By: Mark Glennon*
“Beware people who speak with great facility because they are probably expressing facile ideas.” – John Kenneth Galbraith
“I’m really happy to bite the bullet today for our caucus.”
That’s how Senator Heather Steans (D-Chicago) began her comments about Illinois pensions last week at Chicago’s City Club.
Nobody there took her up on that, but we will do it here and now.
Though her comments were brief, she managed to endorse most every piece of double talk, gimmickry and evasion of responsibility we’ve seen on pensions from the Illinois General Assembly. You can watch the video of the event yourself, linked here. Steans’ comments begin at the 9:50 mark.
Here is what she said, along with how she should have been answered in a proper forum:
Steans: An area we “should be looking at” is dedicated additional funds – a significant portion of a new progressive income tax should be dedicated to pensions, and there are other progressive taxes that “certainly we should be talking about.”
The $3.4 billion of new money from the proposed progressive income tax has already been promised many times over, and almost none of the additional money is slated to go towards pensions. Governor Pritzker has claimed the tax would provide for investment in schools and health care, tax relief for 97% of Illinois taxpayers, fixing our crumbling infrastructure, creating thousands of jobs, “paying off the Republican Party’s old bills,” assuring that domestic violence shelters are kept open, putting us on a path to fiscal stability and more, promises totaling some $10 billion. Pritzker has proposed just $200 million of the new money for pensions, which is almost inconsequential. The entire $3.4 billion could be dedicated to pensions and we still wouldn’t meet the funding levels actuaries say are needed.
What are those other progressive taxes we should be “talking about?” She doesn’t say.
Steans: “We have the consideration model” for pension reform – something that at least could be tested for constitutionality. “We estimate it could save about a billion dollars per year.”
How long is this transparent gimmick going to live on? Under the “consideration model,” pensioners would be offered a deal to trade off certain pension benefits, a trade that would have to be willing and voluntary. “By definition,” the City of Chicago once explained to the Illinois Supreme Court, that cannot work because anything pensioners get through the trade has to be given up by the government. That should be obvious. If the choices offered to pensioners don’t include something of equivalent value to what they have now, Illinois courts will strike it down.
There’s no support whatsoever for the claim that consideration could save a billion dollars a year. I’ve asked many lawmakers who have made that claim over the years to provide that support and have gotten nothing. That includes the Rauner Administration, which peddled the same gimmick. I’ve asked Steans and gotten no response.
Steans: “We could be looking at consolidating local pensions.”
Administrative consolidation is a good measure with broad, bipartisan support, and is long overdue. The Pritzker Administration is already moving on it. However, while it would achieve some administrative savings and allow for somewhat higher yielding investments, total savings wouldn’t move the needle much on the local pension crisis.
Steans: “We should look at the amortization schedule,” and she criticized the infamous 1994 Edgar ramp calling for ever higher annual pension contributions. “Nobody would write an amortization schedule that way” she said.
She is alluding to “reamortization” long pushed by unions and Ralph Martire, one of Governor Pritzker’s earlier pension advisors. It’s actually nothing more than putting more money into pensions sooner. Where would we get the money? Why, borrowing, of course – pension obligation bonds – which are a horrible idea.
And what hypocrisy on the Edgar ramp. Steans herself has repeatedly voted for measures that push out funding beyond those established in 1994. In 2017, she voted for a similar, new, backloaded ramp for Chicago’s pensions – the very ramp the city is now struggling to fund. She also voted for a measure that artificially forced the scheduled contribution for the teachers’ pension, the state’s largest, lower, which was harshly criticized by the pension itself.
Steans: “There are other things we could be looking at – pension buyouts – we’ve done some of that. Asset transfers and other things.”
Steans must assume nobody read the recent news that the state’s pension buyout plan is an embarrassing bust, which was widely reported. Instead of the promised savings of over $400 million per year, it saved just $13 million last year and was a sham from the start.
Asset transfers? They’re actually just gifts of publicly owned assets to pensions and therefore do nothing to improve the state’s net position. Illinois has yet to propose one but we explained the empty concept here.
Steans: “I get frustrated when people suggest the General Assembly has not been doing anything, she said, citing the Tier 2 reforms of 2010 as a great triumph. Those reforms were passed after they were “fully debated,” she said.
That’s perhaps the most astonishing of all Steans’ claims. Tier 2 is a disaster, creating a crisis unto itself. For over four years, lawmakers in both parties widely acknowledge that its benefits are far too low, forcing Tier 2 pensioners to subsidize Tier 1 retirees. And only 18.5 percent of Tier 2 teachers are expected to reach the full age requirement for vesting. The cost of fixing it is unknown, but may be staggering. In 2017, the state passed a supposed fix that would have created an improved Tier 3 plan into which Tier 2’s could opt into, but they botched the legislation so badly that it can’t be implemented without amendments. No word on when those amendments will come.
And Tier 2 was “fully debated”? No, it was “bulldozed” through by House Speaker Michael Madigan and Senate President John Cullerton in less than 12 hours. “Madigan and Cullerton today pulled-off a real doozy. Wow,” wrote Democratic strategist David Ormsby. Like all pension reform, it was exceptionally complex, and that’s why the bill has resulted in an awful mess.
Steans: Asked why she isn’t pushing for the needed constitutional amendment to allow for real pension reform, she said “I try to be practical and realistic,” pointing out that it’s politically difficult to get it through the legislature and needed referendum. Plus, it might lose in a court challenge.”
But it’s her and her colleagues that make it politically unrealistic! This is a standard answer about many reforms we hear from Illinois’ political establishment – “not politically realistic.” It’s blatantly self-fulfilling.
And as for the chance that it might be struck down by courts, that’s of no consequence to Steans for the consideration model gimmick she wants, which is extremely suspect legally. She’d be happy to waste a few years litigating a gimmick that’s likely doomed rather than focus on the meaningful step of a constitutional amendment which, courts have indicated, would survive.
Steans: “The faster we get to fixing the pensions the easier it will be.”
That’s perhaps the only honest thing she said, since the state’s unfunded liabilities grow every day. So why has nothing been done since four years ago when the courts struck down the only meaningful attempt at pension reform, SB 1, as it was called then? No answer.
Speaking of SB 1, which Steans voted for, she needs a reminder of the express legislative findings in it. Benefit reductions, not tax increases, were essential, it said. Democratic Attorney General Lisa Madigan, daughter of the House speaker, made the case to defend it. The pension problem and the fiscal crisis it caused were so severe that the rarely used “police power” doctrine justified cutting pensions, as SB-1 would have done, overriding the state’s constitutional pension protection clause. Now, however, Steans will have nothing to do with a constitutional amendment that would be needed for anything like SB 1 and she looks only to tax increases and gimmicks to deal with pensions.
Steans: Asked whether her legislative leadership has the political will to fix pensions, she said yes, “100% without a doubt in my mind…without a doubt in my mind. Absolutely 100%.” John Cullerton, President of Steans’ Senate President, “does feel it’s an urgent issue and never seen him shy away from it,” she said.
Just last year, appearing on WTTW, Cullerton repeated his claim that pensions “are not a crisis,” a claim that earned him national ridicule when he initially said it five years earlier. In that interview last year Cullerton went on to rattle of his own catalog of pension blather, much like Steans, which we described here.
Steans: “Something we should look at.”
I didn’t count how many times she said that about the gimmicks listed above, but I’d guess about 25. She offered no other solutions. How many more years of “looking” does she want?
Heather Steans is a rising star in the Illinois Senate. She’s particularly articulate as you can see from the video, earning her widespread respect in the General Assembly and the press. But look past her glib talk, as Galbraith warned in that quote above.
The math on Illinois pensions is insurmountable, we often say, but our legislators probably are too.
*Mark Glennon is founder of Wirepoints.
For more on the topics discussed here, see our earlier articles below.
- Illinois Democrats’ Astounding Reversal On Pensions
- Rhode Island Supreme Court Shows Illinois The Way On Pension Reform
- Loaves, Fishes and the Illinois Graduated Income Tax
- Want to Fix Illinois Teacher Shortage? End the Tier 2 Pension Rip-Off
- Borrowing for pensions is a bad idea whether you’re in Chicago or Rochelle, Illinois
- Don’t hold your breath for $500 million in savings from Tier III pension reform
- Collapsing interest rates are devastating for Illinois’ troubled pensions
- Illinois pensions sink during record bull market run
- Forever Behind: Unfunded Pensions as a Permanent Hindrance to Competitiveness
- Why the ‘consideration’ approach to pension reform is a gimmick
- ‘Asset Transfers’ To Pensions: Be Afraid
- Rahm’s Ramp And The Fate Of Chicago’s Pensions