State Rep. Daniel Biss of Evanston says lawmakers made progress on Medicaid costs and the overall state budget in the recently concluded legislative session — but unfortunately failed to reach agreement on teacher pensions.
Here’s the text of a recap of the legislative session he sent to constituents.
For obvious reasons, the 2012 legislative session focused heavily on fiscal issues. Although some other matters of note were addressed — including the long-awaited abolishment of General Assembly scholarships — most of the discussion centered around the Medicaid program, other programmatic spending and our public pension systems.
Medicaid. Our Medicaid liability has grown far faster than state revenue for quite some time, resulting in a daunting pile of unpaid Medicaid bills and a crowding out of other areas of state government. Earlier this year, Governor Quinn announced that in his view we needed to find $2.7 billion of savings in our Medicaid program in order to bring spending in line with revenue.
I’m pleased to say that his charge led to one of the success stories of the legislative session, a bipartisan Medicaid reform package that contained the needed level of savings and achieved them in a manner that, while very painful in its impact, was balanced. Slightly more than half the savings came in program and eligibility cuts, over a quarter resulted from an increase in the cigarette tax, and the remainder was achieved by rate reforms.
I particularly want to thank my colleagues Representative Sara Feigenholtz and Senator Heather Steans for spearheading this effort, and for doing all they could to minimize the impact of the cuts while still hitting the $2.7 billion target. While nobody likes having to do things like this, getting the Medicaid program on firmer fiscal footing will place us in a better position to deliver health care and human services in the coming years.
Budget. Once again, the General Assembly passed a conservative budget, based in this case on a revenue estimate of $33.719 billion, along with the commitment to pay down $1.3 billion of overdue bills. Doing so necessitated a number of enormously deep cuts, including cuts to education and higher education, the budget areas allocated by the appropriations committees on which I serve, but again I am confident that these painful steps are necessary in order to return our state to a manageable budget environment.
Pensions. Much of the discussion in Springfield centered around attempts to control the cost of our public employee pension systems. Indeed, of all the bills that actually passed both Houses, the one I worked on most was my House Bill 4996, which seeks to curb the practice of state universities rehiring annuitants to work while drawing a pension. You can read the text of HB4996 here.
The bulk of the conversation, of course, was about the attempt to pass a comprehensive pension reform bill in order to once and for all bring our pension payments to an affordable and predictable level. These attempts came to a head in late May with the unveiling of two competing proposals, each in the form of amendments to Senate Bill 1673. One proposal, best articulated in House Amendment 5, was advanced by Speaker Madigan, and the other, as laid out in House Amendments 7 and 8, was supported by Tom Cross, the Republican leader in the House. You can read all the amendments here.
The two proposals had many features in common:
- Current employees and retirees would have a choice between forgoing the right to participate in retiree health care programs and also giving up the opportunity to have future raises count toward their pensions; and accepting a much lower (and delayed) Cost of Living Adjustment (“COLA”) in their pension;
- The state would move to a 30-year amortization schedule to pay down 100% of our pension debt (instead of being 90% funded by 2045);
- The state would be mandated to make its pension contribution, and this mandate would be enforceable in court; and
- The state would have a new actuary inside the Auditor General’s office to oversee actuarial judgments made for our public pension systems.
The proposal advanced by Speaker Madigan had two additional components:
- It would gradually shift the forward-going employer normal cost of pensions to the actual employer of public sector workers, specifically public school districts, community college districts, and public universities; and
- It would create a cash balance plan for new teachers and university employees, both enhancing their benefit but also creating a system of shared risk and thus a more transparent and predictable set of costs for employers. This is the piece of the legislation that I had the greatest hand in crafting, and I think it constitutes a significant step toward building a pension system that is adequate for workers and manageable for employers.
First of all, I should say that as a member of the House committee on Personnel & Pensions, I voted in favor of both of these proposals. It’s my view that we absolutely need to get this problem under control, and that the features common to both approaches are important steps in that direction, including:
- A set of benefit reductions that achieve extremely significant savings without, in my view, being intolerably harsh or violating Constitutional protections;
- A manageable, affordable and actuarially responsible payment schedule; and
- The tools needed to ensure that the state will stick to that schedule.
However, as you probably know, neither proposal came to a vote on the House floor. Indeed, it became clear that very few Republicans support the Speaker’s proposal and very few Democrats support the minority leader’s proposal.
So, what now? I think there is broad recognition in the General Assembly, the Governor’s office, and throughout Illinois that we have to solve this problem. While the disagreement between the two sides is important, I would argue that it’s actually quite small in comparison with the agreement that exists. Consequently, I am hopeful that the two legislative leaders will meet soon and reach a compromise on this matter and I will do all I can to move them in that direction.
And, it’s fair to ask, where do I stand on the remaining dispute?
Right now, Chicago property taxpayers pay essentially the full employer cost of Chicago teacher pensions, whereas the state’s general fund pays essentially the full employer cost of all other teacher pensions. That means that districts outside Chicago are subsidized by the state budget, and particularly that wealthier districts — which tend to have higher salaries and consequently larger pensions — are especially subsidized by the rest of the state. That, in turn, means that the proposal to “shift” the responsibility of funding the employer cost from the state’s general fund to the local school district will be a real challenge for our area.
Therefore, it would be the easiest thing in the world for me to take a politically safe position and grandstand, vowing to oppose any cost shift under any circumstances.
Here’s the problem: the cost shift makes good policy sense. It makes policy sense because it’s just bizarre for one set of pensions (Chicago teachers) to be paid for with local property taxes, and another set of pensions (all non-Chicago teachers) to get funded by the state, and, in turn, from everyone’s income and sales taxes. It also makes policy sense because it’s dangerous to allow one entity (the school district) to obligate another entity (the state) to pay for something it doesn’t control. As long as school districts set salaries which determine the pension and then send somebody else the bill, we’ll have a lot of trouble keeping pension costs under control. Aligning decision-making authority with the responsibility to pay for the consequences of those decisions is just logical.
So why is this issue controversial? It’s controversial because the transition would be painful, since school districts have already built budgets that assume the state will be picking up the employer normal cost of the pensions as the state always has. That’s why any shift in cost needs to be extremely gradual, and it needs to come with policies that give school districts the managerial flexibility to handle this new responsibility without just cutting programs or laying off teachers.
Doing this isn’t easy, and I’m proud to say that I played a significant role in negotiating with employers in the State University system to put together a proposal they could live with. That’s why the Community Colleges testified in favor of the bill even though it shifted a cost to them, and Bob Easter, Interim President of the University of Illinois, testified to say it was acceptable to him as well.
I also spent hours negotiating with representatives of school management groups to make these proposals manageable for local school districts too. We were extremely close to agreement when everything exploded in Springfield, and I think with a bit more discussion we’ll be able to get there.
I’m very eager to hear your thoughts on this issue. I know that many people disagree with me about various aspects of this issue, and it’s important to me to incorporate your point of view, especially regarding what benefit cuts or funding responsibilities are tolerable. This issue is a moving target, and, again, it would be very easy for me to simply put my foot down and say no to any cuts, or say no to any cost shifts. The truth of the matter, though, is that we need to solve this problem, and a legislator who issues ultimatums like that is simply walking away from that responsibility in order to score political points. Please stay in touch, and thank you again for your interest and your suggestions.
Shifting pension obligations to suburbs
The analysis of Biss has problems. The state school aid formula is much more generous to Chicago than Evanston. In addition, Chicago has revenue sources such as the downtown tax base, the airports, and convention business that Evanston does not. To pass on to the school districts in the suburbs the cost of teacher pensions when the district's primary source of revenue is real estate tax is unconscionable. The pension rates for teachers were established in Springfield. That is where the mess was created. Our state legistlature came up with these lucrative defined benefit pension plans and now want to say somebody else should pay for them. Considering that the enrollment is projected to go up in Evanston, for our own state rep to support the passage of this bill is a kick in the teeth to the citizens of Evanston. To simply say it is good policy and the Evanston school districts will be given time to phase in this obligation is incredibly naive. The ulitmate result of Daniel Biss' support of the Madigan bill will be the decrease in the quality of education for Evanston children. Moreover, it will increase the real estate property tax burden in the city that already has very high taxes. With friends like this, who needs enemies?
What about the judges?
I want to know the opinions of Rep. Biss, Rep. Gabel and Sen. Schoenberg on whether the judges' pension system should be exempt from pension reform. Apparently, the judges' retirement system was left out of both of those bills discussed in the article., The rationale for leaving the judges out seems to be that if there were lawsuits against reduced retirement benefits resulting from Illinois pension reform legislation, the judges hearing the case would not be as likely to say the pension reform changes were constitutional if their own pensions were in danger of being reduced. Considering how large the judges' pensions are on average and how underfunded the judges' retirement system is, I think it is unfair and fiscally unsound to leave judges' pensions out of Illinois pension reform.
There was an article on this topic in Evanstonnow on May 29, but no one commented. Here is the link.
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