By Bill Zettler
$35 Million Pension on the Horizon.
Today we have seen the breathless self congratulatory reporting of so-called “pension reform” in Springfield. Unfortunately for the Illinois taxpayer not much has been accomplished.
- Pension payouts will not decrease for 40 years. Under the new legislation, all 300,000 current public employees are grandfathered in to the current bankruptcy-inducing system. That means a 21 year old hired yesterday will still retire at 55 a multimillionaire.
- Out-of-control salaries will continue to plunder the taxpayer’s wallet. Nothing is gained if a soon-to-be-retired 56 year old music teacher making $189,000/yr becomes a soon-to-be-retired 67 year old music teacher making $350,000/yr (see here). In that case the excess salary will far exceed the pension savings.
- Out-of-control state employee health care expenses are not addressed. Current $2 billion/yr cost will at least double every 8 years: meaning state health care costs will exceed pension costs in 40 years.
- Taxpayers are still liable for 100% of the investment risk. If investment return is 6% instead of the currently assumed 8.5%, taxpayer liability over the next 35 years will more than double. For comparison the return over the last 10 years has been 2.7%.
- Public employee pension contribution rate is too low even under the new plan. If a private sector employee on social security makes $104,000 or more his Social Security at 67 will be about $30,000/yr. For this he pays 6.2% of his salary. A public employee making $104,000 will retire on about $80,000/yr by paying 8% into his pension. If you consider the public employees slightly higher contribution (8% vs. 6.2%) the public employee’s pension should be about $52,000. Therefore the public employee contribution rate is too low compared to social security.
As R. Eden Martin, president of the Civic Committee of the Commercial Club of Chicago and a member of last year’s Pension reform Committee said:
“This bill is a small step in the right direction but it doesn’t begin to solve the state’s urgent fiscal problems. The only way to achieve significant cost reductions now is to reform retirement benefits for current state employees prospectively and new hires moving forward.”
Here comes the $35 million pension and a few $20 million and $10 million ones too.
This spreadsheet shows how easy it is to get $1 billion in pensions under the current system. All it takes is 97 public school employees. This is why Mr. Martin accurately states that only by reforming current pension benefits can we make any headway on outsize pension payments to public employees from Illinois taxpayers.
At the top of the list is Ms. Nanciann Gatta, Superintendent at Niles Township HS District 119. Ms. Gatta graduated from Wheeling High School in 1990 (per WHS web site) and joined Niles staff as an English teacher in 1995. Since then she has received rapid promotion thru the ranks to her current position as superintendent at a salary of $310,000/yr. From 1999 to 2009 her salary has increased from $53,000/yr to $310,000/yr an average increase of 19%/yr, a rate of increase unheard of in the private sector.
Now I am sure Ms. Gatta is well educated, very smart, hard working and dedicated as are 100,000’s of other private sector employees few if any of which are making $310,000/yr at age 38 and none of which can retire at age 55 with a pension in the upper six figures. So my quarrel with those on the list does not revolve around their job performance but with their outsized compensation and early retirement benefits that require unheard of, massive taxpayer-subsidized pension payments.
Keep in mind the amounts in the following table are estimates based upon current information gleaned from the state actuarial reports, the ISBE (Illinois State Board of Education) and other source deemed reliable. For example the 7%/yr annual salary increase used to project future salaries comes from the actuaries (that’s the average for all certified employees in the public school system). If in the future that rate was reduced to say 5% then these amounts would be too high. However based upon Ms. Gatta’s 19%/yr increase over 10 years, 7% does not seem unreasonable.
Obviously we need more reform than that just presented. Unless salaries and pensions come down Illinois’ economy is doomed if not bankrupt.
No one has a Constitutional right to $10, $20 or $35 million dollars.