Thursday, May 22, 2008

The puzzle gets another piece

The Senate unleashed its $16 billion pension deal tonight in a tense but brief hearing. The House did not include a pension package in its series of budgets approved yesterday, indicating a rough road ahead for the plan that the governor has tried for two consecutive years.

The governor achieved a $10 billion pension deal in 2003, and higher than expected savings resulted. This time, market forces change the equation a bit.

Sen. Don Harmon, an Oak Park Democrat, said the deal would take care of the next payment and reset a payment cycle set in 1995 for state contributions. The goal is to knock down Illinois’ $42 billion pension liability 11 years earlier than scheduled.

It’s “similar but not identical” to the plan floated in 2003. Gov. Rod Blagojevich secured a lower interest rate and generated money that could pay down the ballooning liabilities. But the plan had a twist. While it still ramped up payments in future years, the General Assembly allowed the governor to pay the required amount that year and then skip $2.3 billion in state contributions in fiscal years ’06 and ’07.

Harmon said this deal would only go into the state's five pension systems and would not include a “pension holiday.” Instead, he said it would ease the budget deficit. “It’s less money we don’t have.” He also said it would result in a $55 billion savings over the life of the bond issuance and allow a more manageable and regular payment schedule through 2038.

Senate Republicans on the committee, including Sen. Bill Brady of Bloomington, said the state still has the same unfunded obligation, $42 billion, and adds to its bond debt that it still has to repay. Counter to Harmon, Brady said the proposal would undercut the state’s payment by $500 million. If the state did nothing, the schedule calls for a $3.3 billion payment next fiscal year. Under the proposal, Illinois would contribute $2.8 billion, Harmon said.

Tension mounted as vice chair of the committee, Sen. Michael Noland, an Elgin Democrat, kept trying to cut off debate to avoid dramatics. It didn’t work, and Harmon invited more questions. In the end, Republicans walked out of the room to protest the 15-minute debate on a $16 billion proposal.

The Taxpayers’ Federation of Illinois opposes the new proposal because it lacks pension reforms that the group has called for for numerous years. The measure also pushes back the ramped up payments until later and sparks concern when playing with a significant amount of state dollars in the stock market, said David Eldridge, the group’s legislative director. In other words, there’s no guaranteed savings that the state achieved in the 2003 deal.

Some common ground
By Patrick O’Brien
Earlier Thursday, a Senate committee moved the budget proposals for 69 state agencies, including the Department of Natural Resources and each statewide executive office. According to Sen. Donne Trotter, a Chicago Democrat and point person on the budget, most agencies would receive little or no increase over last year’s funding.

One notable exception is higher education. The House and Senate proposals are almost identical. State universities would receive a 2.8 percent increase, which follows years of stagnant funding or decreases.

The Senate’s higher education budget was a “very optimistic sign,” said Rep. David Miller, a Chicago Democrat. “There’s going to be some changes at the end, but we’re not simply starting from scratch.”

IDOT: It’s that bad
By Bethany Jaeger
The Illinois Department of Transportation will spend a majority of $10.9 billion on fixing existing bridges and repairing old roads during the next six years. It’ll spend a fraction, $633 million, on building new roads. Milton Sees, transportation secretary, said in a Statehouse news conference Thursday that lower-than-expected motor fuel tax revenues and increased costs of materials means state dollars buy less than they did a few years ago.

He said, it is that bad. “We continue to struggle with deteriorating roads, urban congestion problems and [miss] rural economic growth opportunities as a result of the situation we find ourselves in.”

The department has felt the effects of higher gasoline prices as drivers find ways to reduce their consumption, whether it’s by buying hybrid vehicles or just not driving as much, Sees said. And because the motor fuel tax is a flat amount per gallon, it doesn’t increase with the price of gasoline. “So as consumption goes down, our revenues decline along with that.”

According to Dick Smith, IDOT’s director of the office of planning and programming, the motor fuel tax usually generates about $1.2 billion a year. So a 1 percent decrease expected for the current fiscal year translates to about $12 million. The department expects only about 1 percent growth in revenues during the next six years, as well.

The $30 billion infrastructure program announced by the governor’s capital coalition Tuesday, would help, and Sees called it “doable.” (The six-year plan released Thursday does not depend on the approval of a pending capital plan.)

Sees said there is a specific list of projects that would be funded under a capital plan, but it’s a “working document that’s not ready for release.” He did say the projects would include adding lanes to relieve traffic congestion and building new interchanges along the state highway system. It also would provide some much-needed money for resurfacing projects that otherwise wouldn’t get attention in the six-year plan.

‘Pay to play’ may be voted on Friday
By Patrick O'Brien
The ethics measure that seeks to divorce state contracts from political contributions to officeholders may see a vote on the Senate floor Friday, according to Harmon, who also is sponsoring the reform package. He said Thursday night that he believes the plan would pass the House if it makes it out of the Senate first. A last-second change to include nonprofit groups cleared a Senate committee today, and Harmon said the bill won’t be further altered.


Anonymous said...

typo alert.
That'd be a $42 BILLION liability, not $42, otherwise I'd offer to pay it myself.

"... to knock down Illinois’ $42 pension liability 11 years earlier than scheduled."

Bethany Jaeger said...

Wouldn't that be nice! Thanks for the catch. I blame tired eyes.

Anonymous said...


{Harmon said this deal would only go into the state's five pension systems and would not include a “pension holiday.” Instead, he said it would ease the budget deficit. “It’s less money we don’t have.” He also said it would result in a $55 savings over the life of the bond issuance and allow a more manageable and regular payment schedule through 2038.}

A $55 savings over the life of the bond issuance? There would not be much of a discount provided under this scheme.

Also; someone needs to call out Senator Harmon on the absence of a "Pension Holiday" in this scheme. If I understand this correctly (always a dangerous assumption, exposing me to wide public ridicule) this scenario would not mean the full "holiday" but based on the gamble taken under this scheme, they would take the afternoon off ($500 million) and go play golf.

The whole premise of this gambling scheme seems designed to take the half day off, so that they can skip the $500 million and spend it somewhere else in the GRF.

How about doing something novel, and floating the pension bond AND MAKING THE FULL SCHEDULED PAYMENT, applying the contributions that might otherwise be avoided through the discount directly to the pension funds proportionately based on their current levels of under-funding, in order to accelerate the return to appropriate funding levels.

Then with respect to the GRF, simply cut expenses by $500 million in order to be able to meet the obligations to which you have allegedly committed yourselve's.

They could start by dramatically reducing, or eliminating entirely; reimbursement for travel expenses for all state employees between Chicago and Springfield, starting at the top.

Through the use of video conferencing, and other telecommuting methods, they could also dramatically reduce fuel consumption by state employees, the cost of which has risen faster than that of health care.

How about introducing the concept of job sharing, where two employees take on the position of one. Many people are looking for opportunities for additional income that also provides flexibilty of scheduling, and many can assume these positions that do not want or need health care or pension benefits as well, which would further reduce personnel costs.

How about reducing or eliminating legislative staff members by consolidating functions in one location through the use of technology. Why do legislators need a secretary both in Springfield, and in a District office? Can't one person schedule appointments for them in a central location? Wouldn't it be cheaper to have an 800 number than 2 secretarial positions? How about having all constituent service correspondence eminating from Springfield rather than locally, taking advantage of the available wage and cost differentials based on geography?

How about the state substantially eliminating the use of land line telephones in all facets of operations, making the most and best use of cellular technology?

How about requiring the use of electronic mediums to reduce or eliminate the cost of paper, printing and postage and requiring citizens to pay for the cost of any publications or materials they requet in a printed format?

Call me crazy, but it seems to me that that there plenty of ways to re-invent government in Illinois to make it far more flexible and efficient, and less expensive to operate. All that is necessary is some vision and the fortitude to embrace change and reject the concept that "this is the way it has always been done".

The easiest reason to support this change, is that we can simply no longer afford to operate this way.