or deep-pocketed individuals hoping to make a killing.

But higher rates are tougher to pay off and investors’ bond payments must be paid on time, says Evercore’s Cure. Missing a debt payment means riling angry bondholders, who could quickly sue the state or take other legal actions to recoup their investments, he adds.

Laurence Msall, president of the Civic Federation — a nonpartisan government research group — says his organization has “serious concerns and reservations” about the proposed bond effort too.

On top of the gargantuan amount, the bond is limited to pensions and not linked to any comprehensive financial plan for improving state finances, Msall asserts. The bond’s size could also impede the state’s ability to seek borrowing or bond financing for infrastructure or other basic needs, he says.

Despite these somber concerns, no one should be beating up on the State Universities Annuitants Association, which represents more than 200,000 current and retired employees, for leading this charge.

The group believes many initial concerns will be addressed when it reveals the details of its plan to the General Assembly committee exploring public pension matters. It will argue that its refinancing proposal will lop $103 billion off state pension costs through 2045 while increasing the pensions’ funding levels to 90 percent.

Rep. Robert Martwick, the Chicago Democrat who heads the House pension committee, has no position on the bond plan but wants it to become part of a larger pension reform debate. In the coming weeks, the $107 billion initiative will be fully discussed by finance experts, labor and taxpayer advocates, he stresses.

Of course, when it comes to Illinois’ public pension crisis, there’s no shortage of issues to chew over.

Government leaders have been doing that for way too many years with few results, mainly because of state underfunding of pensions, feisty union opposition and a provision in the state constitution that prohibits any structural changes to the funds or benefits.

Those who want to totally dump public pension plans haven’t had any better luck getting around that provision.

It’s a nasty trick bag because, in the meantime, the amount of public pension liabilities keeps stacking up and strapped taxpayers are increasingly responsible for paying more.

It’s a mess.

But this big, bold but flawed bond plan isn’t the solution to the public pension crisis.

We can’t be that desperate.

roreed@chicagotribune.com

Twitter @ReedTribBiz

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January 30, 2018 at 05:42AM

Proposed $107 billion bond isn’t the cure for Illinois’ public pension crisis

New session will bring new efforts at Illinois pension reform

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SPRINGFIELD — Illinois lawmakers are gearing up to start another spring session that will include more attempts to address an issue that has remained stubbornly elusive so far.

What can the state do to rein in the cost of public employee pensions and try to address the $129 billion debt faced by the five state-funded pension systems?

A number of ideas are floating around the General Assembly, from an idea to issue billions of dollars in bonds to pay off the existing debt at a lower interest rate, to an idea that would give some employees a cash incentive to accept smaller future increases in their retirement benefits after they retire.

As always, lawmakers will have to consider any changes with an eye to what the courts will find acceptable, given the pension protection clause in the state Constitution. There’s also the fact this is an election year when the Executive Mansion is at stake along with dozens of legislative races.

“Can you get anything done in an election year?” said Rep. Robert Martwick, D-Chicago, chairman of the House Personnel and Pensions Committee. “Maybe that’s the problem.”

The other problem is that the state Supreme Court has ruled that the state cannot diminish benefits for people once they’ve joined one of the pension systems.

“I think the (Supreme Court) decision is crystal clear,” Martwick said. “Most of my Republican colleagues believe it is crystal clear.”

That means Illinois can’t follow the lead of Ohio, for instance, where that state’s largest public pension system recommended cutting benefits to cope with its own huge pension debt. The system recommended cutting the automatic 3 percent increases in pension benefits awarded to retirees each year.

People in the Tier 1 system in Illinois also are entitled to 3 percent raises in their pension benefits each year and unlike Ohio, Illinois compounds those increases. Those automatic raises are a major factor in ongoing cost increases for the Illinois pension systems.

Martwick wants to pursue a bill designed to encourage people to give up the 3 percent raises and opt for the smaller annual raises that are awarded to people in the Tier 2 plan. That plan awards annual raises of 3 percent or half the rate of inflation, whichever is less.

Martwick’s idea is to have pension systems compute how much those annual raises would amount to over the estimated life span of a retiree. A rough estimate would then be made for the same person if they were in the Tier 2 plan and getting smaller annual increases. The person would then be offered a portion of the difference as an up-front cash payment if the person agreed to give up the Tier 1 annual increase and accept the Tier 2 version.

“It takes the biggest cost driver of the pensions off the table,” Martwick said. “It puts people in the much more financial manageable Tier 2 (increase).”

Martwick said he’s asked the pension systems to compute potential savings from the idea, but has not received the results yet.

Another idea that will at least get some discussion is a massive bond issue that would be applied to the state’s pension debt. The idea is the money could be borrowed at a lower interest rate than the state is essentially paying on its $129 billion pension debt.

Martwick’s committee was scheduled to hold a hearing on the idea this week, but the House canceled its session days for this week. The hearing will be rescheduled.

The idea is being pushed by the State Universities Annuitants Association. A fact sheet from the association says that $107 billion in bonds would be sold and repaid over 27 years. It contends the state would save $103 billion by 2045 over the payment plan currently in effect.

Martwick acknowledged “this would be the largest bond sale in the history of the world” and said additional hearings would have to be scheduled with bond experts to see if such a sale is feasible. But he also said the idea is worth exploring.

“I think the ideas and concepts make sense,” he said. “We are going to pay our pensions one way or another. The only question is how does the rising pension obligation affect our ability to fund all of the other things we care about.”

Lawmakers could also again consider some ideas that have been floated before, but never been approved. One is the plan advanced by Senate President John Cullerton, D-Chicago, that has workers choose between having future raises count toward their pensions or continue receiving 3 percent compounded annual increases in pension benefits after retirement.

Another option is to restructure the existing pension debt and take more time to pay it off. The plan would ease pressure on the annual payments the state has to make to the pension plans.

The idea has been promoted by the Center for Tax and Budget Accountability among others. CTBA executive director Ralph Martire said the plan would set a slightly lower target for the pension funds to be considered adequately funded, although still meeting acceptable standards. The problem is the date for reaching those targets is extended.

“You do have pressure created by editorial boards and others who say if you don’t follow the current (payment plan) and you get funded to a lesser amount, aren’t you kicking the can down the road,” Martire said. “No politician wants to be accused of kicking the can down the road. That attack has a lot of political value and it really makes elected officials nervous.”

 

 

 

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January 21, 2018 at 05:21PM

New session will bring new efforts at Illinois pension reform

New session will bring new efforts at Illinois pension reform

http://ift.tt/2Dy2eDe


SPRINGFIELD — Illinois lawmakers are gearing up to start another spring session that will include more attempts to address an issue that has remained stubbornly elusive so far.

What can the state do to rein in the cost of public employee pensions and try to address the $129 billion debt faced by the five state-funded pension systems?

A number of ideas are floating around the General Assembly, from an idea to issue billions of dollars in bonds to pay off the existing debt at a lower interest rate, to an idea that would give some employees a cash incentive to accept smaller future increases in their retirement benefits after they retire.

As always, lawmakers will have to consider any changes with an eye to what the courts will find acceptable, given the pension protection clause in the state Constitution. There’s also the fact this is an election year when the Executive Mansion is at stake along with dozens of legislative races.

“Can you get anything done in an election year?” said Rep. Robert Martwick, D-Chicago, chairman of the House Personnel and Pensions Committee. “Maybe that’s the problem.”

The other problem is that the state Supreme Court has ruled that the state cannot diminish benefits for people once they’ve joined one of the pension systems.

“I think the (Supreme Court) decision is crystal clear,” Martwick said. “Most of my Republican colleagues believe it is crystal clear.”

That means Illinois can’t follow the lead of Ohio, for instance, where that state’s largest public pension system recommended cutting benefits to cope with its own huge pension debt. The system recommended cutting the automatic 3 percent increases in pension benefits awarded to retirees each year.

People in the Tier 1 system in Illinois also are entitled to 3 percent raises in their pension benefits each year and unlike Ohio, Illinois compounds those increases. Those automatic raises are a major factor in ongoing cost increases for the Illinois pension systems.

Martwick wants to pursue a bill designed to encourage people to give up the 3 percent raises and opt for the smaller annual raises that are awarded to people in the Tier 2 plan. That plan awards annual raises of 3 percent or half the rate of inflation, whichever is less.

Martwick’s idea is to have pension systems compute how much those annual raises would amount to over the estimated life span of a retiree. A rough estimate would then be made for the same person if they were in the Tier 2 plan and getting smaller annual increases. The person would then be offered a portion of the difference as an up-front cash payment if the person agreed to give up the Tier 1 annual increase and accept the Tier 2 version.

“It takes the biggest cost driver of the pensions off the table,” Martwick said. “It puts people in the much more financial manageable Tier 2 (increase).”

Martwick said he’s asked the pension systems to compute potential savings from the idea, but has not received the results yet.

Another idea that will at least get some discussion is a massive bond issue that would be applied to the state’s pension debt. The idea is the money could be borrowed at a lower interest rate than the state is essentially paying on its $129 billion pension debt.

Martwick’s committee was scheduled to hold a hearing on the idea this week, but the House canceled its session days for this week. The hearing will be rescheduled.

The idea is being pushed by the State Universities Annuitants Association. A fact sheet from the association says that $107 billion in bonds would be sold and repaid over 27 years. It contends the state would save $103 billion by 2045 over the payment plan currently in effect.

Martwick acknowledged “this would be the largest bond sale in the history of the world” and said additional hearings would have to be scheduled with bond experts to see if such a sale is feasible. But he also said the idea is worth exploring.

“I think the ideas and concepts make sense,” he said. “We are going to pay our pensions one way or another. The only question is how does the rising pension obligation affect our ability to fund all of the other things we care about.”

Lawmakers could also again consider some ideas that have been floated before, but never been approved. One is the plan advanced by Senate President John Cullerton, D-Chicago, that has workers choose between having future raises count toward their pensions or continue receiving 3 percent compounded annual increases in pension benefits after retirement.

Another option is to restructure the existing pension debt and take more time to pay it off. The plan would ease pressure on the annual payments the state has to make to the pension plans.

The idea has been promoted by the Center for Tax and Budget Accountability among others. CTBA executive director Ralph Martire said the plan would set a slightly lower target for the pension funds to be considered adequately funded, although still meeting acceptable standards. The problem is the date for reaching those targets is extended.

“You do have pressure created by editorial boards and others who say if you don’t follow the current (payment plan) and you get funded to a lesser amount, aren’t you kicking the can down the road,” Martire said. “No politician wants to be accused of kicking the can down the road. That attack has a lot of political value and it really makes elected officials nervous.”

 

 

 

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January 21, 2018 at 05:21PM

New session will bring new efforts at Illinois pension reform

New session will bring new efforts at Illinois pension reform

http://ift.tt/2Dy2eDe


SPRINGFIELD — Illinois lawmakers are gearing up to start another spring session that will include more attempts to address an issue that has remained stubbornly elusive so far.

What can the state do to rein in the cost of public employee pensions and try to address the $129 billion debt faced by the five state-funded pension systems?

A number of ideas are floating around the General Assembly, from an idea to issue billions of dollars in bonds to pay off the existing debt at a lower interest rate, to an idea that would give some employees a cash incentive to accept smaller future increases in their retirement benefits after they retire.

As always, lawmakers will have to consider any changes with an eye to what the courts will find acceptable, given the pension protection clause in the state Constitution. There’s also the fact this is an election year when the Executive Mansion is at stake along with dozens of legislative races.

“Can you get anything done in an election year?” said Rep. Robert Martwick, D-Chicago, chairman of the House Personnel and Pensions Committee. “Maybe that’s the problem.”

The other problem is that the state Supreme Court has ruled that the state cannot diminish benefits for people once they’ve joined one of the pension systems.

“I think the (Supreme Court) decision is crystal clear,” Martwick said. “Most of my Republican colleagues believe it is crystal clear.”

That means Illinois can’t follow the lead of Ohio, for instance, where that state’s largest public pension system recommended cutting benefits to cope with its own huge pension debt. The system recommended cutting the automatic 3 percent increases in pension benefits awarded to retirees each year.

People in the Tier 1 system in Illinois also are entitled to 3 percent raises in their pension benefits each year and unlike Ohio, Illinois compounds those increases. Those automatic raises are a major factor in ongoing cost increases for the Illinois pension systems.

Martwick wants to pursue a bill designed to encourage people to give up the 3 percent raises and opt for the smaller annual raises that are awarded to people in the Tier 2 plan. That plan awards annual raises of 3 percent or half the rate of inflation, whichever is less.

Martwick’s idea is to have pension systems compute how much those annual raises would amount to over the estimated life span of a retiree. A rough estimate would then be made for the same person if they were in the Tier 2 plan and getting smaller annual increases. The person would then be offered a portion of the difference as an up-front cash payment if the person agreed to give up the Tier 1 annual increase and accept the Tier 2 version.

“It takes the biggest cost driver of the pensions off the table,” Martwick said. “It puts people in the much more financial manageable Tier 2 (increase).”

Martwick said he’s asked the pension systems to compute potential savings from the idea, but has not received the results yet.

Another idea that will at least get some discussion is a massive bond issue that would be applied to the state’s pension debt. The idea is the money could be borrowed at a lower interest rate than the state is essentially paying on its $129 billion pension debt.

Martwick’s committee was scheduled to hold a hearing on the idea this week, but the House canceled its session days for this week. The hearing will be rescheduled.

The idea is being pushed by the State Universities Annuitants Association. A fact sheet from the association says that $107 billion in bonds would be sold and repaid over 27 years. It contends the state would save $103 billion by 2045 over the payment plan currently in effect.

Martwick acknowledged “this would be the largest bond sale in the history of the world” and said additional hearings would have to be scheduled with bond experts to see if such a sale is feasible. But he also said the idea is worth exploring.

“I think the ideas and concepts make sense,” he said. “We are going to pay our pensions one way or another. The only question is how does the rising pension obligation affect our ability to fund all of the other things we care about.”

Lawmakers could also again consider some ideas that have been floated before, but never been approved. One is the plan advanced by Senate President John Cullerton, D-Chicago, that has workers choose between having future raises count toward their pensions or continue receiving 3 percent compounded annual increases in pension benefits after retirement.

Another option is to restructure the existing pension debt and take more time to pay it off. The plan would ease pressure on the annual payments the state has to make to the pension plans.

The idea has been promoted by the Center for Tax and Budget Accountability among others. CTBA executive director Ralph Martire said the plan would set a slightly lower target for the pension funds to be considered adequately funded, although still meeting acceptable standards. The problem is the date for reaching those targets is extended.

“You do have pressure created by editorial boards and others who say if you don’t follow the current (payment plan) and you get funded to a lesser amount, aren’t you kicking the can down the road,” Martire said. “No politician wants to be accused of kicking the can down the road. That attack has a lot of political value and it really makes elected officials nervous.”

 

 

 

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January 21, 2018 at 05:21PM

New session will bring new efforts at Illinois pension reform

New session will bring new efforts at Illinois pension reform

http://ift.tt/2Dy2eDe


SPRINGFIELD — Illinois lawmakers are gearing up to start another spring session that will include more attempts to address an issue that has remained stubbornly elusive so far.

What can the state do to rein in the cost of public employee pensions and try to address the $129 billion debt faced by the five state-funded pension systems?

A number of ideas are floating around the General Assembly, from an idea to issue billions of dollars in bonds to pay off the existing debt at a lower interest rate, to an idea that would give some employees a cash incentive to accept smaller future increases in their retirement benefits after they retire.

As always, lawmakers will have to consider any changes with an eye to what the courts will find acceptable, given the pension protection clause in the state Constitution. There’s also the fact this is an election year when the Executive Mansion is at stake along with dozens of legislative races.

“Can you get anything done in an election year?” said Rep. Robert Martwick, D-Chicago, chairman of the House Personnel and Pensions Committee. “Maybe that’s the problem.”

The other problem is that the state Supreme Court has ruled that the state cannot diminish benefits for people once they’ve joined one of the pension systems.

“I think the (Supreme Court) decision is crystal clear,” Martwick said. “Most of my Republican colleagues believe it is crystal clear.”

That means Illinois can’t follow the lead of Ohio, for instance, where that state’s largest public pension system recommended cutting benefits to cope with its own huge pension debt. The system recommended cutting the automatic 3 percent increases in pension benefits awarded to retirees each year.

People in the Tier 1 system in Illinois also are entitled to 3 percent raises in their pension benefits each year and unlike Ohio, Illinois compounds those increases. Those automatic raises are a major factor in ongoing cost increases for the Illinois pension systems.

Martwick wants to pursue a bill designed to encourage people to give up the 3 percent raises and opt for the smaller annual raises that are awarded to people in the Tier 2 plan. That plan awards annual raises of 3 percent or half the rate of inflation, whichever is less.

Martwick’s idea is to have pension systems compute how much those annual raises would amount to over the estimated life span of a retiree. A rough estimate would then be made for the same person if they were in the Tier 2 plan and getting smaller annual increases. The person would then be offered a portion of the difference as an up-front cash payment if the person agreed to give up the Tier 1 annual increase and accept the Tier 2 version.

“It takes the biggest cost driver of the pensions off the table,” Martwick said. “It puts people in the much more financial manageable Tier 2 (increase).”

Martwick said he’s asked the pension systems to compute potential savings from the idea, but has not received the results yet.

Another idea that will at least get some discussion is a massive bond issue that would be applied to the state’s pension debt. The idea is the money could be borrowed at a lower interest rate than the state is essentially paying on its $129 billion pension debt.

Martwick’s committee was scheduled to hold a hearing on the idea this week, but the House canceled its session days for this week. The hearing will be rescheduled.

The idea is being pushed by the State Universities Annuitants Association. A fact sheet from the association says that $107 billion in bonds would be sold and repaid over 27 years. It contends the state would save $103 billion by 2045 over the payment plan currently in effect.

Martwick acknowledged “this would be the largest bond sale in the history of the world” and said additional hearings would have to be scheduled with bond experts to see if such a sale is feasible. But he also said the idea is worth exploring.

“I think the ideas and concepts make sense,” he said. “We are going to pay our pensions one way or another. The only question is how does the rising pension obligation affect our ability to fund all of the other things we care about.”

Lawmakers could also again consider some ideas that have been floated before, but never been approved. One is the plan advanced by Senate President John Cullerton, D-Chicago, that has workers choose between having future raises count toward their pensions or continue receiving 3 percent compounded annual increases in pension benefits after retirement.

Another option is to restructure the existing pension debt and take more time to pay it off. The plan would ease pressure on the annual payments the state has to make to the pension plans.

The idea has been promoted by the Center for Tax and Budget Accountability among others. CTBA executive director Ralph Martire said the plan would set a slightly lower target for the pension funds to be considered adequately funded, although still meeting acceptable standards. The problem is the date for reaching those targets is extended.

“You do have pressure created by editorial boards and others who say if you don’t follow the current (payment plan) and you get funded to a lesser amount, aren’t you kicking the can down the road,” Martire said. “No politician wants to be accused of kicking the can down the road. That attack has a lot of political value and it really makes elected officials nervous.”

 

 

 

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January 21, 2018 at 05:21PM

New session will bring new efforts at Illinois pension reform

New session will bring new efforts at Illinois pension reform

http://ift.tt/2Dy2eDe


SPRINGFIELD — Illinois lawmakers are gearing up to start another spring session that will include more attempts to address an issue that has remained stubbornly elusive so far.

What can the state do to rein in the cost of public employee pensions and try to address the $129 billion debt faced by the five state-funded pension systems?

A number of ideas are floating around the General Assembly, from an idea to issue billions of dollars in bonds to pay off the existing debt at a lower interest rate, to an idea that would give some employees a cash incentive to accept smaller future increases in their retirement benefits after they retire.

As always, lawmakers will have to consider any changes with an eye to what the courts will find acceptable, given the pension protection clause in the state Constitution. There’s also the fact this is an election year when the Executive Mansion is at stake along with dozens of legislative races.

“Can you get anything done in an election year?” said Rep. Robert Martwick, D-Chicago, chairman of the House Personnel and Pensions Committee. “Maybe that’s the problem.”

The other problem is that the state Supreme Court has ruled that the state cannot diminish benefits for people once they’ve joined one of the pension systems.

“I think the (Supreme Court) decision is crystal clear,” Martwick said. “Most of my Republican colleagues believe it is crystal clear.”

That means Illinois can’t follow the lead of Ohio, for instance, where that state’s largest public pension system recommended cutting benefits to cope with its own huge pension debt. The system recommended cutting the automatic 3 percent increases in pension benefits awarded to retirees each year.

People in the Tier 1 system in Illinois also are entitled to 3 percent raises in their pension benefits each year and unlike Ohio, Illinois compounds those increases. Those automatic raises are a major factor in ongoing cost increases for the Illinois pension systems.

Martwick wants to pursue a bill designed to encourage people to give up the 3 percent raises and opt for the smaller annual raises that are awarded to people in the Tier 2 plan. That plan awards annual raises of 3 percent or half the rate of inflation, whichever is less.

Martwick’s idea is to have pension systems compute how much those annual raises would amount to over the estimated life span of a retiree. A rough estimate would then be made for the same person if they were in the Tier 2 plan and getting smaller annual increases. The person would then be offered a portion of the difference as an up-front cash payment if the person agreed to give up the Tier 1 annual increase and accept the Tier 2 version.

“It takes the biggest cost driver of the pensions off the table,” Martwick said. “It puts people in the much more financial manageable Tier 2 (increase).”

Martwick said he’s asked the pension systems to compute potential savings from the idea, but has not received the results yet.

Another idea that will at least get some discussion is a massive bond issue that would be applied to the state’s pension debt. The idea is the money could be borrowed at a lower interest rate than the state is essentially paying on its $129 billion pension debt.

Martwick’s committee was scheduled to hold a hearing on the idea this week, but the House canceled its session days for this week. The hearing will be rescheduled.

The idea is being pushed by the State Universities Annuitants Association. A fact sheet from the association says that $107 billion in bonds would be sold and repaid over 27 years. It contends the state would save $103 billion by 2045 over the payment plan currently in effect.

Martwick acknowledged “this would be the largest bond sale in the history of the world” and said additional hearings would have to be scheduled with bond experts to see if such a sale is feasible. But he also said the idea is worth exploring.

“I think the ideas and concepts make sense,” he said. “We are going to pay our pensions one way or another. The only question is how does the rising pension obligation affect our ability to fund all of the other things we care about.”

Lawmakers could also again consider some ideas that have been floated before, but never been approved. One is the plan advanced by Senate President John Cullerton, D-Chicago, that has workers choose between having future raises count toward their pensions or continue receiving 3 percent compounded annual increases in pension benefits after retirement.

Another option is to restructure the existing pension debt and take more time to pay it off. The plan would ease pressure on the annual payments the state has to make to the pension plans.

The idea has been promoted by the Center for Tax and Budget Accountability among others. CTBA executive director Ralph Martire said the plan would set a slightly lower target for the pension funds to be considered adequately funded, although still meeting acceptable standards. The problem is the date for reaching those targets is extended.

“You do have pressure created by editorial boards and others who say if you don’t follow the current (payment plan) and you get funded to a lesser amount, aren’t you kicking the can down the road,” Martire said. “No politician wants to be accused of kicking the can down the road. That attack has a lot of political value and it really makes elected officials nervous.”

 

 

 

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January 21, 2018 at 05:21PM

New session will bring new efforts at Illinois pension reform