Friday, June 28, 2013

“Those concerned with the cost of government should welcome the finding that Illinois does not face a solvency crisis” – Modeling State Credit Risks in Illinois and Indiana (from Mercatus Center, George Mason University) by Marc Joffe

Is Illinois in serious jeopardy of insolvency? The state has the lowest credit ratings in the nation, and its long-term general-obligation bonds yield 1 percent more than those issued by the most highly-rated states, reflecting a market perception of significant credit risk. As a result, Illinois taxpayers pay tens of millions of dollars in additional interest charges—costs that could be avoided if the state were perceived to be a safe investment…

The model results suggest that Illinois state bonds carry very little credit risk and that Indiana’s obligations are even less risky. While Illinois’s fiscal policies are likely to have negative effects on future state residents and implications for other public policies, they are not sufficiently dangerous to worry bondholders…

I use an open source budget simulation model to evaluate Illinois’ credit risk and to compare it to that of Indiana, a neighboring state generally believed to have better fiscal management. Based on a review of the history and theory of state credit performance, I assume that a state will default if the aggregate of its interest and pension costs reaches 30 percent of total revenues. In Illinois, this ratio is currently 10 percent, compared to 4 percent in Indiana.

My analysis finds that neither state will reach the critical threshold in the next few years under any reasonable economic scenario, suggesting no material default risk. Over the longer term, Illinois has some chance of reaching the default threshold, but it would likely be able to take policy actions to lower the ratio before then. If market participants accept my finding that Illinois does not have material default risk, Illinois’ bond yields will fall, yielding cost savings for taxpayers as the state rolls over its debt…

Illinois bonds are evidently much riskier than Indiana debt, but neither appears to have substantial risk—at least not in the near or intermediate term. The idea that one thing can be proportionately much more risky than another, yet not very risky in absolute terms, may seem like a paradox, but it is not.

A simple analogy from outside the world of finance can drive this point home. According to statistics compiled by Stephens (2011), the odds of dying in a car trip are one in a million, while the odds of dying in a commercial airplane trip are one in 72 million. Although commercial aviation is much safer than driving, almost no one chooses to take a plane rather than a car due to safety concerns. While most people don’t know the exact odds, both risks are so remote that the proportional difference need not be reckoned into anyone’s plans.

Much the same is the case when choosing among state bonds. Thus, Illinois has made much worse fiscal-policy decisions than Indiana, and its bonds are riskier as a result—but they are still not very risky at all in absolute terms. Despite its poor fiscal policies, Illinois has not yet accumulated a dangerous level of debt relative to the size of its economy. Nor has it taken on pension burdens that exceed the state’s ability to raise revenue. Because the state workforce represents a relatively small proportion of the population, the Illinois tax base is more than equal to the task of shouldering the burden of state-retiree pensions.

In general, U.S. states are much safer than corporations and should enjoy higher credit ratings than most private debt issuers. Illinois last defaulted in 1842, and it cured its insolvency in 1857. It has been either debt free or a timely payer for 155 years. Few corporations can claim such a long record of good credit. Even the best-managed companies face the risk that their offerings will lose popularity or become obsolete. If this happens, their revenue and debt servicing capacity can quickly decline.

A government presiding over a large, diversified economy does not face such a problem. Through taxation, it extracts economic rents from citizens and businesses that choose to remain within its borders. Criticism of its tax and regulatory policies aside, the fact is that Illinois is and will likely remain a desirable place by world standards. Situated in the middle of North America, it offers peace, economic stability, infrastructure, and leisure options not equaled in most of the world. It is reasonable to expect that Illinois will continue to be home to a large number of high-income taxpayers and profitable companies. The state will thus continue to generate substantial and growing tax revenues more than sufficient to service its moderate debt burden. Those concerned with the cost of government should welcome the finding that Illinois does not face a solvency crisis.

If this conclusion is embraced by investors, Illinois’s interest rates will be bid down, allowing the state to roll over its debt at lower coupon levels. The result would be reduced debt-service expenditures and thus a lower burden for taxpayers over the long term.

Finally, a conclusion that Illinois’s fiscal policies do not represent a material threat to the state’s solvency should not be interpreted as a statement of support for these policies. To do so would confuse a positive finding with a normative predisposition. Fiscal policies that shift costs onto future generations are morally dubious in any case, but especially so in the current context.

Today, policy is being set primarily by the large and very fortunate baby-boom generation. The baby boomers—of which I am one—have enjoyed some of the highest living standards in world history and witnessed remarkable progress during their lifetimes. Indications are that the smaller cohorts that are following us will be less fortunate. It is these future taxpayers and service recipients who will be the victims of today’s fiscal policies.

Yes, they can shoulder the burden, but forcing this yoke upon them is a great act of unfairness. The view that all government services and transfer payments should be borne by today’s taxpayers is a normative principle. As Indiana found for 74 years after the 1921 implementation of its pay-as-you-go teacher-retirement plan, long-term underfunding did not cause the sky to fall. While it is true that shifting too many costs onto future generations is a recipe for default, Illinois has yet to engage in a level of intergenerational burden shifting that would pose a serious threat to bondholders.

For the complete report by the Mercatus Center: Modeling State Credit Risks in Illinois and Indiana

Thursday, June 27, 2013

A Report about the Committee of Ten Hearings Today by Fred Klonsky

“How many promises to the state’s workers do you want to break?”

The Civic Committee’s Ty Fahner walked into the hearing room like he owned the joint.

And in some ways he does.
I spent four hours today at the Committee of Ten hearings at the Michael Bilandic State of Illinois Building, sixth floor committee room that shares the floor with The Madman’s Chicago office.

The Committee of Ten was set up following the early June failure of the Illinois legislature to pass a pension cutting bill. The House wasn’t allowed to vote on SB2404, and the Senate wouldn’t pass Senate Bill 1.

The Governor wants action by July 9th.

It’s not going to happen by July 9th.

Ty Fahner gave the standard corporate Illinois-is-broke testimony. Although he spoke for over 45 minutes, it didn’t sound like he had his heart in it.

He was followed by a representative of Squeezy.

And then a lobbyist for the Chamber of Commerce pissed off the co-chair of the committee, Senator Kwame Raoul, so much that I thought the Senator was going to reach all the way across the long table and grab the guy by the neck.

Raoul lambasted the guy for about three or four minutes about how the Chamber guy had misrepresented Raoul’s position, and I just kept thinking that whatever the Chamber of Commerce is paying their lobbyist – well that’s good money that was just flushed away.

The issue confronting the We Are One coalition, made up of the unions that represent state employees, is they made major concessions in their negotiations with John Cullerton and the Senate Democrats on SB2404.

This they admit.

Dan Montgomery of the Illinois Federation of Teachers, Jim Reed of the IEA, Sean Smooth who represents state police and other state employees, and Steve Kreisberg from AFSCME took their seats and mainly talked in support of SB2404.

But SB2404 is dead. So will We Are One be willing to compromise more? That produced a kind of verbal dance between Senator Raoul and the We Are One folks. My sense is that they didn’t want to give a direct no to Raoul, but that any compromise bill that falls between SB1 and SB2404 would be giving away too much for We Are One to sell to members. Even they admitted that SB2404 was a tough enough sell as it was.

Things got testy in an exchange between Kreisberg and Elaine Nekritz, House Co-Chair of the Committee of Ten.

When Nekritz issued some veiled threats about how health care for retirees was not constitutionally mandated, Kreisberg shot back, “How many promises to the states workers do you want to break?”

It was the question of the day.

From Fred Klonsky's Blog: “How many promises to the state’s workers do you want to break?”

Wednesday, June 26, 2013

The Fiasco that is the Illinois Legislature: Senate President John Cullerton on Pension Reform

"A conference committee is a way of doing it," explained Cullerton.  "We haven't done it in many years because people used to sneak things in there and people didn't know what they were voting on, but it's a fine way to do it."

Quotation is from Senate President Cullerton Says Pension Reform Solution Coming Soon

The conference committee will meet at 11 a.m. in room C-600 at the State of Illinois’ Bilandic Building, located at 160 North LaSalle StreetThe room is not large, so arrive early. 

Illinois pension reform is a defilement of both Constitutions

“No State shall…pass any…ex post facto law or Law impairing the Obligation of Contracts…” (The Constitution of the United States, Article 1—Limitations on Powers of States, Section 10).

“No ex post facto law, or law impairing the obligation of contracts…shall be passed” (The Constitution of the State of Illinois, Article I—Bill of Rights, Section 16).  

“Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired” (The Constitution of the State of Illinois, Article XIII—Pension and Retirement Rights, Section 5).

“Each prospective holder of a State office or other State position created by this Constitution, before taking office, shall take and subscribe to the following oath or affirmation: ‘I do solemnly swear (affirm) that I will support the Constitution of the United States, and the Constitution of the State of Illinois, and that I will faithfully discharge the duties of the office of…to the best of my ability’” (The Constitution of the State of Illinois, Article XIII—Oath or Affirmation of Office, Section 3).  

Dear Illinois Legislator:

Please take the time to read 12 pragmatic and legal reasons to reject Illinois pension reform. Thank you.


Monday, June 24, 2013

Re: A Meeting with Jeanne Ives at Panera Bread in Naperville by John Dillon

Hey, Fred - 

You missed a great meeting. Glen and I have been wrong all this time.  We make too much money, not too little, or even enough or what we deserve.  Before the meeting we may have believed in the legalities of the Illinois Constitution and the concept of a vested protection with Article XIII, Section 5; we might have thought that a 401k was not an acceptable form of retirement savings and would never pass federal scrutiny; we erroneously held on to the silly conviction that as taxpayers we too were taken advantage of when the state legislature took holidays - not to mention being burglarized by the theft of our pension earnings; we held a blind faith in our unions who are still complicit in dealing a bad hand to all of us who worked so hard as public employees; we might have obtusely considered the state's problems a revenue issue; we might have wrongly figured the debt issue is separate from the normal costs; we might have been allowing the past history of investments in 401k's color our better judgment that ownership of our own financial futures is better than the leveraging power and investing wisdom of TRS; we might even have vainly hoped that TRS and pensions might be around even at lesser funding than 90%.

But we were wrong, Fred.

Now we know HB3303 is the legal rapture that will set us (and you) free, Fred.  Free to invest our money on our own, without the state's dirty fingers on it.  We can be adults like the rest of the taxpayers in the state.  And as taxpayers, Fred, we will no longer have to make up the shortfalls of an economy sent to ruin by Wall Street; instead, we can navigate our own future fiscal health with, well, with financial advisors from…  Never mind that, Fred.  Besides, Fred, the guy next to us reminded Glen and me that the markets have made that money back.  We're so, so short-sighted, Fred.  

C'mon, Fred.  Join us.  You can leave your clothes behind, Fred.  We'll need nothing more than ourselves when HB3303 passes.  

O joyous day, Fred!

--John Dillon

If you haven’t read about Ives and Tom Morrison’s HB 3303, click here.

Sunday, June 23, 2013

Elizabeth Street

I went back to a place
where we used sewer covers for bases,
broom sticks for bats, and crushed wax cups
for baseballs – a place peopled with names
like Aiellinello, Petrelli and Pascucciello.

But now there are condominiums
where a cold-water walk-up once flanked
a textile factory just beyond an alleyway.

For ten summers, the street-corner fire hydrant
surged high fliers made of tires and two-by-fours.
I played along street curbs
filled from backed-up sewers until the cops
came with their monkey wrenches.

Where have the Italian feasts gone,
the marching, oom-pah band
on Sunday mornings
and Santa Maria Addolorata’s procession
of religious icons that I was lifted up
to kiss for one dollar?

And where is Andante’s grocery store
where we pitched pennies under an awning
until dusk to escape the widening June sun
already burning away thoughts of school,
while an old man yelled, "Bunch of potatoes,"
on a horse-driven wagon
filled with fruits and vegetables
near Rosa’s candy store
where we bought black licorice sticks,
Kayo, and Yo-Ho potato chips
for just fifteen cents? 

"I weep like a child for the past."

“Elizabeth Street” was originally published by Lake Shore Publishing, 1995.


Friday, June 21, 2013

Clinic Files Suit on Behalf of Parents of Children Impacted by CPS Closings

Chicago parents file federal lawsuit charging CPS with racial, disabilities violations; seeks to halt school closings

“The education of students with disabilities and race discrimination are the subjects of two class action lawsuits filed [May 15, 2013] in federal court against the Chicago Board of Education by parents of Chicago Public Schools (CPS) students. The suit also has the support of the Chicago Teachers Union (CTU). The parents seek an injunction against all proposed school closings by the City and CPS for violations of the American with Disabilities Act (ADA) and the Illinois Civil Rights Act (ICRA)…

“The first suit charges the Board, CPS Chief Executive Officer Barbara Byrd-Bennett and the City of Chicago with violating Title II of the ADA in their proposal to close 53 elementary schools. It reads:

“In violation of Title II of the Americans with Disabilities Act (ADA), the defendants propose to carry out the closings of 53 elementary schools in a manner that does not permit a timely and orderly process either for the proper review and revision of the individualized education programs (IEPs) for the plaintiff children and over 6,000 other children in special education programs or for the extra services and counseling such children require to make the difficult transition to unfamiliar schools and unfamiliar teachers and students. By putting off their decision on the closings to the eleventh hour, or the very end of the school year – for the largest closing of public schools in American history – the defendants place the plaintiff children and other children in special education at far greater risk than their non-disabled peers. 

“The late date makes it impossible to conduct the closings without significant disruption to the programs in which these children participate and without adequate provision for the special safety risks faced by children with disabilities. In violation of federal law, this late, ill-timed, and ill-prepared program for the closing of 53 elementary schools will have a discriminatory impact upon the plaintiff children and other children with disabilities, compared to their non-disabled peers…

“The second suit charges the Board, Byrd-Bennett and the City with violations of Title II of the ADA for their proposal to close so-called ‘under-utilized’ schools and needlessly uproot, transfer, and destabilize plaintiffs and thousands of other children in special education who will suffer academic and emotional setbacks as a result, and adds a claim of racial discrimination in violation of Section 5 of the ICRA as parents seek to block the Board from continuing to select African-American children in school closings. It reads:

“[I]n violation of Section 5 of the Illinois Civil Rights Act of 2003 (ICRA), 740 ILCS 23/5, and by repeatedly selecting African American students to bear the costs of the closings, the defendants have unlawfully used ‘criteria and methods of administration’ that have the ‘effect’ of subjecting the plaintiffs’ children and other African American children represented by the plaintiff parents to discrimination because of race. In conducting closings since 2001, the defendants have used various shifting criteria that they allege to be race neutral but that always have the effect of singling out poor and marginalized African American children to bear the educational and human costs of the closings. 

“For the 72 schools that defendants have closed to date, African American children make up more than 90 percent of the displaced children; and in currently proposed closings, they make up more than 80 percent of the displaced children.  Yet African American children constitute only 42 percent of the children in the public schools.

“The impact on African American children is in stark contrast to the impact on white children – who have been almost universally insulated from the negative educational consequences of school closings.  The 54 schools selected by the CEO for closing have a combined enrollment of 125 white students out of a total enrollment of 16,059 students – less than one percent.

“Since the Board began closing schools in 2001, it has been in violation of the Illinois Civil Rights Act, according to the parents. Of the 72 schools the Board has closed to date, more than 90 percent of the displaced children are Black.  In the latest closing proposal, 88 percent of the children in the closing schools are African-American, yet Black children make up only 42 percent of the students in the Chicago public schools…

Randall D. Schmidt

Clinic Files Suit on Behalf of Parents of Children Impacted by CPS Closings

Special Needs students at shuttered Trumbull file federal law suit against CPS

Wednesday, June 19, 2013

Pension Reform Will Not Address the Unfunded Liability. So what should be done?

“Since there is an impasse, the House and Senate voted to form a Conference Committee that will be comprised of Senate and House appointees. [From the Senate: Kwame Raoul, Linda Holmes, Daniel Biss, William Brady, and Matt Murphy; from the House: Elaine Nekritz, Michael Zalewski, Arthur Turner, Darlene Senger, and Jil Tracy]*... The Conference Committee will meet over time until a resolution is obtained.  If an agreement is reached, a Conference Committee Report (CCR) will be filed, but only if 6 of the 10 members of the Committee have signed the Report.  The Conference Committee Report must then be filed in both chambers and passed on a roll-call vote by the House and Senate. If the Conference Committee cannot reach an agreement or the CCR does not pass the roll call vote in both chambers, a second Conference Committee can be created.  If the second CCR fails, the bill is declared lost” (Senator Sue Rezin).

*Brady, Biss and Murphy voted “Yes” on SB 1; Nekritz, Senger, Zalewski, and Tracy voted “Yes” on HB 1154, 1165, 1166; Turner voted “Yes” on HB 1154 and 1166.

“There can be no doubt that behind all the [attempts at pension reform in the Illinois legislature]…, there is [some sort of ineffectual] organization at work. An organization which not only [perpetuates] corrupt [dealings by politicians]…, of whom the best that can be said is that they recognize their own limitations, but also has at [its] disposal [bureaucratic alternatives in addition to suborning corporatists and lobbyists and officious reporters]... And the significance of this… organization…? It consists in this, that innocent persons [can also be victimized by] senseless [rulings that] are put in motion against them… How is it possible… to prevent gross corruption…? It is impossible [in Illinois]…” (With apologies to Franz Kafka, The Trial).

No pension reform will address the current unfunded liability. Say it again out loud this time: No pension reform will address the current unfunded liability. Solving the shortfall between available assets and accrued liabilities is foolish. Pension systems carry liabilities into perpetuity because they are “perpetual government agencies.” There is never a need to match assets and liabilities ever!

“Pensions will not run out of money… [That] assumes that at a future date, state pensions will just cease and all outstanding financial obligations will come due… Unlike a corporation, a state government cannot go out of business… [Accordingly,] state law empowers TRS (40 ILCS 5/16-158c)… Payment of the required state contributions and of all pensions, retirement annuities, death benefits…, all other benefits…, and all expenses are obligations of the state… The state has waved its sovereign immunity in regard to the teachers’ pension because TRS is a qualified pension plan under the tax-deferred provisions of the IRS code.  Federal law would protect all claims… Pensions [are not] the problem [or] why Illinois has been unable to pay its bills.  The reason is the dramatic fall-off in state revenues over the years, costing the state billions” (Dave Urbanek, TRS, 2011).

Most state legislators lack the political backbone to address the real causes of the state’s budget problems but prefer scapegoating the public employees and their pension systems instead. These politicians are abetted by the Civic Committee of the Commercial Club of Chicago, the Civic Federation, Illinois Policy Institute and the Chicago Tribune. These politicians do not want to pay for public pension systems even though past legislators (that include Madigan, Cullerton, Currie, and Cross...) contributed to the public pension systems’ lack of funding (Under whose watch did the Illinois pension debt grow before the year 2000?).

What should be done?
The current “Pension Ramp” does not work for the five public pension systems. The “Ramp” entails larger payments today as a result of the 1995 funding law – Public Act 88-0593 – to pay the pensions systems what the state owes. There needs to be a required annual payment from the state to the pension systems; the debt needs to be amortized for a longer frame of time (a flat payment) just like a home loan that is amortized; though the initial payment will be difficult in the beginning, over the long term it will become a reduced cost and a smaller percentage of the overall Illinois budget as it is paid off throughout the years.  

What else should be done?
Legislators should focus upon structural reform for increasing revenue, but they haven’t the political will to do it. What is needed to solve the budget problems in Illinois is a better revenue base to pay the state’s debts. What is easier to do is to evade serious problem solving of the budget issue and to incriminate the state’s public employees.  

What else should be done?
The state’s regressive tax rate that few legislators want to confront... Politicians, the Civic Committee, Civic Federation, Illinois Policy Institute and the Chicago Tribune have capitalized on a mostly gullible public by calling for radical pension reform as the solutions for the budget problems in Illinois. They are diversionary, scapegoating tactics that will bring intentional, financial harm to public employees and allow policymakers to escape their legal and ethical responsibility.

“At the core of the budget ‘crisis’ facing [Illinois] is [its] regressive state tax structure… that is, low-and-middle-income families pay a greater share of their income in taxes than the wealthy… [A regressive tax] disproportionately impacts low-income people because, unlike the wealthy, [low-income people] are forced to spend a majority of their income purchasing basic needs that are subject to sales taxes” (United for a Fair Economy)… 

Illinois is one of seven states with a regressive flat-rate tax. The state needs a tax rate that is “efficient with minimal impact on the economic decisions that taxpayers have to make” (Center for Tax and Budget Accountability CTBA), one that captures increased revenues in times of economic growth, one that maintains revenue collections during poor economic times, one that is simple and not liable to inconspicuous error, one that is transparent and builds trust with the state’s government officials (CTBA), and one that helps 99 percent of the state’s population.  

What else should be done?
Focus on why the State of Illinois cannot obtain more revenue. Besides federal sources of income, the state uses only 11 sources of revenue: personal income tax (but note Illinois was tied for the fourth lowest individual tax rate on households in the top income bracket), corporate income tax (note extortionate tax breaks given to some Illinois corporations), sales tax (Illinois does not tax services like most other states for another significant source of revenue), corporate franchise tax and fees, public utility taxes, vehicle use tax, inheritance tax, insurance taxes and fees, cigarette taxes, liquor taxes and other miscellaneous (or rather unsubstantial) tax sources (Commission on Government Forecasting and Accountability).  

What else should be done?
Focus on sales taxes, “a majority of states apply their sales tax to less than one-third of 168 potentially-taxable services… [States that do not tax services, such as Illinois], probably could increase [its] sales tax revenue by more than one-third if [it] taxed services purchased by households comprehensively” (the Center on Budget and Policy Priorities).  

What else should be done?
Consider a broader-based taxation system that would provide a decrease in taxes for low-income and many middle-income families. Taxing services alone “would generate enough revenue to stabilize the General Revenue Fund and prevent structural deficits that lead to cuts in basic needs and social service programs” (CTBA).  

As long as Illinois politicians like Madigan (SB 1), Cullerton (SB 2404), Ives and Morrison (HB 3303), and others play their political ping pong game with one another and prioritize their own political opportunism, it will be impossible to obtain any just resolutions for the state’s budget problems. Politicians who favor pension reform prefer the easy way out of a difficult and challenging situation. The State of Illinois will not have a fair and sound tax system until it addresses the most important cause of the state’s budget deficits through significant state tax reform, and that will occur only when particular elected officials uphold the State and U.S. Constitutions instead of preserving their own self-regard and the wealthy corporatists that bankroll them. 

How about 12 pragmatic reasons to reject Illinois pension reform?


Tuesday, June 18, 2013

Why are approximately 600 TRS retirees paying more for health insurance than anyone else?

Jeri Shanahan, a retired teacher, has researched the issue for several years; she has talked to dozens of legislators and various officials over this duration, but the injustice remains unresolved.

The Issue:
Retirees, 65 and older and not eligible for Social Security and Medicare, will pay the highest premium for Teachers’ Choice Health Plan in 2014: $719.96 (Illinois Department of Central Management Services (Link for Benefit Recipient Rates, CMS). They are also paying more than twice as much as retirees not eligible for Social Security and Medicare but living out-of-state.

Imagine the effects of Senate Bill 1 on retirees 65 and older who live in Illinois and without Social Security and Medicare. Of course, many powerful and wealthy people do not care about anything except their influence and fortune. But what does union leadership believe about this discrimination of age, residency and (possibly) gender? Do they believe these retirees have “equal rights, which equal laws must protect?” (Thomas Jefferson). Moreover, imagine the severe effects of Senate Bill 2404 on retirees 65 and older who live in Illinois and without Social Security and Medicare. Making a choice between a compounded Cost-of-Living Adjustment and health care may be making a choice between abject poverty and death.

So why isn’t there a consistent and fair rate-setting methodology for premiums? Does anyone know how these rates are determined? Why doesn’t the governor-appointed Teacher Retirement Insurance Program Committee convene at least four times a year according to state statute? After all, the committee’s main function is “to consider and make recommendations on issues affecting the program of health benefits for retired teachers” (Link for Teacher Retirement Insurance Program Committee).  Is Central Management Services at fault?

Schedule of Findings
According to the Illinois Department of Healthcare and Family Services:

For the year ended June 30, 2012

12-1. FINDING (Lack of written rate-setting methodology)
The Illinois Department of Healthcare and Family Services did not have a documented written rate-setting methodology to calculate the insurance rates that are used to determine the premium rates charged to participants for the Teachers’ Retirement Insurance Program (TRIP).

We noted that only one individual was involved in calculating the insurance rates and there was no written rate-setting methodology of how this individual calculates the TRIP insurance rates. This individual left the agency near the end of the fiscal year and the Department did not have any other employees aware of how the previous individual calculated the rates. Additionally, there was no formal process for a documented review of the insurance rate calculation.

Further, auditors noted that the Department provided the Teachers’ Retirement System of the State of Illinois by April 15th with historical and projected data on enrollment, utilization, and costs of TRIP information which is used to determine the amount of health care premiums charged to participants in TRIP; however, there was no rate-setting methodology provided explaining where the information was obtained from and how the information was used to determine the premium rates.

The State Employees Group Insurance Act of 1971 (5 ILCS 375/6.5(e)) requires the Director of the Department of Central Management Services to determine the insurance rates and premiums for Teachers’ Retirement System benefit recipients and dependent beneficiaries, and present to the Teachers’ Retirement System of the State of Illinois, by April 15th of each calendar year, the rate-setting methodology (including but not limited to utilization levels and costs) used to determine the amount of the health care premiums.

Executive Order 2005-3, Executive Order to Reorganize Agencies by the Transfer of Certain Healthcare Procurement and Administrative Functions Primarily of the Department of Central Management Services to the Department of Healthcare and Family Services issued by the Governor on April 1, 2005 transferred the respective powers, duties, rights and responsibilities related to State Healthcare Purchasing from various departments, including CMS, to the Department of Healthcare and Family Services. The Executive Order states the statutory powers, duties, rights and responsibilities of the various agencies, including CMS, derive from various statutes including 5 ILCS 375 et seq. The functions associated with State Healthcare Purchasing intended to be transferred included rate development.

Executive Order 2012-1, Executive Order to Reorganize Agencies by the Transfer of Certain Functions of the Department of Healthcare and Family Services to the Department of Central Management Services, the Department of Corrections, the Department of Juvenile Justice, the Department of Human Services, and the Department of Veterans’ Affairs issued by the Governor on March 1, 2012 transferred the respective powers, duties, rights and responsibilities related to State Healthcare Purchasing from the Department of Healthcare and Family Services back to various departments, including CMS. The departments had until September 30, 2012 to complete the transfer of functions.

Good internal controls would require that no one individual should control a key aspect of a transaction or event. The Statewide Accounting Management Systems Manual (Procedure 2.50.10) requires duties and responsibilities be assigned systematically to a number of individuals to ensure that effective checks and balances are in place and routinely practiced.

A formal written rate-setting methodology would provide clear procedures and specific documentation requirements for ensuring that insurance rates are being calculated consistently and the correct premium rates are being charged for TRIP.

Department management stated that the rate-setting calculations are performed via formulas retained in electronic spreadsheets and staff resources were not available to convert the electronic methodology into written procedures. Executive Order 2012-01 transferred the Office of Healthcare Purchasing from HFS back to CMS effective July 1, 2012.

Without a formal written rate-setting methodology, the Department cannot ensure that the insurance rates are being calculated consistently and correct premium rates being charged for TRIP are in accordance with State statutory requirements. In addition, over reliance on one individual for the calculation of TRIP insurance rates without a proper written rate-setting methodology subjects the State to potential disruption in the event that there are changes to that individual’s employment status. (Finding Code No. 12-1, 11-2, 10-1)

We recommend the Department develop a formal written rate-setting methodology as required by the State Employees Group Insurance Act and submit it to the Teachers’ Retirement System.

Department Response:
Executive Order 2012-01 transferred the Office of Healthcare Purchasing from HFS back to CMS effective July 1, 2012. The functions associated with State Healthcare Purchasing and the development of a formal written rate-setting methodology is now the responsibility of CMS.

A. FINDING (Financial statement preparation)

In the prior year, the Illinois Department of Healthcare and Family Services (Department) did not complete the Teacher Health Insurance Security Fund’s financial statements in a timely manner. The Department did not provide a complete set of financial statements until January 17, 2012, six and a half months after the fiscal year end. In the current year, the Department improved the process of financial reporting and completed the Teacher Health Insurance Security Fund’s financial statements in a timely manner. (Finding Code No. 11-1)


Despite a statute that requires the Committee to convene at least 4 times each year, I was told as long as the rate does not increase more than five percent each year, this committee does not have to convene. I was also informed that the former committee chairperson (Colm Brewer) had resigned, no one had been appointed to take his place, the committee had not met for a few years, and Central Management Services had not requested any meetings.

Authority: [Link for] 5 ILCS 375/6.5 (g-5) Year of Creation: 2004 (PA 93-679)

Number of Members: 10 Number appointed by Governor: 10
Vacancies: 0 Governor Vacancies: 0…

Purpose: To consider and make recommendations on issues affecting the program of health benefits for retired teachers. The Committee shall convene at least 4 times each year.

Compensation: Not noted in statute
Expenditures: FY 2007 FY 2008 FY 2009
Member Salaries/Stipends
Member Per Diem/Reimbursement
Other Per Diem/Reimbursement

All Other Expenditures
Total No expenditures, no meetings FY 2007 – FY 2009
For board meetings

Required Work Products:
The statute requires the Committee to convene at least 4 times each year.

Other Requirements:
Meetings for FY 2007 – FY 2009:
No meetings. According to the Governor’s Office of Executive Appointments has no expenditures and has not met to conduct business.

Board/Commission Vacancies:
No vacancies as of June 2010

Link for State of Illinois Office of the Auditor General, Management Audit, September, 2011, Vol. II, Detail on Boards and Commissions (see page 314)

More Sources & Links:

Financial Audit for the Year Ended June 30, 2012

Summary Report Digest from the Office of the Auditor General

Teachers’ Choice Health Plan

Monday, June 17, 2013

Pension Obstructionist: Chicago Tribune by John Dillon

Dear Representative and Senator:

We do not often get second chances, but all of you in the General Assembly are about to be granted another test of your allegiance to the Illinois Constitution and your political fortitude to find real and honorable answers to the Illinois “pension crisis.”

Let’s be clear about one real truth.  No matter how many of you are singled out and castigated by the Chicago Tribune for being hesitant or even thoughtful, the egregious falsehood perpetrated by the corporate media – even without Koch brother ownership – is the following: a characterization that budget woes in Illinois are a result of “diverting money from education and health care and other essential services to preserve pension benefits that are crushing the state” (Tribune Editorial June 16, 2013). 

That’s an untruth, Representative and Senator.   You know it and I know it.

Having to pay down a $100 billion debt on past avoidance (not diversion) of making required pension payments is actually what’s financially crushing the State of Illinois.  In fact the normal costs of pension payments have remained quite static or, as in last year, even less. 

The Tribune editorial board and Bruce Dold, always a willing messenger for the Civic Committee of the Commercial Club of Chicago, have enacted this falsity in order to avoid the very real financial remedies available to any state, but not one like ours -  subjected to the onerous dictatorship of a single politician like Speaker Madigan. 

Notice how the Tribune always combines the debt payment and the normal costs to make its specious points?  By not separating the two, the normal person does not realize a re-amortization of the debt owed for stealing pension moneys could be paid off without the crazy and punitive climbing cost developed by the General Assembly (with help for the corporates) in 1995.  Why isn’t Madigan or someone promoting that possibility? 

And if you think that Speaker Madigan is about to allow you as an elected official to think independently about what is possibly unconstitutional, or what is immoral, what is financially possible or ameliorative, think again.  He has eviscerated the union backed bill SB2404 to hold over the head of Senate Leader Cullerton – a childish and twisted parody of Solomon.  Extreme power without wisdom.

Will the Representatives in the House scurry under the domination of the Speaker and vote “aye” on his new machination?  Will my own Representative fall into line as she did so easily with SB1?  I hope not.  I hope that she and others realize that another forced vote on a mutant original bill is a slap in the face of not only thoughtful colleagues in the Senate, but a derisive and cynical demonstration of just how little the Speaker thinks of their offices – in both houses. 

Will the Senate also allow SB1 reviving life and fall into line with the leader's dark vision in the other house? 

I wish you well, and I wish you the strength to look for better answers to the financial hole Illinois politicians (not public workers) have excavated for nearly eighty years.  


John Dillon

from John Dillon's blog: Pension Obstructionist: Chicago Tribune