Illinois Issues blog

Pilot project aims to help neighborhoods blighted by foreclosures

Author: Illinois Issues Statehouse bureau

By Ashley Griffin

During his State of the State address on Wednesday, Gov. Pat Quinn proposed a new initiative to restore vacant foreclosed properties in the Chicago area. On Friday, he was joined by Cook County Board President Toni Preckwinkle and six Cook County mayors to announce the Illinois Building Blocks Pilot Program.

The program aims to stabilize neighborhoods, protect property values, preserve the existing local tax base and increase affordable housing stock in six communities in Cook County: Berwyn, Chicago Heights, Maywood, Park Forest, Riverdale and South Holland.

“The Illinois Building Blocks Pilot Program is a strategic effort to help stabilize communities struggling with the foreclosure crisis,” Quinn said in a prepared statement. “By turning vacant properties into affordable housing, we’re assisting existing homeowners, strengthening hard-hit neighborhoods and boosting affordable homeownership options for working families.”

According the latest report from Realty Trac, a California-based company that monitors housing sales, Chicago leads the United States in the number of foreclosed homes.

 “With the highest inventory of foreclosed homes in the nation, the Chicago region requires a focused foreclosure response like the Illinois Building Blocks Pilot Program,” Mary Kenney, executive director of the Illinois Housing Development Authority, said in a written statement. “This program represents a multifaceted approach and is an important part of Gov. Quinn’s overall housing strategy to address the economic, public safety and quality-of-life issues caused by abandoned and foreclosed properties.”

“Abandoned properties burden communities by creating blight, attracting crime and reducing the local tax rolls,” the statement from Quinn’s office said. “On average, homes located the same block as a foreclosed property can drop $8,000 to $10,000 in value.”

With $40 million allocated from the 2009 Illinois Jobs Now! program and $10 million from Cook County, the pilot project  aims to help 500 current homeowners in the area avoid foreclosure. It includes a second component that provides $5 million in assistance for homeowners to purchase vacant properties, along with grants of $10,000 for 500 homebuyers to help with down payments and closing costs.

“I am excited to partner with Gov. Quinn and the state of Illinois in this joint effort to stem the tide of the foreclosure crisis in our underserved communities and revitalize Cook County’s neighborhoods,” Preckwinkle said. “We must continue to focus on a regional economic development strategy that more effectively leverages our resources to spur economic growth, and the Building Blocks program is a step in the right direction.”

Although the program has received some support, some lawmakers wonder if the state can afford such a program in cash-stricken times.

“Every one of these probably sound good … they all look and sound good, but to come in and say, “I want you to spend another $500 million dollars …’” House Minority leader, Tom Cross said Wednesday during a news conference to criticize Quinn's proposals to spend money on new initiatives. “In about two or three weeks, he’s going to come in and say, “I want you to borrow four or five billion dollars to pay bills. How does that jibe? It doesn’t jibe. So they all sound good and they look good and they are appealing, but can we afford them? And I think we all know the answer to that.”

Quinn pitches tax cuts to spur economy

Author: Illinois Issues Statehouse bureau

By Ashley Griffin 

As Gov. Pat Quinn presented his take on the status of the state today, lawmakers and business leaders said they were listening specifically for the governor’s plan to grow Illinois’ economy.

Quinn gave them the Illinois Jobs Agenda for 2012, which includes three-targeted tax cuts for the state’s working families, employers and veterans.

“We owe it to the next generation to continue our progress of the past three years,” Quinn said in his speech. “To create jobs and grow our economy, we must continue to invest in Illinois and help everyday people.”

The plan aims to permanently abolish the natural gas utility tax in Illinois; establish a child tax credit for parents, which would provide a $100 direct tax credit for the average family of four; and create a tax credit for companies that hire unemployed veterans.

The governor’s budget office estimates that abolishing the natural gas utility tax will provide $164 million in savings for families, the child tax credit will provide $130 million in savings for parents raising children and the tax credit to hire veterans will provide $5 million to $10 million in savings for employers. The total cost would be about $300 million. Quinn’s budget spokesperson, Kelly Kraft, said the governor would lay out how he plans to pay for the agenda when he delivers his budget address later this month.

“The governor and the General Assembly have been good in the past couple of sessions in giving us the kind of tools we need, but we have to be able to put more disposable income into the hands of our working families, and we have to put our veterans back to work. They’re good incentives that will help both business and families and create jobs,” said Warren Ribley, director of the Illinois Department of Commerce and Economic Opportunity.

But some lawmakers are skeptical of the plan.

“We don’t have any money. All these sound good, but we can't afford them,” said House Minority Leader Tom Cross. “That’s what is disturbing … the failure to acknowledge the gravity of the situation.”

“He imposes a 67 percent tax increase, extracting one week’s pay out of every family and business, and yet he turns around and tries to pretend to provide some sort of relief without having any meaningful reform,” said Sen. Bill Brady, a Republican from Bloomington. “I am sure I can support all of them because they are needed, but he’s not hitting the core of what we need to hit, and that is eliminating the deficit and the debt in order to bring jobs back to Illinois,”

Members of the business community supported some of Quinn’s ideas. “He touched on some new areas that we were surprised by, most particularly the idea of reducing the cost of doing business in Illinois by repealing the utility tax. … That should be a real job benefit to a lot of companies that are heavy users of natural gas,” said Doug Whitley, president of the Illinois Chamber of Commerce. “All in all, the Illinois Chamber was very pleased.”

However, some said they did not hear everything they were hoping for. “Certainly he set a tone that was positive. Talking about jobs is always a good thing,” said Todd Maisch, vice president of government affairs for the state Chamber of Commerce. He said he was disappointed that Quinn did not bring up reforms to the way the state judicial system handles medical malpractice suits, something that has long been on the wish list of many business organizations.

Maisch added that that some of the reforms Quinn counted as victories still need work. “I would say probably the most troubling was the notion that workers comp and unemployment insurance are reforms that are done. We have not scratched the surface. Those need to get back on the agenda and in a hurry.”

Quinn proposes new spending in upbeat State of the State address

Author: Illinois Issues Statehouse bureau

By Jamey Dunn

 Gov. Pat Quinn focused on the positive as he gave his State of the State address today.

He highlighted recently passed legislation such as education reform and the Illinois Dream Act.

He touched on some of his favorite stories of Illinois success, such as job growth at a Chicago Ford plant and the state’s large volume of agriculture exports.

“We have invested in our state, making it a better place to do business.And we have invested in the people of Illinois, helping our working families and improving education. The results are in from major export growth and the largest public works construction program in state history to solid gains in education. We’re back on course. Illinois is moving forward,” Quinn said in his speech.

“I felt like I was listening to the story of the Emperor’s New Clothes, and he was walking down the street saying, ‘Boy, my clothes are beautiful,’”  said Senate Minority Leader Christine Radogno. “And the rest of the state — the citizens — are saying, ‘He’s naked!’ It’s like he totally doesn’t get it that the focus here needs to be on the problem we all agree is out there.”

But Senate President John Cullerton said Tuesday that the state has made progress in the last few years, and Quinn should celebrate it in his speech. “I commend the governor for highlighting the many accomplishments that we have made over the last few years,” Cullerton said in a written statement released today.

“I think he did the right thing by stating the real positives that we have here in Illinois, and we have many positives,” said Comptroller Judy Baar Topinka.  “But we also have a big tab right now that we have to pay.”

Quinn pitched several initiatives, but the response from lawmakers and other Illinois officials was “show me the money” that will pay for new programs.

“I’m sure they’re all excellent proposals. … It all boils down to revenue, money, balanced budget. Where is that going to come from?” said Sen. John Sullivan, a Rushville Democrat. “We want to work with the governor. If he has some ideas on how we can come up with that revenue, we’re willing to take a look at it, but you know it’s just going to be extremely difficult in this situation.”

Palatine Republican Sen. Matt Murphy said: “He spent a significant amount of time in his speech talking about new spending. It’s just detached from reality.”

Quinn proposed a series of tax cuts that he said would help to spur economic growth and create new jobs. He said he wants to make "major investments" in classroom resources, such as new technology, early education and the Monetary Assistance Program. Both preschool funding and MAP grants have been cut in recent years. He said he wants to make investments in the state’s water systems, such as new water mains and sewage treatment plants. Quinn solidified the goals of doubling Illinois exports by 2014 and having 60 percent of residents holding a certificate of post high school education by 2025.

Quinn’s budget office estimates that the tax cut plan would cost about $300 million. The budget office did not supply cost estimates for other parts of Quinn’s plan. “Today, our focus is on the vision for our state. …The governor looks forward to working with legislators on these investments, as well as investments in college scholarships, early childhood education, affordable housing, clean water for communities, and 21st century schools that will continue moving Illinois forward,” Kelly Kraft, Quinn’s budget spokesperson, said in a written statement.

Republicans gave a figure of $500 million as a ballpark cost of all the proposals Quinn made. They complained that Quinn did not address the state’s growing backlog of unpaid bills, which a recent report says would reach $35 billion in five years if no action were taken. “He didn’t refer to the backlog at all, really. It’s there. I see it everyday,” Topinka said. “You certainly don’t solve this problem by creating new programs, even though they do generate a lot of feel-goods. … If I had a calculator in my hand, it would have blown up. There’s no way to pay for all these things.”

Quinn has proposed borrowing to pay down the backlog, and Cullerton said Tuesday that he would support a bipartisan borrowing plan. But Murphy said, “The borrowing is dead on arrival.”

Warren Ribley, director of the Department of Economic Opportunity said Quinn’s proposals would help spur job growth. “I think the goal of having 60 percent of our population with an accredited degree by 2025 will certainly provide a strong foundation for growing jobs and moving the economy forward. … We have to continue to invest in infrastructure. I work with business every single day, and the two things that they tell me that we need are strong investments in your infrastructure and strong investments in your education. So it’s very consistent with what I hear.”

Rilbey said that today’s speech was an “opportunity to lay out a vision,” and Quinn would address how he proposes to pay for his proposals when he presents his budget later this month. Cullerton said he was willing to wait for the budget address to get the details on spending. “As he advances new initiatives to create jobs and improve the economy, I look forward to hearing how we can fund these important priorities within a balanced budget,” Cullerton said in a prepared statement.

However, Republicans were less patient. “He’s had three years,” House Minority Leader Tom Cross said. “And these issues just get worse and worse and worse.”

Lawmakers on both sides of the aisle said they were pleased that Quinn called for Medicaid and pension reform this year. “Fixing the pension problem will not be easy, but we have no choice,” Quinn said. “I was encouraged to hear him about pension reform and Medicaid reform. I hope he will show the courage he talked about in tackling those issues in the coming weeks,” Murphy said. “They are the two 800-pound gorillas that are sitting in two different corners of the room that we have to address,” said Sullivan. “It’s not going to be an easy task. Is the will here to do it? I don’t know.”

Lawmakers anticipate Quinn's State of the State address

Author: Illinois Issues Statehouse bureau

By Jamey Dunn

With Gov Pat Quinn due to make his State of the State address Wednesday, Illinois legislators hope his speech will touch on a variety of issues.

Quinn is scheduled to give his speech before a joint session of the House and Senate at noon on Wednesday, and he says he plans to focus on economic development.

“The best way to be strong is to build and grow your economy. There’s no other way to have a better budget than to make sure that we have a dynamic economy that’s creating jobs for middle class hardworking people in Illinois. And that’s what I’m going to talk about tomorrow,” Quinn said today at a Chicago news conference. “Economic growth and jobs are our number one priority now, today, tomorrow and forever in Illinois. As long as I am governor, we’re always going to stress economic growth and jobs.”

Senate President John Cullerton said that while the state still faces problems, he is hoping for a speech that is not all doom and gloom. “I’d like to hear the governor talk about what great progress we’ve made in Illinois in the last year,” Cullerton said. “We really have a great state. We have had to face some really serious problems, like most states in the nation. We’ve passed a lot of reforms to our budget process. We’ve passed caps on our spending. Last year we passed a balanced budget. … We still have some real challenges to face. But the state is really a very positive business-climate state.”

Rep. Roger Eddy, a Hutsonville Republican, agrees with Quinn that economic development is a top priority. “I hope he relays the fact that Illinois needs to make this state’s climate attractive to business. The way out of the problem we face fiscally is to make Illinois attractive to businesses.”

What Eddy says he does not want to hear from Quinn is talk about “spending more money.”

“My hope would be that he continues to realize the difficult position we’re in, and he has some plans.” Eddy said he think Quinn needs to acknowledge the issues brought up in a recent report from the Civic Federation that says the state’s backlog of unpaid bills will total $35 billion within five years if not action is taken.

Cullerton said he would support a plan to borrow to pay down the state’s overdue bills, but only if it had bipartisan support. “We should finance those payments over time. Pay people off right away, not borrow money from our vendors but from our lenders,” Cullerton said. “That would help the economy. That would make people who do business with the state feel more comfortable in doing so.” Quinn has favored such a proposal in the past.

The Civic Federation report also highlights growing Medicaid and pension costs. Both are issues Quinn said he plans to talk about Wednesday. “There’s some very interesting ideas in there,” he said of the report, but he said the document “was a little light” on proposals for economic development.

While he plans to talk about some aspects of the budget, Quinn said: “Tomorrow is not the budget address. That’s three weeks from tomorrow.” He is scheduled to present his budget on March 22 Correction: February 22: “It’ll be, I think, a very provocative document. It will challenge the members of the General Assembly to show political courage to do important things that have to be done.”

Quinn told reporters he will propose some sort of tax relief in his address, but he would not give details on what the relief would be or what people or groups it might apply to. “The answer is yes, but you’ll have to wait till tomorrow.”

Eddy said that while such speeches are the time to lay out the broad strokes of policy changes, he hopes that Quinn does not make any drastic announcements that he later fails to follow up on. Eddy pointed to Quinn’s proposed elimination of the Regional Offices of Education in last year’s budget address. Quinn later used his veto pen to remove the funding for regional superintendents, and they went without pay for months. Quinn did not designate an entity to take up the duties of the Regional Offices of Education. The legislature, somewhat begrudgingly, passed a bill to pay the superintendents. Many lawmakers, including Eddy, were frustrated at cleaning up what they saw as a mess that Quinn created.

“Maybe the last year and his recognition of the fact that just saying it doesn’t make it so will be a good lesson for him,” said Eddy, who is a school superintendent in Hutsonville.

Rep. Lou Lang, a Democrat from Skokie, said he hopes Quinn will talk about the budget and the backlog of unpaid bills. “I think the governor will acknowledge that we have some serious budgetary issues and try to indicate that we’ll continue our program from last year of cutting where we can, balancing the budget, trying to find revenue without taxation and trying to pay of our bills. I think that’s our first and foremost responsibility, and I’m expecting to hear that tomorrow.”

Lang added: “We have to find revenue. I don’t think the governor will discuss, for instance, the gaming bill, but the negotiations continue on that.” Lang sponsored a bill to increase the number of casinos in the state and allow slot machines at horse racing tracks. The bill passed both legislative chambers, but Quinn publicly opposed it. Lawmakers never sent the legislation to Quinn, who said he planned to rewrite it if it landed on his desk. Interested parties have gone back to the drawing board to try and negotiate a new bill that lawmakers would approve and Quinn would sign.

Lang said that he hopes Quinn indicates a desire to work more actively with the legislature on crafting the budget. The budget process was largely driven by the House last year.“Moving forward together, we can’t fix all the problems we have in one year, but we can continue to make the progress that the people of our state deserve.”

For a look back at Quinn's first year as elected governor, see Illinois Issues January 2012. 

Quinn wants high school dropout age raised to 18

Author: Illinois Issues Statehouse bureau

By Jamey Dunn

Following a call to action that President Barack Obama made in his State of the Union Address, Gov. Pat Quinn today proposed raising the dropout age for Illinois high school students.

“When students don’t walk away from their education, more of them walk the stage to get their diploma. When students are not allowed to drop out, they do better. So tonight, I'm proposing that every state -- every state -- requires that all students stay in high school until they graduate or turn 18,” Obama said in his address before Congress on Tuesday.

In Illinois, students can drop out at 17. According the National Conference of State Legislatures, 29 states allow students to drop out of school before they turn 18. Quinn plans to propose a bill during his State of the State address next week to change the age in Illinois, and he hopes to see it passed within the year. “Every child in Illinois deserves a quality education that will serve them throughout their lives,” Quinn said in a prepared statement. “The best way to ensure that our children have the chance to achieve and succeed is to make sure they stay in school long enough to earn their diploma.”

Illinois high school students could drop out at age 16 until lawmakers voted to increase the age to 17 in 2005. According to the Illinois State Board of Education, the statewide dropout rate in 2004 was 4 percent, and the rate today is 2.7 percent. “I would anticipate if it was raised to 18, we would see another decrease in the dropout rate,” said Matt Vanover, spokesperson for the ISBE.

Vanover said that moving the age up from 16 made a difference. “You get the driver’s license, and all of sudden you think, 'I don’t need school, and I don’t want to stick around for two years,’” he said. “Two years is an eternity in a teenager’s mind.” He said that the closer that students get to being able to see the light at the end of the tunnel, the more likely they are to stick it out and graduate.

Vanover said that without a high school diploma, young adults have little chance at finding a job that can support a family. “Anything that we can do to ensure that students are going to be in school, we’re going to be for it. We know that if you do drop out, the chances to succeed in life just plummet.”

Charles McBarron, spokesperson for the Illinois Education Association, said that the teachers union supports the concept of raising the dropout age. However, he said that may not be enough to ensure that students get a solid education. “It probably requires more than just keeping them in the building. We have to find way of engaging them.”

Rep. Roger Eddy, a Hutsonville Republican, agreed. “If it was as easy as Obama said, it would be wonderful,” said Eddy, who is a school superintendent in Hutsonville. “To accomplish something with it, we’re going to really have to look at what we do to provide students with a meaningful experiences.”

Eddy said that vocational courses or workplace readiness programs might connect with students who are not succeeding in a traditional academic setting. “To serve the needs of all students, we do have to understand that some students aren’t going to college.”

He said that in some areas where dropout rates are highest, students may face challenges that schools cannot easily overcome, such as homelessness or violence. Eddy added that levels of truancy enforcement vary throughout the state, and an increase in the dropout age would require consistent enforcement to be effective. “It’s really hard for the school to be the police, too.”

Part 3: A look at pension reform across the country

Author: Illinois Issues Statehouse bureau

By Jamey Dunn


All four legislative leaders and Gov. Pat Quinn have said that pension reform is a priority in the upcoming legislative session, but their opinions differ on what would be best for the state and legal under the Illinois Constitution. Recent reforms in other states could provide models as lawmakers move forward. This is the final installment in a three-part series that looks at different aspects of reform in other states.

While labor issues in some states have turned into ugly fights that involved sit-ins and heated rhetoric, one state managed to work out pension changes through negotiations with its unions.

In Vermont, state officials sat down with labor leaders and worked out a deal that will save the state about $15 million a year, which was about 10 percent of the state’s budget deficit at the time the deal was struck. Employees will contribute more of their pay toward their retirement costs. It varies for different workers, but it will mean about 1 percent more of their salaries would go to their pensions. Workers will have to wait longer to retire, but will see a bump in benefits. The deal also includes a two-year 3 percent pay cut for state employees, a first in Vermont.

Employees in many states have had to pay more for their retirement benefits. In 2010, 11 states increased the amount employees must contribute to their retirement. In 2011, it happened 16 more times, although some of the same states that had raised contribution levels the previous year made the move again. “If you were to look across the country in cases where required pension contributions has been raised by employees you would find a range for different reasons,” said Keith Brainard, research director for National Association of State Retirement Administrators.

He said, “It’s more the absence of something — the absence of a constitutional provision, the lack of a statute” that allows states to increase contributions. According the National Conference of State Legislatures, 12 of the 2011 increases applied to at least some current employees. However, David Draine, senior researcher for Pew Center on the States, said: “We’ve seen more states considering — though not necessarily going for it — models where employees can keep their current benefits but have to pay more for them.”

That is what House Minority Leader Tom Cross said needs to happen in Illinois. Under Cross’ proposal, Senate Bill 17, workers who want to stay in the current benefit system would have to pay more. “You’ve got to truly pay for the cost of your benefits,” Cross said at a recent news conference.

What sets Vermont apart is that state workers — not legislators — approved the increased contributions through their unions.

“I think what happened in Vermont is that the governor and others sat down with labor and said, ‘We’ve got this problem. There’s only so much money to go around, and something’s got to give,'” Brainard said. The state is facing a deficit, a pension funding shortfall and, according to Vermont Public Radio, 25 percent of Vermont state workers will be eligible to retire by 2015. Other key factors in the negotiations may be the fact that Vermont is a small state and has a tradition of public civic engagement.

Brainard said Vermont is an example where defined benefits plans can continue to be workable and states do not have to switch to 401(k)-type defined contribution plans to tackle their pension problems.

Senate President John Cullerton said he would like to see Illinois negotiate a deal with its unions. “We can affect current employees … with laws that have a contractual basis. If there’s a reduction in benefit, there has to be a corresponding consideration, and there has to be acceptance," Cullerton said at a recent news conference.

Cullerton believes that any changes imposed by the state to benefits for current employees would be unconstitutional. Cullerton said Cross’ bill is unconstitutional and lacks the support to pass. “It hasn’t even been called, so apparently they don’t have enough votes for it.” He said that pension reform is also a priority of his, but that it should be achieved through negotiations with unions. “Politically, it would be real, for some people, just easy I guess to pass a bill, claim you did something, have it [blocked by the courts], spend millions of dollars in legal fees and then two years later find out it is unconstitutional.”

That is what former Vermont Treasurer Jeb Spaulding, who worked on the agreement in his state, wanted to avoid. “It would have been a Pyrrhic victory if we forced through a plan that was enjoined or overturned and we didn’t have any savings at all,” Spaulding told Stateline.

However, Brainard said states such as Illinois might have little to offer unions besides the avoidance of negative outcomes. “I think Illinois is almost in a class by itself in terms of its chronic neglect of its pension plan.” He said. “The best they might have to offer in a lot of cases is that they would forestall attrition and layoffs.”

Illinois union officials say they want to be at the table for any talk of pension changes, but they say that workers should not have to pay for the underfunding of the pension system after lawmakers and governors skipped required contributions year after year. The only way to solve the pension funding problem is for the unions that represent public employees — whose retirement security is dependent on the health of the pension funds and whose deferred compensation makes up 100 percent of the funds’ assets — to be full partners in discussions that are appropriately structured and focused on the real problem, funding,” Anders Lindall, spokesman for the American Federation of State County and Municipal Employees Council 31, said in a prepared statement.

Brainard said that Illinois' constitutional provision creates a “higher hurdle” to pension changes. However, he said, “I would not consider any single provision to be absolutely iron clad, with the one exception of benefits earned to date.”

Both Brainard and Draine agreed that states also need to consider the role that pension benefits play in recruitment.

“A lot of the focus has been on the pension side of things,” Draine said. “States do need to balance the need to control costs with the need to recruit and retain a public sector work force.”

Brainard said the promise of retirement security can help to attract quality workers and keep them on the job. “You have to find a set of solutions that will get you a work force capable of delivering the results that your constitutions want and deserve, and you have to do that at a cost that’s sustainable over the long term.”

Part 2: A look at pension reform across the country

Author: Illinois Issues Statehouse bureau

By Jamey Dunn

All four legislative leaders and Gov. Pat Quinn have said that pension reform is a priority in the upcoming legislative session, but their opinions differ on what would be best for the state and legal under the Illinois Constitution. Recent reforms in other states could provide models as lawmakers move forward. This is the second installment of a three-part series that looks at different aspects of reform in other states. 

While Gov. Pat Quinn has been coy in the past about his stance on pension changes, he has voiced strong support for passing pension reform legislation in 2012. “For all the beneficiaries in the system, it’s important that we maintain the integrity the stability of the system, otherwise there won’t be any pensions for anybody,” Quinn said earlier this month.

The governor created a special working group of legislators headed up by close adviser and former chief of staff Jerry Stermer to take on the issue and come up with recommendations for change. Quinn has not addressed whether he supports changing benefits for employees hired before a previous round of reforms went into effect last year. He has only said he does not want to make any changes that are unconstitutional.

However, the governor’s top budget adviser, David Vaught, said that reductions to cost of living adjustments given to retirees would likely be part of the discussion. “Some people say the [cost of living adjustment] is not protected constitutionally.”

Two recent court cases may have opened the door to more states considering reducing or outright eliminating cost of living adjustments for retirees.

According to the National Conference of State Legislatures, 17 states have taken actions in the last two years that would reduce COLA benefits. Most states making such changes, including Illinois, have reduced COLAs for future employees. However, in 2010, Colorado, Minnesota and South Dakota all reduced the cost of living increases given to their current retirees, and other states are taking notice. “It was new news in 2010 when three states made changes to their COLA that affected existing retired members," said Keith Brainard, research director for National Association of State Retirement Administrators. Since then, New Jersey and Rhode Island have both put a freeze on COLA benefits until their pension systems get on sound financial footing.

Last summer, judges in Colorado and Minnesota tossed out court challenges from retired state workers, allowing the COLA reductions to stand.The states said that the COLAs were not part of contractually guaranteed benefits, while the workers argued that reducing them would violate both state and federal protections for contracts. “The big legal question that has resulted in these court cases is to what extent are future COLAs … promised and protected benefits,” said David Draine, senior researcher for Pew Center on the States.

Denver District Judge Robert Hyatt ruled that lawmakers could not touch the base pension benefits promised to retirees but that cost of living increases were not a protected by contract law. One reason that states with budget problems or underfunded pensions might be quick to jump on the COLA cutting bandwagon is that cuts to COLA increases for current retirees produce almost immediate savings, while other pension changes can take years to produce substantial savings.

Social Security benefits and pension benefits for federal workers contain a cost of living increase that is tied to inflation. But with deficit reduction talks taking place on the national level, they too are under fire. There are proposals to link them to a more conservative inflation projection, which would effectively cut the size of future increases.

The rulings in Colorado and Minnesota do not apply to other states, and judges elsewhere, including California and West Virginia, have ruled that COLAs cannot be reduced. However, Brainard said the rulings do indicate that some judges are willing to take into consideration the dire situation that some pension systems are in and may allow lawmakers to use more discretion if they are “making a reasonable effort to share the burden equally — that is you’re not taking it out on only one group.” In the case of Denver, the money saved from COLA reductions is slated to go back into the pension system to help shore it up, instead of being spent in areas that lawmakers might consider more popular with voters. “You’ll see this wiggle room that the judges seem to have found,” Brainard said.

Quinn has also proposed calling on universities and school boards to pay a portion of the retirement costs for the workers they employ. “Our pension payment this year looks like about $5.2 billion, and of that, about a fifth, 20 percent, is actually state employees. More than half are school teachers in school districts and also the university employees, as well. So we’re going to come up with a good program that makes sure that everyone who is involved in this program has some investment in it,” Quinn said at a recent news conference.

Skeptics of the plan say it would lead to detrimental cuts to education and potentially spur property tax  increases as local governments look for a way to cover the cost of teachers’ pensions. Quinn said that the employers that negotiate the salaries on which pensions are based should bear some of the responsibility of the costs. “I think we have to be very prudent that we don’t hurt any of our current education efforts. But at the same time, you don’t want to have a system where those who are negotiating with employees don’t have a stake in the outcome. If they just want to shift the burden onto the state, then sometimes, they don’t maybe negotiate as well as they should. … Everyone who has employees in the pension system should contribute something to the pensions.”

House Minority Leader Tom Cross said such a proposal would not do enough to address the state’s pension problems. “The pro might be that they have some skin in the game, but the reality is, we’re going to have to address what people contribute. That is a component that you cannot escape. It is a very real part of the solution,” Cross said at a recent news conference. “It can’t be just an issue of cost shifting or nibbling around the edges. This thing is beyond nibbling around the edges.”

Maryland Gov. Martin O’Malley pitched a proposal this month that follows in the lines of Quinn’s statements. Under O’Malley’s plan, local governments would pick up half of the cost of teachers' retirement benefits, including Social Security contributions. Currently, districts pay about one third of the cost. If O’Malley’s plan were approved, local governments would pay almost $240 million more, but they would get some funding — from the proposed elimination of a tax break for top earners — to help with the transition.

“It sounds a little bit like taking money out of one pocket and paying it to another, … although, there is something to be said for linking the benefit obligation [to bargaining decisions],” Brainard said. “From the outside perspective, it’s all sort of coming from the same pot, and that is the taxpayers.”He said that the share that local public entities pay for their worker’s retirement costs vary from state to state. However, he said that the split is more an issue of cost sharing between state and local governments than it is a component of pension reform.

Yesterday's post explores so-called hybrid pension systems. 

Check back tomorrow for a look at a state that achieved pension changes by working with unions. 

Pension reform across the country

Author: Illinois Issues Statehouse bureau

By Jamey Dunn

All four legislative leaders and Gov. Pat Quinn have said that pension reform is a priority in the upcoming legislative session, but their opinions differ on what would be best for the state and legal under the Illinois Constitution. Recent reforms in other states could provide models as lawmakers move forward. This three-part series will look at different aspects of reform in other states. 

As Illinois looks at its seriously underfunded retirement system for state workers, it is not alone. A recent Pew Center on the States study found that at a 51 percent funding level, Illinois has the most under-funded pension system in the nation as of Fiscal Year 2009. However, 30 other states were also under the recommended 80 percent funding level. In FY 2008, 22 states fell below that funding level. Overall, state pensions were funded at a 78 percent level in fiscal year 2009, which is down from 84 percent in FY 2008.


Since pension systems vary so much across the states—including to whatdegree benefits are protected by statute and constitutional provision—Susan Urahn,managing director for Pew Center on the States notes that it is difficult tomake an "apples to apples comparison."
 

“We’ve talked about pension reform in this state until we’re blue in the face. We know what needs to be done. We know that other states have done what we need to do, like Rhode Island,” House Minority Leader Tom Cross said during a recent news conference.

It is fitting that Cross would cite Rhode Island as an example, since it is the only state that has in recent years taken some controversial pension reform steps similar to a proposal from Cross. David Draine, senior researcher for the Pew Center on the States, called Rhode Island’s reforms “the only [recent] example of a state that really changed the terms of pension benefits for current employees.”

The plan, approved by Rhode Island lawmakers and signed into law late last year, would freeze cost of living increases for current retirees. Current workers would keep all of their benefits to date, but they would be shifted to a so called-hybrid plan for future benefits. Part of their retirement investment would go into a defined benefits plan and part of it would go into a defined contribution plan, much like a 401(k). Some of the payout would be guaranteed, and some of it would be tied to the performance of investments. The retirement age would also increase for many workers.

Rhode Island had one of the largest funding gaps in the country relative to its size. The state operated its fund on a pay-as-you-go basis from the 1930s until the 1970s. “Pension systems with really severe problems often started out as 'pay-as-you-go' plans, in which retirees derived their benefits from current state revenues, not any pool of accumulated cash. Inevitably, the number of retirees grew, relative to the number of currentemployees, and the checks going out the door took up a larger and larger portion of state revenues,” said a study of state pensions from the Pew Center on the States. “You’re paying for the sins of the past,” Frank Karpinski, executive director of the Rhode Island system, told Pew.

If the reforms in Rhode Island survive the expected court challenges, they are projected to reduce the state’s more than $7 billion unfunded liability by $3 billion. That plan passed with the bipartisanship that Cross is seeking for pension reform in Illinois. It was backed by the Democratic state treasurer and independent governor. However, unlike Illinois, Rhode Island does not have a provision in its constitution protecting pension benefits.

Rhode Island Treasurer Gina Raimondo, who created plan for change and traveled the state for almost a year to promote it, said that the debate was not marked by the anti-union rancor that characterized labor disputes in states such as Wisconsin. But a backlash has begun. “This would be different if it was given to us. No one gave us anything. We paid for these pensions,” Michael Downey — president of Council 94, Rhode Island's largest public employees union — told Rhode Island Public Radio. Downey said the unions are gearing up for a court challenge as well as a political battle. “When you are retired and you go to check your monthly statement, you won't forget this. You'll remember this. Will it be remembered in the polls? I'm sure it will,” he said.

The main similarity that the Rhode Island plan has to Cross’ proposal is that it would change the benefit structure for employees hired before its creation. Under Cross’ plan, workers would keep previously earned benefits but then would have to choose between paying more for their current benefit level, having their benefits reduced or moving to a 401K-type plan known as a defined contributions program. Illinois currently has a defined benefits plan that guarantees employees a specific level of benefits no matter what happens to the pension funds’ investments. Instead of requiring employees to choose between defined benefits or defined contributions, plans like the one passed in Rhode Island rely on a combination of both.

So-called hybrid pension plans have become popular in recent years. In addition to Rhode Island, Florida, Georgia, Indiana, Michigan, Ohio, Oregon, Utah and Washington all have hybrid style pension plans. Under these plans, employees do not chose between a defined benefits and defined contribution plan but participate in both. Most typically, employee contributions are placed into a 401(k)-type savings plan while state funds pay out defined benefits. While hybrid plans have been getting recent attention, the majority of states still have defined benefits plans.

“Currently, [the hybrid] plan design is receiving increased attention as states find that closing a traditional defined benefit pension plan to new employees could increase — rather than reduce — costs, and that providing only a 401(k)-type plan does not meet retirement security, human resource or fiscal needs,” said a report from the National Association of State Retirement Administrators. Legal issues aside, transitioning from a defined benefits to a defined contribution plan can be tricky because those who have retired under the defined benefits plan will still get their benefits. If there are no new enrollees in a defined benefits plan, it cuts off a large source of funding to the plan, and the state often has to make up the difference.

“It is difficult — usually impossible — to save money certainly in the near term by closing down a pension plan and moving to a defined contribution plan,” said Keith Brainard, research director for National Association of State Retirement Administrators.

Check back tomorrow for a look at the legal battles in other states over scaling back cost of living increases for retirees.

Quinn plans to close Jacksonville and Tinley Park facilities

Author: Illinois Issues Statehouse bureau

By Jamey Dunn

Gov. Pat Quinn today announced plans to close the Tinley Park Mental Health Center and the Jacksonville Developmental Center as part of a larger proposal to close several state institutions.

Quinn previously proposed the closure of seven state facilities because he said there was not enough money in the Fiscal Year 2012 budget to keep them open. Lawmakers worked out a budget deal in November to keep the institutions open through the end of FY 2012, but Quinn said he planned to move ahead with closures after the end of the fiscal year.

Under the plan, 600 of the about 2,000 people with developmental disabilities currently in state institutions would be moved into community care settings over the next two and a half years, up to four state centers for the developmentally disabled would be closed and two state mental health centers would also be shuttered.

“My administration is committed to increasing community care options and improving the quality of life for people with developmental disabilities and mental health conditions,” Gov. Pat Quinn said in a prepared statement. “The approach we are taking will allow for the safe transition of care for some of our most vulnerable citizens to community care settings. I want to thank the members of the public, the General Assembly and advocates who worked with my administration to meet this challenge and help our state move forward.”

Under the governor’s proposal, the Tinley Park Mental Health Center would shut down in July, and the Jacksonville Developmental Center would close in October.

The Tinley Park Center primarily serves so-called acute care patients, who typically stay between 24 hours to 21 days. The administration plans to halt admissions at Tinley in time for all patients to complete treatment before the closure, but no date has been chosen yet. “The [Department of Mental Health], however, is actively securing additional beds at community providers and hospitals in the area surrounding Tinley Park [Mental Health Center] to ensure that services in the area are not interrupted,” said a summary of the plan issued by Quinn’s office.

According to the governor’s office, several factors were weighed when considering which facilities to close, including the age of the facility, the amount of deferred maintenance and repairs, the level and quality of care and the economic impact.

But Rep. Jim Watson, a Republican from Jacksonville, said that he thinks administration officials knew what facilities they wanted to close and created the rubric to fit those institutions. “It was pretty obvious that they developed criteria to get the outcome they wanted.” Watson was part of a working group that took up the issue of which facilities should be on the chopping block. “I think that they picked facilities that were largely downstate geographically where he did not fare well and then picked them in mainly Republican districts.”

Watson noted that Tinley Park us in northern Illinois, but he said it made the list because Quinn has been considering closing it for a while. Both of the facilities announced today were also on the list for closure under the governor’s previous plan.

Unions representing the workers and families of residents at the state’s developmental center say Quinn has not included them in talks over closure decisions. Watson said he thinks that Quinn is listening to advocates on just one side of the issue. “As a governor, don’t you have to be responsive to both sides of the issue and the entire state?” he asked. Watson was critical of Quinn for being in Washington, D.C., when the word came down about planned facility closures today. “I think it’s reflective [of his mindset on the issue] that the governor today is in [Washington,] D.C., when he makes an announcement that affects the lives of thousands of Illinoisans.”

Union officials complained earlier this week about working group meetings that were held outside of the public view and said Quinn was moving forward without their input. “Mental health and developmental centers provide essential health care services in communities across Illinois. When these facilities are threatened, what’s at stake is life or death for men and women who need intensive developmental services or treatment in mental health crisis and have nowhere else to go. The closure push appears based on politics and budget considerations, not what’s best for individuals, families and communities. It’s grossly irresponsible to plot to close these facilities behind closed doors,” Henry Bayer, executive director of AFSCME Council 31, said in a written statement.

“The governor’s office has not reached out to us at all,” said Rita Burke, president of the Illinois League of Advocates for the Developmentally Disabled, which represents parent organizations from the state facilities. “My concern about these particular people making decisions that are monumental in meaning in scope for families is that I don’t believe that they are intimately knowledgeable about the facilities or about the residents.” She said that the quota-driven nature of the plan could force people into the community against their will or into situations that do not provide an appropriate level of care.

Advocates for delivering care in smaller settings argue that receiving services in one’s home or a home-like setting with fewer residents allows developmentally disabled adults more freedom, flexibility and the ability to be a part of their community through activities, such as holding a job or volunteering. “Community-based care is about quality of life,” Kevin Casey, director of the Division of Developmental Disabilities, said in a prepared statement. “Through this careful, deliberate process, Illinois will improve quality of life for hundreds of people with developmental disabilities, while realizing significant savings through the closure of a costly state facility.” The Department of Human Services said it would conduct thorough assessments, so residents of facilities would be matched with the services they need when they are outside of institutions. The plan is to move 20 residents per month out of institutional care.

Supporters also highlight the potential cost savings that could come from closing facilities and serving those with developmental disabilities and mental health needs in community settings. According to the Department of Human Services, operations at the Jacksonville Developmental Center cost about $29.7 million annually. Under Quinn’s plan, the state would invest about $16.2 million in community care and save about $11.7 million. Tinley Park Mental Health Center has an annual operating cost of about $20.6 million. The state would invest $9.8 million in community mental health programs and save about $8.1 million.

But Watson said that losing the economic stimulus that the facilities provide to the local communities is not worth savings that seem somewhat meager when compared with the overall state budget. “Is this financial or is this philosophical?” he asked.

“If the Department of Commerce and Economic Opportunity could make an investment of $12 million and get an economic impact of $47 million, they would do it in a heartbeat,” Watson said of the plan to close the facility in Jacksonville.

For more on the state's shift away from institutional care, see the upcoming February issue of Illinois Issues. 

Comptroller: State's stack of unpaid bills isn't growing smaller

Author: Illinois Issues Statehouse bureau