State lawmakers are considering dumping the cost of teacher pensions onto local property tax bills. "Ouch!" says Ponzi. Topic: GovernmentViewsCartoonsPonzi and Friends Add comment Comments Important Pension Meeting-April 30th @ 7pm Submitted by James F. Young on April 26, 2012 - 3:04pm Cartoons can hightlight important issues like pensions, and can generate awareness of the severity of this issue. To gain more facts and a better understanding of this critically important and complex topic attend: Town Hall Meeting hosted by Daniel BissMonday April 30th @ 7 pmGlenview Police Station2500 East Lake Avenue For perspective, transferring 100% of the State of Illinois' "Normal Cost" for the Teachers Retirement System to Evanston School districts will result in a $4.2 mm expense for District 65 and a $2 mm expense for District 202, every year. (these figures are separate from the unfunded liability which people refer to as "debt") However, those numbers UNDERSTATE the actual cost since they are based on an unrealistically high investment assumption of 8.5%. The California Teachers Retirement System (CalSters) lowered their investment return FROM 7.75% TO 7.50% in February 2012(their actuaries recommended 7.0% but they couldn't "afford" that amount so they'll just make their kids pay for that part of the bill in the future). The Illinois Teachers Retirement System is currently reviewing all of their assumptions and these results will be (or should) released mid-year 2012, although given the upcoming elections these numbers may not come out until late November/December. What happens when the investment return gets lowered? The $6.2 mm of additional expenses goes higher - if $7mm that means almost $100 PER EVANSTON RESIDENT - yes, each and every person needs to pay another $100 per year; each and every year. Also, the widely quoted $83-85 B state wide unfunded liability will go higher, likely north of $90 B, and over time, we'll be hearing $ 100 BILLION, unless changes get made, not just proposed. This is a difficult and complex issue which is critically important to our community and state. Go attend the meeting on April 30th @ 7pm Reply Zorn on pensions Submitted by Anonymous (not verified) on April 26, 2012 - 10:47pm Eric Zorn has a piece callled 'Inquiring minds want to know about Quinn's teacher pension reform' , where he discusses some of the teacher pension issues. An important issue that Zorn points out is that "one of the blatant and little-known inequities Quinn and Cullerton hope to correct during pension reform is that Chicago taxpayers pay their fair share of that $2.4 billion for downstate and suburban teacher pensions, while downstate and suburban taxpayers contribute almost nothing for Chicago teacher pensions" So it seems that Ponzi and many other 'long time residents' of Evanston and downstate have been getting a free ride for years off of the people of Chicago. What does Ponzi say about that? Enquiring minds want to know. So, as the Cullteron figure in Ponzi's cartoon says, it really is all about fairness. Reply You got some things wrong Submitted by skipw on April 29, 2012 - 6:26pm Chicago does not pay toward any teachers pension accept their own teachers. The other school districts in the state do not pay anything toward Chicago's teachers' pensions. I would welcome teacher pensions coming to Evanston as long as the state votes to extend right to work laws to cover all public unions. This would have a positive effect on the state and local financial issues. You just need to look north to Wisconsin to see how financial issues have improved accross the state in just one year. Over the next 3 - 4 years, Wisconsin school districts will see enormous wealth and will allow for lower property taxes. Reply Funding teachers pensions Submitted by Anonymous (not verified) on April 29, 2012 - 7:33pm "Chicago does not pay toward any teachers pension accept their own teach" You missed the point, skipw. Chicago residents pay property taxes to fund Chicago's retirement system. The State of Illinois contributes (or is supposed to ) to the retirement system for teachers outside of Chicago. Where does the State of Illinois get this money? From income & sales taxes. Do Chicago residents pay income and sales tax in Illinois? Yes, they do. The State of Illinois does not segregate tax receipts, and say that only revenue from downstate and suburban income and sales tax will go to teachers' pensions. Therefore, Chicago residents are paying to support the retirement system for downstate & suburban teachers. Reply Right to Work Submitted by Anonymous (not verified) on April 30, 2012 - 9:03am I wholly agree. Illinois needs the Right to Work law. There is no reason the plantantion bosses should be able to dictate that we have to join or pay into unions that may not represent our interest or even care and do not reprsent the real needs of worker. The union bosses turn over their funds to the politicians who will support them and give them what they want---a viscous circle. Reply thanks for the pension numbers Submitted by Jen on April 29, 2012 - 10:44pm Do I have this right- We will owe $6.2 million if the government can get a market return of 8.5% on their current portfolio? I read in several places that TRS was taking quite a bit of risk this year in order to try and close the funding gap- So, there is not only a chance that we won't make 8.5%, but that we might lose, and big- Please if you go tommorrow might you ask what the effect will be on financing pensions if the investments fail this year? WHat is the maximum amount of money that TRS is risking, and what is the potential reward? Every investor knows this "spread," so don't let Biss tell you that he doesn't know- He needs to know, and so do all of us. What would be the impact on property taxes say per every $200,000 in current home value if the pension debt was put onto Evanston. Thanks for the info- WIsh I could come tommororw but it's my kid's 8th birthday :) Reply Pension clarification Submitted by James F. Young on April 30, 2012 - 10:51am Yes, Evanston taxpayers will owe about $ 6.2 mm each and every year to fund the "Normal" cost of teacher pensions. That's based on $ 4.2 mm for D65 and $ 2.0 mm for D202. Remember, each year teachers currently contribute 9.4% of their salary and each school district contributes 0.59% and the state is supposed to contribute the remaining portion ~ 8%. It's this remaining 8% which is likely to be shifted from the state to local school districts. Why the likely shift? 1. Any and all Chicago based State Senators and State Representatives will likely support this change because the City of Chicago funds its own Teachers Pension fund for Chicago Public Schools. So any money from state income tax and state sales taxes that are used to fund the TRS system are NOT available to fund other programs that may benefit the City of Chicago. 2. The State of Illinois is in a very precarious financial situation. Debt has been growing (Illinois is now the LOWEST rated State in our country) and the state has a budget deficit. What better way to "save" ~ $700mm to $800mm by shifting the funding off your books to someone else. This the "pass the hot potato" strategy. 3. There is a fairness argument to be made. Wealthier communities in Illinois which pay higher teacher salaries, therefore generate higher pension liabilities. However the funding is spread across the entire state, and one can argue that poorer communities are subsidizing wealthier communities with the current pension funding arrangement. 4. The total cost of employing teachers will become more transparent and disclosure will improve. Under the current arrangement, very few people (school boards, administrations etc) factor in the state funded portion of pensions when calculating total employment cost. The full cost of any employee is their salary + 100% of benefits (benefits include health care + pensions + any other benefit granted e.g. car or housing allowance) 5. There are other "behaviorial economic" reasons to change, but i will defer this discussion to another time. Remember that this 8% or approximate $ 6.2 mm of normal cost does NOT include any amount pertaining to the $ 44 B unfunded liability that is outstanding for TRS - this $ 44 B unfunded liability is sometimes referred to as the "pension debt." Also remember that the 8% or $ 6.2 mm is based on CURRENT actuarial assumptions. The TRS Board of Trustees is currently conducting a typical 5 year review of all actuarial assumptions and their findings should be reported in mid 2012, althought they may be delayed until after the November elections. The current return assumption of 8.5% is an outlier relative to other state pension funds. California Teachers fund (CalSters) lowered their return assumption in February 2012 from 7.75% to 7.5% even though their actuaries recommended a 7.0% return. So what happens if/when Illinois TRS lowers their assumption from 8.5% to 7.75% or 7.0%? The "Normal" cost will increase (costs more to fund the pension) and the unfunded liability currently reported at $ 44 Billion will increase to $ 50 B +. And if the TRS Board and politicians don't adopt realistic assumptions, the problem just grows, and this bill is given to our children and grandchildren. But our children don't understand the implications and they don't vote so why should our "leadership" (led by Mike Madigan) look out for their interests? These are big numbers and a big problem. Kudos for Daniel Biss who not only understands the gravity of this issue but is trying to do something about it. Go attend the Town Hall meeting tonight @ 7pm at the Glenview Police Station hosted by Daniel Biss to learn more about the issue. Reply Future pensions and current debt Submitted by Jen on April 30, 2012 - 3:19pm James- I hear all your points. However, what would you say to teachers who work in districts where the populace can not afford even a small increase in taxes to cover the current promised pensions? Are these teachers to lose everything in comparision to towns where the population might be able to afford these 8% pension promises, or slightly smaller tax increases? What is the fairness argument in that? I understand your point that that CPS has been paying into pensions for years, and so it's "fair" that all towns pay for their own pensions. However, all towns have not been doing this and there is no money to do so now in most low income places. Who will pay the brunt of this increased debt? The teachers, low income familes, or children in our neediest areas? Or all the above? How will this further lead to an increasing divide between the public educational systems of the haves versus the have-not towns? One of my other huge concerns is the current debt- How would that 44 billion breakdown per every Illinois taxpayer? What would the burden of this debt be on Evanston taxpayers on top of the future 6.2 million in funding to give the 8% return. Is Biss considering pushing this debt to the local level too or just future pensions? To the person who wrote that 8.5% return is not hard to cover- consider that TRS has chosen to put it's funding into riskier investments- These investments MAY make 8.5%, but they might also lose- This is why I want to know the spread- What risk are we taking at what possible payoff... Crain's Chicago Business did an article on this in December, 2011... http://www.chicagobusiness.com/article/20111217/ISSUE01/312179972/pension-peril-illinois-trs-goes-higher-risk-with-investments Of course the TRS website says that all the claims in the Crain's article are bogus-http://trs.illinois.gov/subsections/press/Crain's%20-%20TRS%20Story%20Annotated%20FINAL%20-%20122211.pdf So who do you trust? A business newspaper that reports the opinion of private investors who manage risk for a living or a government that has several past governors in jail? Is filing for Chapter 11 and splitting up the current pot of money a better option than risking losing the entire pot? We all need to know what kind of risk TRS is putting on right now. What is the spread? Reply "I understand your point that Submitted by Anonymous (not verified) on April 30, 2012 - 3:33pm "I understand your point that that CPS has been paying into pensions for years, and so it's "fair" that all towns pay for their own pensions. However, all towns have not been doing this and there is no money to do so now in most low income places. Who will pay the brunt of this increased debt? The teachers, low income familes, or children in our neediest areas? Or all the above? How will this further lead to an increasing divide between the public educational systems of the haves versus the have-not towns?" Chicago's school system is one of the 'have nots' . Chicago taxpayers have been paying for the Chicago pensions, in addition to the rest of Illinois, for years. I see no reason why Chicago taxpayers should continue to pay double for teachers pensions, and I see no reason why Chicago residents should subsidize pensions for New Trier and Barrington teachers. Reply barrington and new trier point noted Submitted by Jen on April 30, 2012 - 7:14pm Your point is good, and I agree that double taxation is unacceptable. HOwever, for every new trier and barrington, there is a Des Plaines, North CHicago, or Wheeling- My point being that teachers in New Trier or Barrington might get some money, but what about these other suburbs? If 6 million dollars (or whatever money is needed for those towns) gets transferred, they won't be able to pay it. What happens then? Do only teachers retired from the rich areas get paid? Perhaps I am misunderstanding the proposal- Will current people living on the pension get paid from the state, is this the "unfunded liability"? Or are we talking just future generations? Personally, I don't see an easy way out. I'm concerned because my teacher mother works for one of these low income districts, and she is set to retire next year. I am also a teacher in a low income district, and I'd rather that the state file chapter 11, divide out the money that they have left to each district, which would give each teacher about 30 cents on their dollar of promised money, and then the districts start fresh with their own pension contributions, just like CPS- I'm concerned that by pushing it all to the districts, that the rich districts will make the pensions mostly whole, and the poor districts will return nothing- and that to me, isn't fair as all teachers cross districts were promised the same returns. Does that make sense? Am I missing something? Reply TRS Investment returns Submitted by Anonymous (not verified) on April 30, 2012 - 8:50am According to the TRS site, investment returns between 1981 and 2011 averaged 9.3%. I do not see why 8.5% would be an unrealistic goal based on these numbers. Trs.illinois.gov provides information not found in many of the articles currently being published and aired about the pension crisis. Reply 8.5% is likely way too high Submitted by James F. Young on April 30, 2012 - 12:10pm Yes, it's true that over the last 30 years TRS generated 9.3% according to their website. However,what they don't say is that 30 years ago the 10 year bond was yielding over 15%. Today the 10 year bond yields just under 2%. You've got to remember that the starting point is critically important in determining future returns. Ben Bernancke's policy of low short term interest rates has suppressed financial returns today and into the future. According to current Fed policy low short term rates are likely to remain through the END of 2014. But when interest rates start to increase (and they will, it's just a question of time) bond returns will be NEGATIVE, as the price decline may more than offset the coupon. What people need to understand is that normalized financial returns over the next 30 years will highly likely be lower than the prior 30 years. Since 10 year bonds were yielding over 15% in 1981, investors have basically been riding their bicycle downhill with the wind at their back. In today's environment, given current Fed policy, investors are riding on a flat plain at the bottom of the mountain, for how long, no one knows. But once we start the long and arduous climb up the mountain (as rates rise) generating financial returns becomes increasingly difficult. I think it is most prudent and responsible to plan realistically and HOPE we get surprised to the upside. Remember, all the pension bills that should be currently paid, will have to be paid by our children and grandchidren. I'd prefer to leave all of our children some money in their piggy bank instead of an I.O.U. Reply TRS investment returns Submitted by Anonymous (not verified) on April 30, 2012 - 12:22pm Ever read the disclosure statments of various investment vehicles. To paraphrase, past returns are not a guarantee of future performance. Ever. Reply Future Investment Returns Likely Lower than Past Submitted by James F. Young on May 1, 2012 - 4:13pm The Illinois Municipal Retirement Fund (IMRF) posted their 2011 investment results last month and they were DOWN 0.50% or 50 BP. Their assumed rate of return is 7.5%. That means they're going to have to generate over a 15% return this year just to keep pace with their assumptions. 2011 was a challenging year in the markets with the S&P 500 basically flat, and some bond market benchmarks up almost 8%. While the long term returns are more important than just 1 year of results, especially for pension funds, people need to consider that future normalized returns are likely to be lower than historical results. Why is this the case? Too often people look in the rear view mirror and extrapolate those results into the future. The IMRF stated in their press release that "Between 1982 and 2011, IMRF averaged a 9.95 percent annual return-and that period included the major bear markets of 2001, 2002, and 2008." But they didn't state that 10 year US government yields peaked in 1981 at over 15% and bond investors experienced one of the best bull markets in history for the next 30 years. The 10 year US bond is now just below 2%. It will be very difficult, if not impossible, to generate future returns in the bond market similar to the prior 30 years. The global economy over the last couple of years has been deleveraging (except for governments) and the deleveraging process which positively impacted financial returns over the last couple of decades has now turned into a headwind. Considering current bond returns and the deleveraging process would strongly suggest that FUTURE investment returns will likely be lower than the past. People can look at the historical 30 year TRS returns of 9.3% and the IMRF returns of 9.95% and fantasize that similar results will be achieved in the future or they can consider the current economic cycle and financial conditions when forecasting into the future. Maybe the former group will successfully roll double sixes 5 times in a row, but i'd rather bet on rolling 7's. Next up - Cook County Pension Fund reports their 2011 investment results on Thursday May 3rd. Reply Even Mayor Daley ? Submitted by James F. Young on May 2, 2012 - 9:41pm Looks like Mayor Daley had both of his hands in the "Pension Cookie Jar" Read today's front page Chicago Tribune article to see how Mayor Daley manipulated the system to save himself $400,000 and create a $ 183,778 pension for himself.http://www.chicagotribune.com/news/local/ct-met-pensions-daley-20120502,0,975077.story For those who question whether pensions in Illinois should be reformed, this article, and a litany of other pension abuses should put that question to rest. The pension abuses at city, county and state levels cost taxpayers millions of dollars, and take money away from programs like early childhood, amongst others. The other major cost is that taxpayers lose confidence and trust in our political system when we see blatant abuses of power and privilege as demonstrated by Mayor Daley. Really Mayor Daley? Really? Reply This page is available to subscribers. Click here to sign in or get access.