Wednesday, February 14, 2018

Rauner's budget plans to zero out health insurance for retirees and change public pensions



From the Illinois Retired Teachers’ Association:


“…[T]oday marks the Illinois Governor’s final budget address of his first term, and already he is again proposing balancing the budget on the backs of retirees, teachers and state employees.

“He has zeroed out any funding for the Teachers Retirement Insurance Program. In addition, he is proposing lowering the states cost to TRS by shifting cost to local school districts.

“Roughly $1.3 billion in proposed savings will come from shifting $490 million in pension costs onto schools, as well as a proposal to slash health insurance benefits for retired teachers and state employees. 

“The cost shift would be phased in at 25 percent per year over the next four years. Provided that the General Assembly enacts these cost shifts to school districts and universities, the state will save $363 million in fiscal year 2019 in pension contribution costs.

“The proposal also relies on putting in place a new pension plan. It suggests state worker and teacher retirement benefits can be scaled back, but only if they agree to the changes and are given something in return.

“Rauner estimates that plan could lead to $900 million in savings and would allow for a 0.25 percentage point cut in the income tax rate.

“Whether the governor’s pension proposal would pass constitutional muster is an open question, as a previous sweeping law to cut benefits was struck down by the Illinois Supreme Court [See Commentary at the Bottom of Page]. 

“Any pension change would almost certainly face a legal challenge, delaying any cost savings. The governor does not count that money toward his proposed budget for next year, unlike in 2015, when he factored the savings into his spending plans.

“The governor’s budget calls for boosting funding for education by $556 million, with about $350 million of that going toward the new funding formula that was enacted last year.

“The governor claims that this $556 million is a ‘record’ funding increase for K-12. After the pension cost shift, however, K-12 would receive an extra $76 million or so in net additional funding next fiscal year under this plan. 

“Universities would be expected to pay about $101 million more in pension costs, but that money would be replaced by an increase in discretionary funds, according to the budget documents.

“The proposal also calls for eliminating current programs for k-12: After School Programs, Advance Placement, After School Matters, District Intervention Funding, Parent Mentoring, National Board Certified Teachers, School Support Services (Lowest Performing Schools), and Teach for America. The total savings this would achieve is $28.9 million from the general revenue budget.

“Major savings come from the government spending side. The governor wants to remove health insurance from the list of items that are negotiated through collective bargaining with government employee unions. He estimates that change would result in savings of $470 million next year.

“Rauner also wants to cut the General Assembly and judicial budgets.”

Governor's Pension Plan vs Actual Certification by TRS of how much the state owes:

 FY19                          Cert. Gov FY19           Underfunded
 $4,466,178,109          $4,209,584,000          $256,594,109


Mary Shaw
Illinois Retired Teachers Association
Government Affairs Director
217.523.8488
800.728.4782


Commentary:

from John Fitzgerald of Tabet, DiVito & Rothstein LLC:

Kanerva v. Weems: Health Insurance Benefits Are Protected!

•       This was a constitutional challenge to an amendment to the State Employees Group Insurance Act which reduced State contributions toward health insurance costs for retired public pension system members and their survivors.

•       The Court held that this amendment was unconstitutional.

•       The Pension Protection Clause protects more than the pension annuity.  It protects all “benefits” of membership in a pension system, including health insurance benefits.

•       If there is any doubt about the scope of a constitutional protection for pension rights, those doubts are resolved in favor of the pensioner.
                 
Kanerva and your health insurance benefits:

•       In Kanerva, the Supreme Court ruled that the Pension Protection Clause protects not only pension annuities but also “health insurance subsidies.”  (Kanerva, par. 49.)

•       In Kanerva, the Supreme Court invalidated amendments to the State Employees Group Insurance Act that “altered the State’s obligation to contribute toward the cost” of coverage by increasing retirees’ premiums and reducing the State’s contributions.  (Kanerva, par. 12-13.)  Importantly, the amendments challenged in Kanerva didn’t abolish a health insurance program.  They just made the benefits more expensive and pushed more costs onto retirees.


1 comment:

  1. Pension Cost Shift Commentary:

    If Illinois policymakers pass a bill to shift its responsibility of paying the “normal costs” to local school districts, many school districts would not be able to afford to pay these costs, even if they are “phased in for a few years.”

    “A shift would create a new and large financial requirement for school districts, which would be difficult for many to meet. Moreover, Illinois ranks last in terms of state spending on K-12 education, and school districts are already relying heavily on local property taxes. Shifting the state’s normal cost obligation onto school districts would only mean that an even higher proportion of school districts’ revenue would come from property taxes.

    “[Furthermore,] property tax bases would not be sufficient to absorb any shift in the employer normal cost for teacher pensions… School districts are demographically and financially varied, and it would be difficult to impose a uniform normal cost shift on them… While shifting the state’s normal cost obligations onto school districts may provide some relief to the state’s budget, it will not mitigate these financial obligations and will instead push them onto school districts that, on average, already derive the majority of their revenue from local sources” (The Center for Tax and Budget Accountability, March 2012).

    What would be other probable effects? In cash-strapped school districts, of which there are many, teachers would not receive increases in their salaries; many teachers would lose their jobs; student programs would be reduced or eliminated; class sizes would increase; it would be more difficult to recruit, as well as retain and attract, the best teaching candidates… (Education Sector Policy Briefs).

    The public school system in Illinois would be jeopardized; the public school teacher’s dignity and guaranteed retirement security would be imperiled, and their students’ right to be taught by the very best teachers available in Illinois would be at risk.

    Approximately one-third of the total pension payment is the normal costs; the other two-thirds of the payment is the interest owed on the debt that the state created for not fully funding the pension system for several decades. To transfer the normal costs of the teachers’ retirement system to the school districts is to diminish the state’s role in providing income retirement security to its public employees.

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