State of the State Pensions Part 3: Is the system fair to taxpayers?

By Bill Zettler

What we can see from this discussion is the inherent unfairness of a system that rewards public employees far beyond what their employers, the taxpayers, have available to them. In Illinois we need to close the large compensation gap between what is available to the public employee as compared to the average private sector employee.

So considering that members of the state pension system represent about 5% of all Illinois workers we need to ask ourselves the following questions:

  1. Why can 5% of Illinois workers retire with full pension and healthcare benefits at age 55 or less while the 95% have to wait until 65?
  2. Why do 5% of Illinois workers have superior retirement benefits compared to the other 95%?
  3. Why is 25% of the 2012 state budget needed to fund retirement for 5% of Illinois workers?
  4. Why do the 95% have to guarantee all investment losses for the pensions of the
    5% when their own pension investments are not guaranteed?
  5. Why do the 5% have an unlimited call on the resources of the 95%?

Whatever solution we come up with must address all of these questions.

The “Fairness in Compensation Act”

To achieve the goal of “fairness” I would immediately constitute a commission of business and human resource experts to study the issue and recommend changes. These changes would then be written into the “Fairness in Compensation Act” which would, over time, eliminate any difference in total compensation between the public and the private sector employees whether in favor of the public employee or private employee.

This is the long-term solution, along with regulatory reform reducing head-count, to downsizing government size and cost.

Compensation items to be considered would include at least the following:

  1. Salary
  2. Pension benefits
  3. Health care benefits
  4. Sick leave benefits
  5. Vacation days
  6. Holidays and personal days off
  7. Job security
  8. Hours worked per day
  9. Days worked per year

The basic unfairness of public vs. private compensation is outlined in the following table. This is not comprehensive nor are we saying this is always true. However the magnitude of some compensation items deserve thorough review and correction as noted.

We want our hard-working public employees to be compensated fairly – equal to but not exceeding their hard working, taxpaying peers in the private sector.

 

 

Fairness of Constitutional pension guarantee.

There has been a lot of back and forth on the issue of the supposed “Constitutional” pension guarantee on all sides, regarding lawsuits, Constitutional amendments and so forth. But if you look at what pension rules were in effect in December of 1970 when the Illinois Constitutional Convention inserted the “pension guarantee” into the constitution the pension rules were as follows:

  • 60% of salary at age 60
  • 70% of salary at age 66
  • COLA 1.5% not compounded
  • No sick leave accruals, ERO or automatic career end raises.

The fact is unassailable that the current pension crisis is not the result of what happened in 1970 at the Constitutional convention but what has happened in the 40 years since then. The problem is the layer upon layer of legislation passed since 1970 by compliant politicians of both parties enhancing public employee pensions, salaries and benefits at the very great expense to the taxpayers of Illinois. Reversing all or most of that legislation is one thing that needs to be accomplished in a quick and efficient manner to re-establish compensation fairness. Illinois’ future depends upon it.

 

One last point on the fairness of public salaries. We ask that teachers and their unions join us minimizing taxpayer costs in this difficult economic environment by freezing their salaries in spite of what may be in their contracts. Freezing salaries at 2009 levels would allow local school districts to re-hire at least 10,000 laid off teachers and teaching assistants without raising taxes. We can no longer afford contracts like that signed by Avoca District 37 on Sept. 16 guaranteeing teachers at least a 35% salary increase over the next 5 years. In this economy that is outrageous and unacceptable.

 

To aid local taxpayers in controlling compensation costs at local school districts, we will introduce legislation to eliminate unwarranted teacher salary increases like that at Avoca:

  1. Banning teacher or other strikes at public schools.
  2. Opening all contract negotiation to the public.
  3. Restricting tenure.
  4. Submitting all contracts above the CPI to referendum vote.
  5. Standardizing contracts to make them simpler and easier to understand.

Going forward teachers need to be part of the solution not part of the problem.

 

Up next: Part 4.

 

 

Bill Zettler is a free-lance writer and consultant specializing in public sector compensation. He can be contacted at this email address. Click here to read more by Mr. Zettler.