THERE'S STILL TIME: URGE LAWMAKERS TO PASS A RESPONSIBLE BUDGET

 

As Illinois lawmakers enter their second month of the overtime legislative session, advocates for comprehensive school funding and fiscal reform remain optimistic that something can still be done before lawmakers adjourn.  While state legislators skirted the July 1 budget deadline by passing a 30-day budget, it is vital that our legislative leaders do the responsible and right thing for the state of Illinois by passing a budget that is able to generate sufficient revenue to adequately fund our schools, transit systems, pension obligations, healthcare services, social services and other public services on which we all rely.

 

Click here to read An Appeal to the Leaders of the Illinois General Assembly to Overcome Their Differences in Order to Address Pressing Issues, signed by Faith Communities Across Illinois.

 

Click below to read two recent articles on the tireless work of Illinois advocates working to ensure that this is the year that Illinois passes a school funding reform plan.

• School funding reform unsettled, State Journal Register, 7/9/07

• School funding reform? Wait 'til next year, Beacon News, 7/8/07

What you can do:

 

1. Continue to call your legislators and the legislative leaders and tell them to pass a comprehensive school funding and fiscal plan that:

• Increases school funding and quality so that every child has access to a quality education,

• Restores Illinois' fiscal health, and

• Ends Illinois' over reliance on property taxes to fund schools.

2. Sign your organization onto the A+ Illinois Pledge of Support, stating that:

• We oppose a "no-growth" or "limited-growth" state budget.

• We support a responsible budget that adequately funds schools and other vital state services.

• We support an income tax increase dedicated to education.

LAWMAKERS MEET TO DISCUSS THE STATE'S PENSION CRISIS AND LEASE OF THE LOTTERY  

 

The Illinois Retirement Security Initiative, a project of the Center for Tax and Budget Accountability, seeks to to ensure public retirement benefits in the state are adequately financed and designed to attract high quality employees to the public sector.
 

Last week, Illinois lawmakers met to discuss Illinois' pension crisis and the recent proposal to lease or sell the state lottery in order to generate $10 billion in revenue, which would be used towards paying down the Illinois' unfunded pension liability.  While ideas such as selling or leasing the lottery would aid in reducing the pension debt, they are not without their own problems.  CTBA executive director Ralph Martire was called to testify at last week's legislative hearing on the sale of the state lottery and the issuance of pension obligation bonds.  In his testimony, Ralph highlighted the problems associated with a sale/lease of the lottery; adapted from this testimony, CTBA has written an issue brief and fact sheet on the myths and realities of a defined benefit vs. a defined contribution system 

 

Many observers conclude that Illinois' pension woes are a product of the current defined benefit system; however, the true source of Illinois’ burgeoning $40.7 billion unfunded pension liability has nothing to do with the current system and is instead the result of the state’s irresponsible decision to underfund it's required, employer contribution for decades.  This was move was not done out of malice, but rather because Illinois suffers from an antiquated revenue system that is unable to generate sufficient revenue to fund public services.  As a result, Illinois has historically opted to skirt its full funding of the pensions in order to maintain spending on services.  Unfortunately, the longer the state defers its obligations to pay its pensions, the worse the problem becomes. 

 

The Harsh Reality of a Public Sector Shift to a Defined Contribution System: The Nebraska Experience

By Jourlande Gabriel, IRSI Director

 

Defined contribution pension plans for public employees, to hear some tell it, are the panacea to Illinois' pension problems.  Earlier this year, Illinois Senator Bill Brady (R-Bloomington) pushed for a move to defined contribution systems as a way to reduce costs.  However, the harsh reality of a public sector shift to a defined contribution system is neither a positive nor cost effective move.

 

In fact if contribution rates remained the same, defined contribution systems can be expected to generate significantly lower retirement benefits for greater costs.  A specific experience in Nebraska illustrates this point. 

 

In the mid-sixties, the Nebraska Legislature authorized two statewide defined contribution plans: one for state government employees and another for county government employees.  Prior to the creation of these plans, there was no employer-sponsored plan for school employees, state judges and state patrol employees.  In choosing a defined contribution plan over a defined benefit plan, the historical record reflects that the Legislature was concerned about unfunded liabilities in the existing defined benefit plans.[1]

 

Immediately, Nebraska noted it was paying higher administrative costs for its new, defined contribution system.[2]   Over time, Nebraska found that, when compared to its defined benefit plan, the new defined contribution plan cost the state significantly more in investment management fees, record-keeping fees, educational programs and other administrative line items.[3]  Expenses for their defined contribution plans were approximately 30 basis points versus 15 basis points for their defined benefit plan.[4]   

 

Additionally, the state of Nebraska found that when employees managed their own investments under that state's defined contribution plan, investment returns were in fact lower than under the state's defined benefit system.[5]  During the period from 1983 to 1999, Nebraska state and county workers averaged a 6 percent return when investing their individual retirement accounts in that state's defined contribution plan, versus the 11 percent return for teachers and judges under Nebraska’s defined benefit plan.[6]   The actual investment differential in favor of the defined benefit system becomes even greater once the lower administrative costs of the defined benefit system are factored in.[7] 

 

One key reason public defined contribution plan returns lag defined benefit portfolios is simple: asset allocations made by employees in a defined contribution setting are often quite conservative.[8]  Despite state education programs on the importance of proper asset allocation and eleven different investment options, 90 percent of Nebraska’s employees invested all their individual plan deposits in just three funds.[9]   This suggests employees lack the proper skills to diversify their assets and make sound investments.  Under a defined benefit system, experienced portfolio managers invest plan assets under carefully considered asset allocation models geared toward long term returns.

 

The bottom line was clear: Nebraska found that ten years after retirement, a retiree in that state's defined contribution plan with 30 years of service and an average annual salary of $30,000, had about $11,230 annually in retirement benefits.[10]  Participants in Nebraska's defined benefit plan with similar pay and service credit, however, had an annual retirement benefit of $16,797.[11]

 

Faced with irrefutable data illustrating that defined contribution systems provide lower benefits for employees at higher costs to taxpayers, Nebraska legislators changed back to a defined benefit model in 2002.  This effectively ended the state's defined contribution plan for new hires, while giving all other workers the option to switch into a hybrid plan.

 

"We had to take a look in the mirror and think, is this really providing a true pension?" said Ann Sullivan, Director of the Nebraska Retirement System. “It's really sad what they retire with. It's nothing compared to what people in our defined benefit plan receive."[12]  The average state and local government employee retirement benefit in Illinois is $17,112; based on the experience of Nebraska, a switch to a defined contribution system could lower this amount as low as 66 percent to $11,889 annually.  That is as little as $990 a month.  Frightening, but especially so when one considers that 78 percent of Illinois state employees do not receive social security, meaning $990 is all state retirees would have to live on each month.

 

While the chief purpose of employer sponsored retirement benefits is not to make workers rich, it is to at least promote retirement security, which is something a defined contribution system fails to accomplish.

 

For more information please contact, Jourlande Gabriel,

Director of the Illinois Retirement Security Initiative,

at (312) 332-1103 or jgabriel@ctbaonline.org.

 

RESOURCES

• For additional information regarding the pension crisis facing Illinois, please review the recent study issued by the Illinois Retirement Security Initiative, The Illinois Public Pension Funding Crisis: Is Moving from the Current Defined Benefit System to a Defined Contribution System an Option that Makes Sense?

 

BILLS, BILLS, BILLS: SEE WHAT'S MOVING AT THE STATE AND FEDERAL LEVEL

 

STATE LEGISLATION

 

Earned Income Tax Credit (EITC)

• SB 338 helps ensure that low-income working families get the full amount of the EITC to which they are entitled.  This includes foster parents, parents of children permanently and totally disable, parents of children under age 24 who are full time students during any five months of the year, parents of children turning 18 in a taxable year, and childless adults. SB 338 removes statutory language that inhibits states from giving families the entire amount of EITC funding for which they qualify. Misinterpretation of four-year-old language regarding federal TANF block grant and Maintenance of Effort obligation has led to the withholding of state EITC refunds from several groups of tax filers.  SB 338 has passed both houses and now heads to the Governor for his signature.  Kudos to the Make Work Pay Coalition for all their work on moving this bill through the legislature.  What you can do: You can help improve the EITC by sending a letter to the Governor, urging him to sign SB 338 into law.  You can also write a letter to the editor of your local paper, expressing the importance of a strong EITC for working families.  Read a recent letter to the editor appearing in the Chicago Tribune by leaders at the YWCA of Metropolitan Chicago.  For more information on improving the EITC and the Make Work Pay Coalition, contact Sean Noble at Voices for Illinois Children at 312-516-5566.  

Children's Savings Accounts

• HB 1662 creates the Illinois Children’s Savings Accounts Act. Through the act a task force will be created in order to make recommendations about children’s savings account programs. The act also provides for the implementation of a plan that would create a savings account at birth for every child born in Illinois to Illinois residents. HB 1662 has passed both houses and has been sent to the Governor for his signature.  Congratulations to the Illinois Asset Building Group for leading the effort to develop a statewide Children’s Savings Account policy in Illinois..  What you can do: Contact the Governor and urge him to sign HB 1662 into law.  You can also sign up to become involved in this effort by faxing this fact sheet and form to Jami Schlafer at 312.263.3846. 

FEDERAL LEGISLATION

 

Affordable Housing

• HR 2895, the National Affordable Housing Trust Fund Act, was introduced on June 28, 2007. HR 2895, will establish a dedicated source of funding for the production, preservation and rehabilitation of 1.5 million affordable homes in 10 years. At least 75% of the funds will be for housing for households that are extremely low income, earning less than 30% of an area's median income.  The trust fund would be allocated to cities (60%) and states (40%) through a formula to be developed by HUD, using criteria detailed in the bill. Provisions are included to ensure rural areas get their share of funding and that the program works well in these areas.  What you can do: Contact your Member of Congress immediately to ask him or her to become a co-sponsor of HR 2895 today.  To learn more about the National Housing Trust Fund, click here.

Immigration Reform

• S 1639, the Senate’s most recent immigration reform proposal, fell 14 votes short of the 60 votes needed to advance it towards final passage.  Only 46 senators voted in favor of cloture, while 53 voted against it. The proposal was considered problematic even to the advocacy community, as many considered it too flawed to be supported. After this defeat, many observers contend it is unlikely that either the House or the Senate will consider immigration reform again until after the 2008 elections. 

Labor

• S 1041, the Employee Free Choice Act, was stalled Tuesday when the Senate blocked a vote that would have ended the delaying tactic of further debate.  The Employee Free Choice Act (EFCA) would have allowed workers to join a union without employer interference by requiring mediation and arbitration between the union and the employer if a timely agreement is not reached during bargaining on the first contract. It would also create penalties for employers who intimidate employees. The Employee Free Choice Act is designed to counter the unjust practices against union employees, as 92% of employers force employees to attend mandatory closed-door meetings against the union. EFCA would greatly reduce such illegal and intimidating tactics by increasing penalties on employers for violations against employees’ rights.  Many benefits are associated with union membership.  For example, union members make 30% more than non union workers (while the median wage for union workers amounts to around $833, non union workers’ median weekly earnings only amount to $642). Also, whereas 15% of non union workers are without health insurance, the statistic is only 2.5% for union workers. Union membership also creates advantages in terms of pensions, short-term disability benefits and paid vacation.  According to a Peter D. Hart survey, 60 million Americans who are currently non union workers say they want to have a union in their workplace.

SUPPORT FOR RACIAL, ECONOMIC, SOCIAL, ENVIRONMENTAL AND GENDER JUSTICE GROUPS

 

The Fire This Time Fund, an all-volunteer group organized as a giving circle housed at Crossroads Fund, supports creative social change projects initiated by artists, educators and activists who are committed to community-based social and political change. Groups of artists, activists, and educators or non-profit organizations with project budgets under $150,000 that are working in the metropolitan Chicago area are eligible for projects-based grants.

Deadline: August 17, 2007

For more details and an application, please click here.

Questions? email: firethistimefund@gmail.com