To Bill Brady and Pat Quinn: It’s The Pensions Stupid

(Originally posted 2-5-2010.)

Tea parties are turning into “Pension Parties.”

Evidence continues to pile up that out-of-control Illinois public pensions are on the minds of voters in Illinois. Last February’s primary added to that evidence via a pension reform referendum in Barrington and Lake Forest that was overwhelmingly approved by the voters 91% and 87% respectively.

Here is the exact question asked: “Shall the Illinois General Assembly and the Governor take immediate steps to implement meaningful pension reform which will relieve the unsustainable burden on local taxpayers?”

This was a referendum on local pensions not state but the point is exactly the same: pensions are an unsustainable burden on taxpayers. And local pensions are small potatoes compared to state pensions: all 647 Police and Fire Pension Funds in the state have a combined unfunded liability less than 10% of the state pensions.

For two guys at the 20% voter approval level, 91% and 87% should send a strong signal: the 95% of voters who are not eligible for state pensions do not want to pay taxes to make the other 5% retirement millionaires.

The pension problem is so big it may be beyond managing.

Using reasonable investment return assumptions on the pension assets and including the $20-40 billion unfunded public retiree health insurance cost no one talks about, this is a trillion dollar taxpayer expense over the next 35 years. That averages $28 billion a year about equal to the entire state budget for 2009.

The number of $100,000 state pensions is growing by double digits each year and 86% of them are from educators. Without reform the number of $100,000 pensions will exceed 10,000 before the next governor’s first term is over.

In my opinion you cannot overemphasize this issue in 2010. It is a once in a lifetime opportunity to make meaningful change to the benefit of 95% of the public.

Remember: the 5% has a lot more (union) money but the 95% has a lot more votes.

Here’s a few selling points on resolving the pension problem.

  1. You will ask for a constitutional referendum on ending or modifying the pension guarantee.
  2. Legal action to test the limits of the constitutional guarantee as it stands. Can the guarantee be enforced even if it bankrupts the state and/or causes massive wealth transfers from the 95% to the 5%?
  3. All public employees on Social Security and 401K just like private employees.
  4. Fringe benefits for all public employees the same as private employees. No Cadillac health care programs or extensive time off.
  5. Until there is meaningful pension reform, those who cause the pension problem should pay for the pensions. That means more and more pension cost must be moved to the largest source of the problem: to the local school districts and universities. Asking the state to pay pensions for $189,000/yr Music teachers is unacceptable (see below).
  6. Until there is meaningful pension reform there must be extensive cuts in all other areas of compensation not guaranteed by the constitution such as health insurance cost, vacation days, holidays and salaries. For example eliminating 2 weeks vacation, 2 holidays (Pulaski and MLK for example) would cut employee costs by 5%. Requiring 50% contribution for health care coverage would cut another 15%.
  7. Until there is meaningful pension reform a head-count reduction plan must be implemented in every department and public institution from the state house to the schoolhouse. Outsourcing as many public service jobs as possible and increasing teacher workloads from 4 classes to 5 classes a day are two good examples of lowering the number of public employees and by definition lowering pension costs.
  8. As a matter of fairness public employees must be required to pay into their retirement plan at least as much as private employee taxpayers pay into theirs (12%).
  9. As a matter of fairness public employees must be required to pay at least the same percentage of their health care cost as public employee taxpayers pay into theirs.
  10. At the university level pension costs must be part of the annual school budget not passed off back to the state. In other words the universities must control their salaries and benefits because they will have to account for the pensions of their employees in their annual budgets.
  11. At the university level all faculty must teach more classes per week. No more $300,000 salaries for teaching two classes a week as former U of I president Joe White recently received after resigning under an ethics cloud.
  12. End or extensively modify tenure law. It is an anachronism that has outlived its usefulness and is an expensive burden on the citizens of Illinois.
  13. Conduct a complete “Fairness in Compensation” review by outside compensation consultants comparing public employee total comp to private sector total comp. Public school, university and state employee compensation would be compared to their peers in the private sector by job description.
  14. Propose a $2,500/yr Education Tax Credit to encourage parents to transfer their children from public schools to schools where the Music Teacher’s make $59,000/yr instead of $189,000/yr. Every 20 students who leave the public school system means one less public teacher and one less million dollar pension. The teachers can then apply for those teaching jobs in the private sector.

Hinsdale‘s $6 million dollar man.

Just as an example of how out-of-whack the pension system has become here is the pension calculation for Hinsdale’s $189,000 music teacher or as I call him the “$6 Million-dollar Man” since that’s the pension he is likely to collect over his lifetime:

How a Music Teacher Becomes $6 Million-dollar Man.

 Salary 2009

 $     189,434

 Salary 2008

 $     178,711

 Salary 2007

 $     168,595

 Salary 2006

 $     159,037


 $     173,944

 Pension Year 1

 $     130,458

 Pension Year 30

 $     304,976

 Total Payout 30 yrs

 $  6,122,194

And no, he is not an aberration or outlier as you can see from the Top 100 Teacher Salaries. They average $160,000/yr. There are many more $6 million men in the pipeline.

How will it play in Peoria?

While you are campaigning downstate in Cairo and Jackson County and McLean, and for that matter Rockford and Peoria, you might ask the folks if they would like to have their taxes raised to fund $6 million dollar pensions for suburban Chicago music teachers. Or put it another way and ask them which state services they would like to give up so that $6 million pensions can be paid: food pantries, homeless shelters or services for poor senior citizens?

After they stop booing tell them you are going to solve that problem and return sanity to the Illinois budget – and without raising taxes.

I wouldn’t be surprised if you get at least 91% of the vote of every group you talk to about it.

Bill Zettler is a free-lance writer and consultant specializing in public sector compensation.