Monday, January 30, 2012

Civic Federation: “Illinois Faces Financial Disaster; Urgent Need for Medicaid and Pension Reforms”



[Selected Findings and Recommendations from the 53-page document]

“Due to data limitations, the Federation’s projections are rough forecasts intended to indicate the long-range consequences of current revenue and expenditure policies…
“Civic Federation Findings: The General Funds operating deficit is projected to increase to $3.2 billion in FY2017 from $508 million in FY2012. This projection assumes that Medicaid appropriations are limited to annual growth of only 2%—well below the anticipated increase in Medicaid costs but consistent with the State’s past budget practices.

“Largely due to projected underfunding of the Medicaid program, the State’s total unpaid bills—including both General Fund’s bills and bills outside of the General Funds—are predicted to increase from $9.2 billion at the end of FY2012 to $34.8 billion at the end of FY2017.

“General Fund’s revenues are projected to decline by $427 million, or 1.3%, to $32.7 billion in FY2017 from $33.1 billion in FY2012. The decline is largely due to the lower income tax rates that take effect in FY2015; all other revenue sources are projected to increase over the next five fiscal years.

“General Fund’s expenditures are projected to increase by approximately 6.9% from $33.6 billion in the enacted FY2012 budget to $36.0 billion in FY2017. This conservative projection is based on the assumption that the Medicaid program will continue to be underfunded. It accounts for cost increases in group health insurance and pensions but leaves most other areas of the budget unchanged or flat from FY2012.

“General Fund’s costs for Medicaid are projected to increase by more than 40% to $12.1 billion in FY2017 from $8.6 billion in FY2012. If Medicaid appropriations increased by only 2% a year, well below predicted costs, the backlog of unpaid Medicaid bills would reach $21.0 billion by the end of FY2017.

“General Funds pension costs—including statutorily required State pension contributions and debt service on pension bonds—are projected to increase by approximately 35% from $5.7 billion in FY2012 to $7.8 billion in FY2017. Pension-related costs increase from roughly 17% of total General Fund’s expenditures in FY2012 to 21.6% in FY2017.

“General Fund’s costs for State employee group health insurance are projected to increase by approximately 39% from $1.4 billion in FY2012 to $2.0 billion in FY2017. Roughly 91% of the 81,900 retirees covered by the group insurance program do not pay any premiums for their coverage.

“The Governor’s three-year budget projections, released on January 3, 2012, show an operating deficit of more than $500 million in FY2012 and a total of $818 million in FY2015. The Governor’s projections do not account for the full annual cost of Medicaid or group health insurance based on current policies and do not address the increase in unpaid bills...

“Civic Federation Recommendations for State Pensions:  It remains unclear how the State can comply with statutory pension funding requirements and also pay for other costs of running State government. In light of fiscal realities, the Civic Federation recommends that current Illinois retirees and employees hired before January 1, 2011 receive the same annual benefit increases as new workers: 3% a year or one-half of the increase in the CPI, whichever is less, and that benefits be increased by a simple interest rate. The Federation also supports reducing non-vested benefits for current employees, increasing employee contributions or both...

“Civic Federation Recommendations for State Retiree Health Insurance: The Civic Federation supports requiring all State retirees to share the cost of their health insurance premiums. The Federation also supports abolishing any law or rule that allows retirees who live outside Illinois to pay lower premiums than retirees who live in Illinois for the same insurance coverage...

“Civic Federation Recommendations for Medicaid: The State should move aggressively to implement the significant reform legislation passed in January 2011 by enrolling Medicaid recipients in coordinated or managed care networks and moving residents from State centers for the developmentally disabled to community settings. The State should continue its efforts to control prescription drug costs, the most expensive optional medical service provided under the Medicaid program. Short-term savings on Medicaid should come from programs that are not eligible for federal reimbursement. One such program the State cannot afford to continue and must eliminate is Illinois Cares Rx, a prescription drug program that supplements coverage for seniors in Medicare Part D...

“Civic Federation Recommendation on Borrowing for Operations and Unpaid Bills: The Civic Federation opposes any additional borrowing by the State of Illinois to support its ongoing operations or to pay down its backlog of bills because it cannot afford any additional debt service. Borrowing for operations generates one-time revenues that increase future spending pressures. The Federation supports the State’s efforts to ease the burden on vendors through an improved and cost-effective vendor payment program...

“Civic Federation Recommendation on State Employee Salaries: Given fiscal realities in the State of Illinois, there is no room for bargaining unit increases in FY2013 or in the foreseeable future. The Civic Federation urges the Governor to keep the State’s dire financial condition in mind as new collective bargaining agreements, effective in FY2013, are negotiated...

“Civic Federation Recommendations on Retirement Income: The Civic Federation supports broadening the individual income tax in Illinois to include federally taxable portions of retirement and Social Security income. This policy would provide additional revenue stability and reduce preferential treatment of retired taxpayers that the State can no longer afford, while protecting the lowest-income individuals...

“Civic Federation Recommendation for the State Cigarette Tax: The Civic Federation supports increasing the State tax on cigarettes from the current rate of 98 cents per pack to $1.98 per pack in FY2013 to reduce the State’s budget deficit and to fund public health expenses in future years...

“Civic Federation Recommendation for Statutory Transfers Out: The Civic Federation recommends limiting the use of statutory transfers out of General Funds to ensure that State resources are used in the most effective way possible. The Federation supports the Budgeting for Results Commission’s recommendation to end the funding of State operations through statutory transfers out, excluding transfers for debt service, local government sharing, revolving funds and cash flow purposes. The State should move to consolidate Special Funds currently supported by transfers out and review programs funded through these accounts as part of the annual General Funds appropriations process...

“Civic Federation Recommendation for Fund Sweeps: The Civic Federation opposes inter-fund borrowing not repaid within the same fiscal year because it pushes current operating expenses into future years. Instead, the State should sweep any available surpluses in Special Funds into the General Funds to pay down its backlog of bills and ease cash flow issues. The Civic Federation also recommends that the State’s Special Funds be consolidated and/or eliminated except in cases of high priority or mandated expenses...

“Civic Federation Recommendation on Economic Development Incentives: The Civic Federation recommends that the State of Illinois develop a comprehensive economic development incentive policy to curb economic brinksmanship by Illinois businesses and allow the State to monitor the relative effectiveness of various incentive programs. Such a policy should be in place before the State renews, expands or creates any economic development incentives.”

Commentary:

The past theft of pension assets in Illinois was quite easy for some governors and legislators, even for other rogues who bargained for money-enhancing incentives (spiking) for retiring public employees at the expense of the many they would leave behind without their exorbitant financial perks to retire early. We know who the indifferent scoundrels are today and about their schemes to steal even more monies from the public pension funds.  These are the same types of perpetrators that advocate a radical “pension reform” bill without reading it or understanding its consequences.  That was then.

Now, once again, we have the Civic Federation claiming to do “non-partisan research.” They are a very good example of why we must guard against the so-called “expert” testimonies and negotiating that will be used to influence the Illinois legislators’ decision this spring regarding radical “pension reform,” arguments based upon omissions or adjustments to make the pension systems appear “indisputably” in need of urgent “reform.”  We must guard against the disingenuous claims embodied in their demand for radical “pension reform.” 

Beware of our legislators’ mantras:  “Retirees are living longer now; current teachers’ salaries are increasing; the state’s costs are too high; Illinois has to reduce its expenses to remain economically competitive; we will have to cut services to schools and health care for the elderly; we have to make some hard decisions; we cannot reduce the liability without reducing benefits; the pension systems are unsustainable; health care costs are skyrocketing; it’s about shared sacrifice; we have to do something!”

We should know by now how statistics used for pension liabilities are based upon changing assumptions that include interest and mortality rates, asset returns, estimates of what the state will have to pay in the future, preferential accounting rules and undisclosed influences on legislative decisions.  Most of us are aware how certain elements from media, especially Illinois Is Broke (the website of the Civic Committee of the Commercial Club of Chicago), Fox News, and the Chicago Tribune attempt to garner consensus from the wealthy business community. Media succeed quite easily in propagating distorted information and scaremongering schemes to a mostly oblivious public through deceptive practices that distract the populace from carefully examining more sensible, legal and ethical solutions to the state's revenue problems and pension unfunded liability. 

We should realize that there is a real incentive for some executives from the Civic Committee of the Commercial Club of Chicago, the Civic Federation, the Illinois Policy Institute and others like them to aggressively attack public employees’ pensions and the public pension systems while promulgating their fallacious suppositions.  We know about the types of criminals who can orchestrate the collapse of defined-benefit pension systems in the private sector.

There are hundreds of examples in the private sector. Consider Victor Rice’s blustering “with cognac and cigars” after he accomplished his “organized liquidation” of the retirees’ pension for Varity Corporation, (Rice later collected $50 million in severance after he sold the company in 1999). Consider chief executive Patricia Russo’s slow and deliberate destruction of the employees’ pension and benefits in 2005 at Lucent while using what remained of the pension savings to pay executives’ million-dollar bonuses “because that’s what it’s going to take to continue to attract and retain the talent required to build this company back to where we want it to go” (Ellen E. Schultz, Retirement Heist, 2011). Examples of Machiavellian bravado are not exceptions in today’s plutocratic worldview.

It is our duty to fight against any diminishment of the public employees’ benefits and any sort of financial restructuring thereof before it is written into law this spring.  Consider defined-contribution savings plans will obviously create no liabilities for the state but generate enormous profits for the financial sector (of which the majority of the Civic Committee are members). These savings plans are spawns of the defunct defined-benefit plans from the private sector.  

We should ask whether the Civic Committee and Sidley Austin’s past preemptive assaults and semantic word-game manipulations were meant to test a possible reduction of benefits in the public pensions without violating Article XIII, Section 5 of the Illinois Constitution.  We might even ask: does anyone believe that members of the Civic Committee (and many legislators of the 97th General Assembly) care about whether a public employee has any retirement plan at all?  

Who has the most to gain by radical “pension reform”? Might they be the executives of the Civic Federation, the Civic Committee, and certain legislators who wish to align the public pension systems with the financial industry to manufacture even more profits for themselves? The philosophy of these robber barons includes the dictum that cutting pension benefits will produce gains for employers.  What they never mention is that the State of Illinois is responsible for the unfunded liability no matter what so-called “pension reform” is attempted and found unconstitutional. 

-Glen Brown




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