Short-Term Gains Equal Long-Term Consequences Public Policy Assessment of Public Act 96-0889

1. Short-Term Gains Equal Long-Term ConsequencesPublic Policy Assessment of Public Act 96-0889 Illinois Association of School Business Officials Wednesday, May 19, 2010 Bukola Bello, M.A. Director, Illinois Retirement Security Initiative Center for Tax and Budget Accountability

2. Illinois Retirement Security Initiative MISSION: The goal of the Illinois Retirement Security Initiative is to ensure public retirement benefits in the state are adequately financed and designed to attract high quality employees to the public sector. The Initiative will research, formulate and advocate for public policies towards that end.

3. Illinois Retirement Security Initiative STEERING COMMITTEE Center for Tax and Budget Accountability AFSCME Council 31 Illinois Education Association Illinois Federation of Teachers Service Employees International Union - Illinois State Council ADVISORY COUNCIL AFSCME Retirees Chapter 31 Illinois AFL-CIO Illinois Education Association Retirees Illinois Retired State Employees Association Illinois Retired Teachers Association State University Annuitants Association Service Employees International Union - Illinois State Council University Professionals of Illinois/AFT Local 4100 Illinois Public Pension Fund Association Associated Fire Fighters of Illinois Fraternal Order of Police – Illinois State Lodge

4. Public Act 96-0889, amended provisions in 13 pension systems covered by the Illinois Pension code, creating benefit changes for anyone hired after January 1, 2011. • The 13 affected pension systems are: • The State Employees Retirement System (SERS); • The Teachers’ Retirement System (TRS); • The State Universities Retirement System (SURS); • The Judges’ Retirement System (JRS); • The General Assembly Retirement System (GARS); • The Illinois Municipal Retirement Fund (IMRF); • The Chicago Municipal Pension Fund; • The Chicago Laborers’ Pension Fund; • The Chicago Teachers’ Pension Fund; • The Cook County Employees’ Pension Fund; • The Cook County Forest Preserve District Pension Fund; • The Chicago Park District Pension Fund; • The Metropolitan Water Reclamation District Pension Fund • Excluded from the new statute are the pension systems covering uniformed police officers and fire fighters, both in Chicago and downstate, and deputy sheriffs covered by the IMRF.

5. SHORT-TERM GAINS • Proponents claim this pension overhaul will save Illinois between $500 million - $1 billion next fiscal year. • The Chicago Board of Education will have $1.2 billion over the course of FY2011, FY 2012, FY 2013 to take care of budgetary expenses. • The Governor’s Office of Management and Budget testified during House Personnel and Pensions Committee on March 24, 2010 that pension reform was “desperately needed to improve the state’s bond rating.” • Reduction in retirement benefits for future public employees may produce savings. • Proponents claim the new law will reign in “Cadillac” pensions .

6. LONG-TERM CONSEQUENCES • SB 1946 was passed without an actuarial evaluation of the bill’s potential savings. Lawmakers have prematurely claimed significant savings, which may never materialize. • The revised funding plan for the Chicago Board of Education allows CPS to pay normal cost for the next three fiscal years, extends its funding schedule by 15 years, and underfunds the Chicago Teachers’ Pension Fund by $1.2 billion of the next 3 years. • AN ADDITIONAL UNINTENDED CONSEQUENCE: $12 billion in property tax dollars will be needed to cover the underfunding of the pensions over the next 30 years. • According to the Commission on Government Forecasting and Accountability, the weighted average state employee pension is $26,000 a year.

7. LONG-TERM CONSEQUENCES • After smoke clears and ink from Governor Quinn’s signature dries, the $77.8 billion unfunded pension liability will remain, along with $13 billion in Pension Obligation Bonds, and the state’s dismal bond rating. • The “pension reform” doesn’t change Illinois’ dismal bond rating, which is a result of: • Budget problems • Failure to enact budgetary measures that reduce the deficit on an on-going basis • Failure to address the cumulative budget deficit and reduce the amounts payable balance. • Reducing pension benefits for new hires does not undue decades of horrendous pension payment practices.

8. LONG-TERM CONSEQUENCES • Reduction of Cost of Living Allowance “COLA” Creates HUGE PROBLEMS!! • COLAs were implemented to provide inflationary protection for those that do not receive Social Security. • Teachers, state employees, fire fighters, police officers, university professionals constitute 78% public sector that will live on fixed, modest income. • According to Bureau of Labor Statistics, metropolitan Illinois has seen significant increases in the cost of essentials like food, housing, healthcare, gasoline, utilities, transportation and medial care. • ADDITIONAL UNINTENDED CONSEQUENCE: Reduction in COLAs for public sector will increase the likelihood of the State providing public assistance to those that can no longer handle the RISING COSTS ASSOCIATED WITH INFLATION.

9. LONG-TERM CONSEQUENCES • Under P.A. 96-0889, Illinois will have the highest retirement age for teachers and public employees in the country! • California, Indiana, Iowa, Kansas, Minnesota, Missouri, New York (Tier IV) and Wisconsin will all have lower retirement plans than Illinois. • The longer an individual is kept on payroll, the higher that individual’s salary (increased operational costs to State and local governments in the form of healthcare, disability, insurance, salary and other benefits). • A finding from last summer’s Pension Modernization Task Force revealed: • the cost to taxpayers of state-funded pension benefits is less than the private sector, and less than public pensions in neighboring states.

10. Let us not forget… …any theoretical or anticipated savings have to be reduced by very real long-term costs. • The purpose of public employee pensions is to offset the costs that are associated with taking care of an aging and vulnerable population. • Not realistic to compare private sector to public sector.

11. Bukola Bello, M.A.Dir, Illinois Retirement Security Initiative312-332-1103bbello@ctbaonline.orgWWW.CTBAONLINE.ORG Coming Soon… WWW.ILRETIREMENTSECURITY.ORG