How Bad is Illinois' Pension and Retiree Health Care Funding Problem?

It's pretty bad. I wanted to use this post to call attention to the state's retirement funding albatross, as well as the funding obligations that are essentially an anchor strapped to Illinois' cities, villages, and towns. The common denominator, of course, is the Illinois taxpayer.

First, let's look at the state's funding problem courtesy of a report prepared by J.P. Morgan that was published last June. The purpose of the report was to evaluate the ability of states to finance the pension and health insurance obligations owed to government employees. I lifted a couple of charts from the report that tell the essential story.

Let's start with a look at where Illinois' ranks among the states with respect to the funded ratio of its pension systems:

Illinois has the worst-funded pension system among the states. But that's not a surprise. We knew that. This next chart is the real eye-opener. Keep in mind that it combines both pension and retiree health care costs to derive the percentage of state revenues required to properly service debt:

The blue bars represent what the states are presently paying, expressed as a percentage of total state revenue, to fund their annual pension obligations. The orange bars depict what they should actually be paying based on what J.P. Morgan identifies as sound actuarial practices (referenced in the graph). Based upon this analysis, Illinois would need to allocate about 40% of total revenue collections per year to properly fund pension and retiree health care costs. 

This type of financial commitment would necessitate a huge tax increase on Illinois residents, exceedingly painful budget cuts, or a combination of both options. That's why it's so imperative to meaningfully reduce the long-term funding obligations presented by Illinois defined benefit pension plans.  

Public employee unions oppose these reductions and, so far, a circuit court judge has sided with their arguments against the reductions within SB 1.  A lawsuit has recently been filed to negate reforms enacted to address the rising costs confronting Chicago's Municipal Employees' Annuity and Benefit Fund. The Illinois State Supreme Court has already ruled that requiring state retirees to pay premiums toward their health insurance benefits is unconstitutional. 

The courts seem to be affirming that the Illinois Constitution essentially establishes a financial fantasy land for public employees.

The mantra of public employee unions is that the present benefits were promised and shouldn't be reduced. This, of course, is code for "just increase taxes on Illinoisans." Is it realistic to think that Illinois will tax its way out of these financial problems? No way.  Revenue enhancements might be part of a solution, but so will spending cuts and, hopefully, sensible pension reforms. 

And we ought not forget that Illinois cities, villages, and towns are facing a pension crisis of their own. The Illinois Policy Institute (IPI) published an analysis that used ten metrics to evaluate the financial condition of municipal pension plans. Each city was provided a cumulative score along with a risk designation. Here are the "top 20" cities per the IPI analysis:

The IPI analysis includes a rank for other Illinois cites as well. Probably the most significant finding in the study is that only three cities were considered to be in "critical" condition in 2003. This number grew to seventeen by 2012. Illinois cities are continuing to slide into the pension funding danger zone. 

Illinois has significant legacy costs that must be addressed. Governor-elect Rauner knows this and wants to move aggressively to restore Illinois' finances and place the state on a sound financial footing. The biggest hurdle that could upend a long-term solution is politics. The Illinois General Assembly will either rise to the occasion,  or content itself with simply managing Illinois' decline. 

Video: Bruce Rauner Addresses BGA Event

I attended the "Bruce, Budget Blues, and BGA" luncheon hosted by the Better Government Association on Tuesday. The event featured a presentation by Governor-elect Bruce Rauner and was held at the Sangamo Club in downtown Springfield. 

I was able to record the "Q and A" portion at the end, which begins with BGA Executive Director Andy Shaw asking Governor-elect Rauner for his thoughts on the vacancy in the Comptroller's Office and then goes on to cover several other issues. The video is 20 minutes long.

(Dis)appointments

Those hoping for a smooth transition from Governor Quinn to Governor Rauner were resoundingly disabused of that hope when Governor Quinn opted to make 51 appointments to boards and commissions on his way out the door. 

That incumbent Governors have the power to make these appointments is beyond dispute. They are, after all, empowered to appoint qualified individuals to open positions. But this is a case where the question of "should Governor Quinn make the appointments" should have taken precedence over "can Governor Quinn make the appointments." 

At issue is that the term of many of these appointees will extend beyond the conclusion of a Rauner first term. In the interest of clean government that respects the outcome of elections and the orderly transfer of power, these appointments should belong to Governor-elect Rauner. Instead, the well has been poisoned with the perception that the outgoing administration is simply looking to reward friends and allies while tying the hands of the incoming administration where possible.

These kinds of appointments are not a shocking development. Last minute appointments have been a part of American politics since, in what became known as the "midnight appointments," outgoing President John Adams attempted to entrench his Federalist views by using his last day in office to appoint numerous Federalist judges. Needless to say, incoming President Thomas Jefferson was not very happy about it. 

Historical practice aside, these types of appointments will always be disappointing for those of us on both sides of the aisle that desperately want to see our government shed past practices and take the high road.

Honoring Comptroller Judy Baar Topinka

Illinois lost an irrepressible political figure with the passing of Comptroller Judy Baar Topinka on Wednesday. When I think about Comptroller Topinka, I automatically think about her straight-talking, no-nonsense, "here I am take me or leave me" persona. The Tribune editorial appropriately captured this dimension of her personality in the following paragraphs:

The straight-shooting ex-newspaper reporter never lost her penchant for directness, a lost art in the modern frenzy of carefully messaged politics. You couldn’t “message” Judy, “package” Judy, “image” Judy. 

More than a decade ago, when then-Gov. George Ryan and legislative leaders considered short-term borrowing to close a budget gap, she rejected the idea: “You just can’t spend like a bunch of drunken sailors.” 

When she ran for governor in 2006, she referred to her primary opponents as “morons.”

When she ran for comptroller in 2010, she described the post as “a watchdog, whistle-blowing, calling-out kind of job” and added, “I'm perfect for that.”

Indeed she was. And that was Judy Baar Topinka. I wish her family and friends comfort as they grieve her passing. The Illinois political scene has lost a true, straight-talking trailblazer. We need more like her.

Picture from Chicago Tribune.

Minimum Wage Increase Stalled

Legislation to increase the minimum wage was upended when it became apparent that the House didn't have the necessary votes to advance a bill. Some contend that the passage of an ordinance increasing the minimum wage to $13 in Chicago undermined support for a statewide minimum wage bill among Chicago legislators who, for political reasons, didn't want to vote for an increase that would be less than the $13 Chicago wage.  

Still, supporters of a statewide minimum wage increase definitely made themselves heard at the Statehouse today with chants of "raise the wage." 

These kinds of rallies are valuable in that they make activists feel engaged, but they rarely affect the ultimate outcome of legislation. And that ended up being the case here.

Still, the Senate decided to move forward with a bill to increase the minimum wage to $11 an hour in what is best described as a largely symbolic gesture considering that the House had already adjourned "Sine Die."  This means that the House will not reconvene until the 99th General Assembly is sworn into office and is therefore unable to vote on HB 4733. An exception would be if the House convened a special session, but that's unlikely to occur. 

In addition to increasing the minimum wage, HB 4733 included a home rule preemption to prevent Chicago from increasing its minimum wage above $13 an hour. 

HB 4733, which passed 39-18-1, was sponsored by Senator Kimberly Lightford (D-Westchester). Senator Lightford has worked tirelessly on this issue for quite some time and was obviously pleased to pass the bill out of the Senate. 

The only problem was that it had no place to go.

Fire Union Still Furiously Spinning Staffing Bill Facts

Is it possible to award more than four Pinocchio's? 

The AFFI must be getting some push back from their ill-conceived fire department staffing legislation. Despite passage of the bill, the union's president felt compelled to respond to an editorial in the Champaign News-Gazette and tried to once again get the carousel spinning in defense of the legislation. Let's deconstruct some of the "facts" asserted by the union in the op-ed:

Assertion
When Illinois firefighters in 1986 surrendered their right to strike, they traded service for the sake of the public's safety and well-being.

In return, they received several collective-bargaining considerations. One consideration was the implication that safe staffing levels could be negotiated with the employer and resolved through binding arbitration if the parties were unable to reach an agreement.

Reality
You need to read this statement carefully to understand the full measure of what's really being asserted. There's some word parsing going on. Notice the use of the word "implication?" 

Why is the word "implication" being used? Because the actual text of the law doesn't say what they want it to say. HB 5485 deliberately inserts the word "manning" into the bill because it was never there to begin with. That's why the union had to introduce HB 5485. And it's quite curious to introduce a bill that sets out to achieve what you claim to already have as a function of statutory law.  

Despite the word not being included in current law, the union persisted in telling legislators and anyone that would listen that staffing levels have always been a mandatory subject of bargaining. How do they argue this in the absence of such a provision in the actual law? The union argues that the sponsor of the firefighter collective bargaining legislation "intended" for staffing to become subject to bargaining and interest arbitration. The union points to the transcripts of the 1986 floor debate to make its point. But even the transcripts don't go that far. 

The transcripts, which are available here, only contain references to "equipment" manning. This pertains to the number of firefighters that must accompany an apparatus and is a wholly separate issue from the number of firefighters that must staff a shift. HB 5485 would require bargaining and interest arbitration over shift manning.

References to fire department staffing levels are not only absent from the text of the Illinois Labor Relations Act, but a review of the House transcripts cited by the fire union doesn't even carry the "implication" that "staffing levels" were intended to be included as a mandatory subject of bargaining within the 1986 law.

Assertion
The General Assembly's action on firefighter staffing does not establish the arbitration process for manning. It was already there and has been there for nearly 30 years. There are numerous examples of firefighters arbitrating this very important topic with their employer.

Reality
This is partly true, but mostly false because it takes an exception and attempts to suggest that it is the rule. 

Cities that have agreed to bargain and arbitrate over staffing are required by law to include staffing within future collective bargaining negotiations. HB 5485 would not alter this requirement one iota. These cities would have been compelled to continue to bargain over staffing with or without HB 5485. 

HB 5485 is a significant change in law because of what it would mean for cities that don't have staffing provisions in their contracts. These cities are not presently required to bargain over staffing. That is, unless HB 5485 becomes law. If enacted, all cities with unionized fire departments would be mandated to bargain over staffing levels as a function of law. But the union conveniently omits the full explanation of current law and the important distinction contained therein - that a few cities have elected to bargain over manning and must continue to do so, while most cities have not and are not required to bargain. Instead, the union infers that the arbitration requirement has been applicable in all cities with unionized fire departments since the 1986 collective bargaining law was enacted. This is bogus and extremely misleading.

Assertion
Furthermore, you suggest the legislation will cost local governments untold chunks of money. In fact, the opposite is true.

Let's look at Oak Lawn, a Chicago suburb whose mayor and village trustees tried to end-run the arbitration process and were rejected by circuit, appellate and state supreme courts.

The taxpayers of Oak Lawn wasted $2.5 million in lawyers' fees and court awards, money for litigation that could have paid for over 25 firefighters for a year — including salary and all related benefits.

Reality
Partly true but with a very notable omission. Oak Lawn did expend $2.5 million in trying to remove the staffing requirement from its collective bargaining contract. But the Village did so because the staffing provision is costing Village taxpayers almost $2 million per year in overtime costs in order to meet the terms of the staffing levels. Spending $2.5 million to try and save Village taxpayers tens of millions over multiple years changes the complexion of this story dramatically. But the annual overtime cost was somehow omitted from the union's narrative. Funny how that works!

The op-ed then becomes sanctimonious about how the $2.5 million in legal fees could have been spent:

Or it could have fixed dozens of potholes, replaced crumbling sewers and sidewalks or put a couple bad guys in jail. Better yet, the money could have been abated back to the people who pay their property taxes with the expectation they'll get service, not pay for lawyers' vacation homes.

Good to see the fire union so concerned about the many financial obligations incurred by the Village. Perhaps they'll give up the many more millions in unnecessary overtime out of concern for the Village and its taxpayers? Don't hold your breath. 

While on the subject of Oak Lawn, let's shine a spotlight on another matter that the union saw fit to exclude. Here's an excerpt from labor lawyer Ben Gehrt's testimony before the Senate Executive Committee:

Let’s talk a little more about Oak Lawn. The Union claims that the litigation in Oak Lawn has been a boondoggle, wasting tax payers money on lawyers. What the Union wants you to ignore is this: in 2014, Oak Lawn went to interest arbitration. The Village showed that because of minimum staffing, their overtime costs increased from $200,000 to $1.8 million. The Village proposed changes that would save $1.3 million per year in overtime costs. The Union refused to even consider those changes. In interest arbitration, the Village proved with expert testimony that it could change its staffing levels without any adverse impact on safety. 

Arbitrator Ed Benn, one of the most respected arbitrators in the state, called the Village’s proposal a “good idea.” Nonetheless, the Arbitrator’s ruling was straightforward: no, the Village has to keep the artificially inflated staffing levels simply because that is the “status quo.” Oak Lawn is saddled with $1.3 million in unnecessary overtime costs. That is money that could go towards pensions, police officers, roads, business development, tax relief, or any one of hundreds of good causes. Instead, it has to be spent on an inflated staffing level.

So the union portends to be the defender of the taxpayer and prudent fiscal practices in an op-ed (even throwing in some class warfare for good measure), but not so much at the bargaining table. And therein lies a big part of the problem, particularly when the union argues that HB 5485 will "save" money. And yes, they actually argued that point. 

Unfortunately, 9 members of the Senate Executive Committee listened to Mr. Gerht's testimony about the costs (or deprived savings) that arbitrating staffing levels can impose on taxpayers and weren't influenced by it whatsoever. 

The fire union got away with a big one here. And they received some help in doing so. But perhaps this is another case of having to pass the bill so that we can find out what's in it. 

Related Posts:
Politics Trumps Policy with Passage of Fire Department Staffing Bill
The Anatomy of a Spin Job
The Evolution of the Fire Service in Three Graphs
Is Illinois' Fire Service Economically Viable?

Legislators Should Carefully Vet Minimum Wage Legislation

Business groups have understandably cried foul about legislation in the Illinois Senate that would incrementally increase the minimum wage to $11 per hour. Raising the minimum wage would obviously increase the cost of doing business, particularly for retailers. And much of this cost would be passed onto consumers through higher prices for goods and services. Probably not a great policy at a time when Illinois' economy is already sluggish and slow to rebound. 

But now it seems that the state could potentially burden human service providers if it follows through with a minimum wage increase:

As Democratic lawmakers renew their push to raise the state's minimum wage, there's a key sector of employers that finds itself stuck in the middle — nonprofit groups that care for some of the state's most vulnerable, including the elderly and disabled. 

That's because while they'd like to pay their workers more, many of those agencies receive the bulk of their funding from the state. Given Illinois' dire financial situation — which will only grow worse if portions of a temporary income tax increase expire as scheduled Jan. 1 — it means they could be on the hook for higher salaries without getting more money from the state to cover the additional costs.

I suppose that the state could always increase payments to these providers to offset the additional costs, but anyone with any knowledge of the depth of Illinois' fiscal problems would find that to be an unlikely option. If anything, it wouldn't be surprising to see the state reducing payments to human service providers over the next few budget cycles. Governor-elect Rauner has reportedly requested that state agencies draft-up FY2016 budgets to reflect 20 percent cost reductions. Those would be some pretty significant cuts if they come to fruition. 

In any event, the impact to service providers is probably another reason for the General Assembly to exercise considerable discretion and slow things down a bit on the drive to increase the minimum wage. 

SB 68 is expected to be further amended, with one of the amendments possibly restricting Chicago's home rule authority to increase the minimum wage above the level established by the state. And there might be a disagreement brewing between the House and Senate over how many votes this would require: 

Lawmakers would need a three-fifths vote margin in each chamber to pre-empt home rule. Lightford says she has enough votes to do that in the Senate. The fate of a minimum wage hike is less certain in the House, where Democrats have a large but narrower margin and lawmakers tend to be more conservative. Legislators are scheduled to return to the Capitol for action in early December.

This is generally correct. Per the Illinois Constitution, home rule preemptions require a supermajority vote of both chambers. This is apparently how the Senate intends to proceed. But the House may see things differently. From Capitol Fax (no link):

And such a preemption bill would not necessarily require a three-fifths majority to pass, says the top House Democratic attorney.

"If the state is saying we're not going to regulate it and you can't regulate it either, that requires (a super-majority)," Heather Weir Vaught explained. However, when the state decides to regulate something and tells municipalities they can't, then that only requires a simple majority, she said.

Could each chamber require a different vote threshold based upon two different "interpretations" of the Illinois Constitution? And could this introduce the possibility of litigation over "process" questions should a minimum wage cap be enacted without a supermajority vote? Anyway, both chambers should figure this out and get on the same page if they're intent to move forward on some kind of minimum wage cap. 

Here's what Article 7, Section 6 says about preempting home rule power:

(g) The General Assembly by a law approved by the vote of three-fifths of the members elected to each house may deny or limit the power to tax and any other power or function of a home rule unit not exercised or performed by the State other than a power or function specified in subsection (l) of this section.

But there's no guarantee that the House would rush to embrace the broader minimum wage bill anyway:

House Majority Leader Barbara Flynn Currie, who is a sponsor of the minimum wage bill, doesn’t anticipate much movement. 

“We didn’t have the votes to do it in the spring, and I’m not sure even though there was good support for it,” she said.

But then again...

But Mr. Madigan got big-time help from labor unions this year, including some unions (such as the American Federation of State, County and Municipal Employees) that haven't contributed to him in many a year. He told the Chicago Tribune Nov. 13 that he's “encouraging” his members to vote for the minimum wage hike.

Illinois politics always keeps you guessing.

Update (December 1):

I spoke with Heather Weir Vaught and she said that both chambers are on the same page in the view that a home rule preemption to cap the minimum wage would only require a simple majority. 

Politics Trumps Policy With Passage of Fire Department Staffing Bill

Sometimes policy takes a backseat to politics in the legislative process. This usually happens when legislators want to advance legislation to either bolster their re-elections or reward loyal political supporters. 

We saw an example of "politics trumping policy" to appease a powerful political ally last week when the Illinois Senate sided with the statewide firefighter union to advance a bill proposing an expansion of collective bargaining rights to allow firefighters to bargain over fire department staffing levels. 

The bill represents a substantial change to labor law because it makes negotiation over staffing levels a mandatory subject of bargaining in all unionized fire departments. 

Not to get overly wonky, but Illinois law essentially puts cities into two camps with respect to mandatory bargaining over staffing levels. 

The first camp includes cities that have already agreed to bargain over staffing levels and have such provisions in their labor contacts. These cities are mandated to continue to bargain over staffing levels with their unions. 

The second camp includes cities that do not presently have staffing provisions within their firefighter labor contracts. Negotiations over staffing levels are considered to be a "permissive" subject of bargaining in these cities. This means that the cities can discuss staffing levels with their unions, but the unions can't force the issue before an arbitrator if there is a disagreement. This reality is supported by numerous arbitration and Illinois Labor Relations Board decisions. 

Which brings us to why the firefighter union introduced HB 5485.

The bill would eliminate this distinction and allow firefighter unions to take staffing level decisions to interest arbitration in any city if the parties reach impasse. Consequently, third party arbitrators with no knowledge of fire science would have more power to make staffing level decisions than the elected leaders of a community.

Cities with unionized fire departments stood in vehement opposition to this bill. They were joined in their opposition by newspapers and editorial boards around the state: 

Examples of statewide editorial opinion against HB 5485.

Some of these editorials successfully shined a spotlight on the bill last spring. The resulting attention influenced bill proponents to avoid calling the bill in the Senate prior to the November election. The bill had already passed the House with a narrow majority last spring. 

Why was the bill so unpopular with cities? Two reasons. First, it was the latest proposal out of Springfield to curtail the authority of locally-elected officials. Second, and more importantly, the bill allows fire unions a major say in something that has been a managerial right because it pertains to "standards of service." 

There is a direct correlation between service standards and budgetary resources. So, if an arbitrator determines that a city must hire one additional firefighter per shift for a community with three fire stations, then the community would need to hire nine additional firefighters to cover each shift. If it costs that community $100 thousand per firefighter for wages and benefits, then the city has just assumed a new funding obligation of about one million dollars. This obligation grows each year with wage and health insurance cost increases.

And then there's the flipside. Because the arbitrator would have to approve any staffing reductions when revenues decline, it would become exceedingly difficult to reduce headcount to reflect fiscal realities. Taxes would need to be increased, or services would need to be disproportionately reduced among other departments (i.e., police). 

Another example of the cost impact of obligatory staffing levels can be seen in my hometown of Oak Lawn. Under existing law, cities that have staffing level provisions in their labor contracts must continue to bargain over staffing.  Oak Lawn agreed to include a staffing provision years ago and is now stuck with it. The taxpayers of Oak Lawn are obligated to pay $2 million per year in overtime costs because the Village is contractually obligated to maintain staffing levels. The Village wants out from under this expensive staffing requirement, but the union and arbitrators won't budge. 

But these are policy issues and I want to get back to motivation and process factors because these are what ultimately carried the day.

Because the stakes were high, cities poured their efforts into an organized campaign to stop the bill during the Veto Session. This included another round of opposition editorials and stories. 

Mayors held a Springfield press conference to rally public opposition to HB 5485.

Cities reached out to their Senators to urge that they vote against the bill. Some even did so publicly: 

Unfortunately, the Senator didn't heed the request of the mayor of his largest city and voted for the bill.

With the election a thing of the past, the bill was assigned to the Senate Executive Committee for a November 19 hearing. This was probably the first indication that the skids were likely greased to advance the bill.  The Senate Executive Committee is tightly-controlled by Senate Leadership. Union-supported bills aren't assigned to Senate Executive Committee to die.

Cities relied primarily on the testimony of a highly-respected labor attorney in an effort to derail the bill in the Executive Committee. But, as I indicated, union-supported bills don't go to the Executive Committee to die. The bill was approved 9-2-3 and advanced to the Senate Floor. 

Labor attorney Ben Gehrt testified against HB 5485 before the Senate Executive Committee.

Want proof that pressure was brought to bear on legislators to support this bill? Without mentioning names, one of the Democratic Senators on the Executive Committee had committed to a mayor that he would oppose the bill. Immediately before the hearing began, that Senator entered the public gallery to seek out the mayor to tell him that he had to change his vote and support the bill. Hey, at least he told him before the vote. That does count for something in this business.

For procedural reasons the proponents weren't able to call the bill for final Senate passage until the day after the Senate Executive Committee hearing. During debate, Senator Pam Althoff (R-McHenry) urged her Senate colleagues to hold the bill until a compromise could be fully explored that might mitigate opposition from the cities. A compromise amendment had already been offered and summarily rejected, by the way. Bill supporters, particularly the statewide firefighter union, weren't interested in waiting when they were a Senate vote away from sending the bill to the Governor. And they knew that they likely had the votes.

Senators debating HB 5485 on the Senate Floor. Senator Pam Althoff is standing at left. The sponsor, Senator John Mulroe, is standing in the back row to the right of the doors.

Proponents unveiled some dubious arguments in favor of passing the bill during debate in the Executive Committee and on the Senate Floor. For example, that the bill would somehow cap litigation costs (it won't) and only clarifies existing law (it changes existing law). They even argued that a 2011 appellate court case determined outright that staffing was a mandatory subject of bargaining (it didn't) only to later argue the reverse position by positing that the case actually undermined the law (that was a real head-spinner!). But, whatever, they wanted to pass their bill pretty badly. Rich Miller summed it up perfectly in his post about the staffing bill over at the Capitol Fax blog:

Indeed.

To increase the likelihood that the votes would be there to pass the bill, proponents indicated their intention to pass a "trailer" bill in the spring to try and address some of the objections raised by opponents. While there may in fact be such a bill, offering to address issues only after the bill becomes law is a fairly common legislative tactic used to provide some cover to convince fence-sitters to support a bill. In this instance, they can vote for the bill and tell their mayors that they did so because they were assured that the concerns of the mayors would be addressed later.

A "trailer bill" may in fact occur, but the mayors now have no leverage to extract anything of real value because the firefighter union and its supporters already got what they wanted. Why give anything of value back after you've already won?

The bill passed 42-11-4. It needed a super-majority of 36 votes to pass because it had an immediate effective date and the vote occurred after May 31. A simply majority is needed between January and June. 

I'm almost certain that a few Senators voted for the bill once it became obvious that it would get the required 36 votes. These Senators will go back to their mayors and tell them that they made a tactical vote to join the prevailing side, but wouldn't have been the "36th vote." And that's probably the case. 

The bill still has to be signed into law by the Governor, but Governor Quinn is a strong supporter of the firefighter union and is likely to sign the bill.

And that's what happens when politics takes priority over good public policy. 

Related Posts:
The Anatomy of a Spin Job
The Evolution of the Fire Service in Three Graphs

Is Illinois' Fire Service Economically Viable?

Media:
Daily Herald: Sinister Signals: Lawmakers Show Their Loyalties with Vote on Union Staffing Bill

The Anatomy of a Spin Job

Cities across Illinois are girding for an uphill fight during the Veto Session to prevent the Illinois State Senate from acquiescing to the demands of the Associated Fire Fighters of Illinois for an unprecedented expansion to Illinois' collective bargaining law. HB 5485 would confer the right to submit disagreements over fire department staffing levels to interest arbitration.

The powerful firefighter union is trying to hoodwink legislators into believing that firefighters are being denied a statutory right that they have, in fact, never possessed. Under this bogus narrative, villainous local officials have suddenly become emboldened to harass financially-strapped local bargaining units by trying to take away their right to bargain over how many firefighters work on a shift.

In reality, the fire union is poised to achieve a feat that no other local government unions have accomplished through statutory fiat. The absolute and uncontestable right to have a third-party, unappointed by city officials and unelected by voters, decide how many employees work for a municipal department.

Under Illinois law, fire department staffing levels are a permissive subject of bargaining. This means that cities without staffing level provisions in their contracts are under no requirement to have the matter submitted to third-party arbitration. 

To be fair, Illinois law provides that a city must bargain and be subject to binding arbitration over fire department staffing levels if the provision is already included within the contract. This point is not being disputed by opponents of HB 5485.

But the firefighter union is working overtime to bamboozle legislators into believing that ALL cities fall under this bargaining and arbitration requirement. Based on this fallacious argument, the firefighters contend that cities that refuse to submit to interest arbitration over staffing levels are subverting the law. They further contend that this "subversion" if forcing local fire unions to expend financial resources to "reclaim" a right that does not exist under Illinois law.

Why is this issue so significant?

Personnel expenses are the most significant cost drivers facing cities. These costs include wages, health insurance benefits, and pension obligations. Each of these provisions must be bargained under current law. If the city and labor union reach impasse, the matter goes before an arbitrator. If the city loses, then it's taxpayers on the hook for the additional costs associated with the arbitration award.

But as personnel costs increase, cities have always had recourse to hold the line on costs by reducing headcount. They could reduce staff, or forego planned hires, without the need to seek permission from the union. Determining how many employees work in a municipal department is an exclusive prerogative of management and directly related to the determination of "standards of service." Service standards are a policy matter exclusively reserved for officials that possess the legitimacy of having been elected by the residents of a community.

If cities lose control over the number of firefighters employed by the fire department, then the likelihood of local tax hikes and service cuts increase.

Beware the interest group that claims it is only trying to "clarify what the law already says." Such claims are always signs of a soft sell and a clear indication that something much more substantial is afoot. The Associated Fire Fighters of Illinois is betting that it can create enough confusion over the issue that legislators already predisposed to support firefighters can be seduced into making a major change in law without even realizing the extent of their actions.

The Evolution of the Fire Service in Three Graphs

Last August I wrote a post entitled "Is Illinois Fire Service Model Economically Viable?" The post discussed recent trends that are pushing municipal governments toward the pursuit of alternative models for the provision of fire protection services. The primary trend, of course, is the growing cost to operate a municipal fire department. Personnel and pension costs are squeezing municipal budgets and threaten cuts to other services, or higher property tax bills for Illinois residents.

In particular, I wrote about plans by the Village of North Riverside to contract with a private company to provide fire protection. Not surprisingly, unionized firefighters are objecting vociferously to the privatization plans of the Village even though the arrangement would ensure that North Riverside's current firefighters are retained by the private company. North Riverside believes that transferring fire protection services to a private company could save taxpayers $750 thousand during the upcoming budget year. That's big money.

The post also discussed how mandates forced on municipal governments by the state have played a large role in driving up the costs to operate a municipal fire department. Included within the post was a list of 29 legislative enactments that were essentially giveaways to the politically powerful statewide firefighter union. Make sure to take a look at the list and consider it in the context of the charts below. It's quite astonishing.

Unionized firefighters actively work on campaigns, make substantial political donations to candidates, and year after year see their legislative agenda advance through the General Assembly. And the firefighter legislative agenda costs money. Taxpayer money.

The statewide firefighter union is presently working overtime to convince the General Assembly to expand collective bargaining rights to include fire department staffing levels. What this means is that if a bargaining unit and management disagree on how many firefighters are needed, the issue goes before an arbitrator. If the arbitrator sides with the union, then the municipality is compelled to hire more firefighters than the elected officials and their management teams, including the fire chief, believe are necessary.

Just having the right to bargain over minimum manning exerts an upward pressure on fire department costs. Why? Because local bargaining units could use the threat of taking the issue to arbitration to win a concession or two from the municipality. If the municipality fears the prospect of losing an arbitration hearing and having to absorb millions of dollars over multiple years in unnecessary personnel costs, you can bet that they will trade something else to avoid the manning requirement. That something else likely costs money.

Firefighters argue that they should be able to bargain over minimum manning requirements because appropriate manning and staffing issues are a matter of safety for the firefighters and the public. But manning and staffing levels are a prerogative of elected officials and their management teams. The last thing that municipal officials desire is to expose their residents to danger and risk because of an understaffed fire department. Consequently, fire departments are not understaffed in Illinois. How can we be sure? For starters, where is the ongoing media coverage about all of the lives lost and property damage incurred as a result of a fire department staffing crisis? This coverage doesn't exist. Why? Because there isn't a staffing crisis. We have plenty of firefighters in Illinois. And we appreciate what they do.

But what DO they do? The fire service has evolved tremendously over the last several decades. And here's some good news that often doesn't get reported. We don't need as many firefighters because we don't have as many structure fires. And that's a positive development. Fewer fires mean that residents are safer. It's a success story. But if there are fewer structure fires, why is the statewide firefighter union pressing so hard for the right to take manning and staffing levels to arbitration?

Job protection. It's that simple.

Vox published a terrific article about the changing nature of the fire service and what firefighters actually do. While I've linked to the article, I'm going to include three of the graphs from the article below because they tell the story quite effectively. After viewing the charts, ask yourself if we need a law that would empower fire unions and arbitrators to impose additional costs on taxpayers for the purpose of hiring more municipal firefighters.

The number of structure fires is declining:

While the number of paid firefighters has been increasing:

And the firefighters are mostly responding to medical calls and not structure fires:

Policymakers must recognize that the fire service has evolved and that fire departments might more appropriately be considered as "emergency service agencies." Combating fires will always be a component of the fire service. And communities have become very sophisticated in cooperating with each other through mutual aid agreements to ensure that sufficient fire suppression personnel and equipment arrive at the scene of a structure fire. But firefighting has become a secondary obligation. Medical responses are the primary obligation. And it's an important function.

The point of this post is not to somehow argue that firefighters don't do important things. They most certainly do. But the Illinois General Assembly needs to stop legislating as if the primary activity of the fire service is putting out fires with all of the attendant danger. It's expensive to taxpayers and no longer predicated in reality.

Politico Cites Statewide Ballot Questions

Politico has a story about the ballot measures on which voters will opine across several states. Here's what they say about Illinois' referendum questions:

Prairie State voters on Nov. 4 will make their voices heard on what’s turned out to be a wedge issue in the contentious Illinois gubernatorial race: a tax hike on millionaires.

But that’s all they’ll get to do — the ballot measure is nonbinding, merely allowing residents to express their opinions rather than changing tax policy.

The Tax for Education Question asks citizens if they want to amend the constitution to add another 3 percent tax on individuals earning more than $1 million, to fund education. 

Illinois is a flat tax state, so individuals of all income levels pay a 5 percent rate. 

But that will drop to 3.75 percent at the beginning of 2015 because of the expiration of a 2011 income surtax. That’s going to leave a revenue gap, according to Gov. Pat Quinn’s budget office — so he and the Democrats proposed filling the hole by hiking levies on the wealthier.

They tried to get a constitutional amendment on the ballot this year but failed to garner the three-fifths legislative approval required. Now they’re settling for the nonbinding ballot measure, which they hope will give their colleagues the cover to vote for the tax hike down the road. 

Meanwhile, opponents of the measure are accusing Democrats of flooding the ballot with nonbinding red-meat measures that attract liberals — like this one and a minimum wage hike — who would vote for Quinn over his neck-and-neck GOP challenger, Bruce Rauner, who opposes the tax.

The article doesn't mention all of the ballot questions in Illinois (voting rights, minimum wage, birth control, and crime victims rights), so you can probably assume that the article isn't a comprehensive source for the various ballot measures around the country.

Tribune Slams FY2015 State Budget

The Chicago Tribune read the Civic Federation's report about the FY2015 State Budget and recoiled in horror. 

The report paints a gloomy picture of a deeply problematic FY2015 state budget that Statehouse insiders have known about since the budget was passed in late May. Bottom line - the FY2015 budget was a sham budget full of gimmicks and short-sighted financial provisions. Kudos to the Civic Federation for its detailed analysis of a very political budget designed to allow legislators to get out of Dodge and face voters without having taken controversial votes to either make the current income tax levels permanent, or implement the massive cuts necessary to align spending with actual revenues. Go read the whole Civic Federation report here.

Anyway, the Tribune held nothing back in its assessment of the situation:

We've all known since the General Assembly's spring session that lawmakers passed a bogus budget, although we didn't know just how bogus. We wrote at the time that fraidy-cat lawmakers had neither made their temporary income tax hikes permanent nor passed a budget that realistically matches spending to revenues after those tax hikes start to roll back Jan. 1. Profiles in cowardice. 

Springfield's foolish insistence on spending tomorrow's dollars today is one reason that all three major bond rating agencies rank Illinois as the nation's least creditworthy state. Each agency also attaches a negative outlook to Illinois, meaning all three may downgrade the state's harmful credit rating even further: 

Standard & Poor's warned on July 23 that this current budget "is not structurally balanced and will contribute to growing deficits and payables that will likely pressure the state's liquidity." That's what happens when politicians don't want to lose revenue from a tax increase — and make no provision for the tax rollback that they wrote into law.

Here's how my organization described the budget in early June:

The budget appropriation bills include a total of $35.7 billion in spending for FY2015. This budget has been referred to as a “middle-of-the-road” budget because it establishes spending levels between the $38 billion budget that was proposed with the assumption that the existing income tax rates would be made permanent, and a proposed “doomsday” budget that would have reduced spending levels to $34.8 billion.

The budget approved and sent to the Governor includes spending in excess of available revenues and marks a return to the practice of using gimmicks such as inter-fund borrowing, dubious revenue growth assumptions, and insufficient payments to reduce bill backlogs. Without an extension of the income tax rates prior to January 1, 2015, the budget will spring a $2 billion hole that would necessitate service cuts and layoffs.

It's certainly a more diplomatic assessment, but reveals the same unfortunate reality. And that $2 billion hole may be on the low side. Things will get interesting at the Statehouse in January of 2015. The elections will be over, but the hangover will just be getting started. 

Another Example of the Illinois Prevailing Wage Act Costing Taxpayers

Via the Chicago Sun-Times and Better Government Association, we have yet another example of how the Illinois Prevailing Wage Act undermines responsible public spending by making projects more expensive than they need to be. This time the hit is being taken by the state's Urban Weatherization Initiative, which is a program intended to train and put people to work weatherizing homes:

Many of those who have gotten work through the program are being paid not at the $20 an hour expected rate for these relatively unskilled jobs but instead at the scale the state sets for skilled carpenters — as much as $49 an hour. That’s because the program’s architects failed to recognize salaries would need to be in accord with the state’s Prevailing Wage Act, which doesn’t have a category for weatherization workers. With each home limited to repairs of no more than $6,500, the inflated pay has eaten up money intended for the improvements.

“Contractors are running away from this” because of the high pay, says Kerry Knodle, executive director of the Illinois YouthBuild Coalition in Rockford, a nonprofit agency involved in the project. 

“It’s killing the program,” says Percy Harris, chairman of the volunteer state board Quinn appointed to oversee the initiative.

The weatherization program is part of the $31 billion Illinois Jobs Now infrastructure investment program. Whatever one might think of the program, it's abundantly clear that Illinois' current prevailing wage rules sometimes appear to do a better job of compensating workers than actually maximizing taxpayer dollars to achieve targeted goals. 

The Illinois Prevailing Wage Act needs to do a better job of balancing wages with results-oriented objectives. 

Not All Pension Problems Were Created Equally

Eric Madiar wrote an interesting op-ed that reviews the state's long record of under-funding its pension systems. If you're following the Illinois pension crisis, you simply can't ignore Eric Madiar.

Eric is the chief legal counsel to Senate President John Cullerton. He has applied his keen mind toward addressing the state's pension funding crisis by seeking out reforms that are more likely to be deemed constitutional. A considerable amount of his time was spent researching archives of the 1970 Constitutional Convention to ascertain the original intent behind the "impairment" clause. 

While some disagree with Eric's conclusions, I can't think of a single person who questions the results of his deep water dive into the history of the constitution's "impairment" clause. Here's Eric's take on why the framers, informed by history, opted to insert the clause:

In 1917, the Illinois Pension Laws Commission warned leaders that the retirement systems were nearing “insolvency” and “moving toward crisis” because of the state’s failure to properly fund the systems. It also recommended action so that the pension obligations of that generation would not be passed on to future generations. 

The warning and funding recommendation went unheeded, as did similar warnings and recommendations found in decades of public pension reports issued before and after the pension clause was added to the Illinois Constitution in 1970. 

For decades, these reports consistently warned the public and lawmakers of the dire consequences of the state’s continued underfunding and of the significant burden unfunded pension liabilities posed for taxpayers. They advised that the pension clause bars the legislature from unilaterally cutting pension benefits of retirees and current employees. 

Indeed, one of the clause’s purposes is to prevent the state from reneging on its pension obligations during a fiscal crisis because of the burden imposed by unfunded liabilities. The clause was added at a time when the pension systems were no better than they are today.

And as it turns out, Illinois has had run-ins with the bond houses before:

These reports also reveal that as early as 1979 Moody’s and Standard and Poor’s advised Illinois that it would lose its AAA bond rating if it did not begin tackling its increasing unfunded pension liabilities. 

Further, a 1985 task force report noted that Standard and Poor’s reduced its bond rating for Illinois from AAA to AA+ because of the state’s “deferral of pension obligations,” and that another rating agency viewed Illinois’ pension funding as a future financial “time bomb.”

And his conclusion:

Given this well-documented history, it’s extremely hard to legitimately believe Illinois’ current situation is so surprising that the state constitution can be ignored and pension benefits unilaterally cut. As noted in my previous legal research, the pension clause does not support such a result.

I've written a previous post about why it's imperative to the broadest interests of the state that the Illinois Supreme Court find SB 1 to be constitutional. Go read that post for the argument, which is rooted in utilitarianism.

Suffice it to say, much of the funding crisis facing the state pension funds has resulted from deliberate under-funding. But what if we had a pension system that was eroding despite substantial funding increases? And what if that system was failing in large part because of severe structural imbalances and inefficiencies? And what if these structural imbalances threatened not only insolvency, but a combination of higher taxes and cuts to critical services in order to pay pensions?

The municipal police and firefighter pension funds meet these criteria and their problems need to be clearly distinguished from those that beset the state funds. Let's review some of the key data points:

• The overall pension payments to retired police officers and firefighters are escalating at an alarming rate. In 2012, $771 million was paid to 16,054 police and fire retirees. That is a 108% increase from payments made in 2004, which totaled $371 million over just 11,730 retirees.

• In 2000, the average funding levels for the municipal public safety pension funds were 74% (police) and 77% (fire). By 2012, these average funded ratios had declined to 56% for both the police and fire funds.

• Despite the funding level declines, employer contributions have risen dramatically and will continue to increase in the years to come. In 2004, employers contributed $109 million into the firefighter pension funds and in 2012 that contribution more than doubled to $290 million. In 2004, employers paid $138 million into the police pension funds and that number more than doubled to $339 million by 2012.

*Statistics from Illinois Department of Insurance (excludes Chicago)

In the case of the police and fire systems, more money is not solving the problem. The local funds are eroding based upon a confluence of factors aligned against their success.

I concluded the following with respect to the municipal police and fire pension crisis in the March issue of the Illinois Municipal Review:

Recent pension reform efforts have been accompanied by the blame game. This unhealthy dynamic results in harsh rhetoric and bitter accusations. And it resolves nothing. An honest analysis recognizes that all parties involved with the municipal police and firefighter pension funds bear some level of responsibility for the current problems. 

In some cases, cities have not made their full actuarial contributions. Public safety unions have made the pension systems more expensive through the pursuit of higher benefits. Previous General Assemblies have sought to accommodate the public safety unions by voting to increase the benefits without providing municipal governments with revenue to offset the higher costs. Local municipal police and fire pension boards have not been able to generate the assumed rate of investment necessary to keep municipal employer contributions from increasing. 

The dramatic growth in unfunded municipal pension liabilities was created collectively. Stabilizing the funds and avoiding the undesirable consequences of inaction will require collective solutions.  

Municipal governments and local taxpayers have a necessary interest in keeping employee pensions affordable. There’s only so much revenue that can realistically be raised to fund municipal government. Our police officers and firefighters have an interest in ensuring that the pension funds that pay their retirement benefits are viable into the future. All parties should commit to fixing the problem, not the blame.

The key takeaway from this post should be that not all pension crises were created equally. The framers of the 1970 Constitution were obviously concerned about the practice of deliberate under-funding as the principle threat to the pension funds and their participants. Under-funding is not the principal cause of the erosion of the police and firefighter pension funding levels statewide. It's been a contributing factor is some instances, but certainly not the sole cause of the problem. 

It's essential to recognize that the problems besetting the police and firefighter funds are the fruits of a very poorly designed system that was never appropriately modernized. We can't fix a deeply flawed system simply by throwing more money into a sinkhole. Arguments asserting that we should simply pump more money into the police and fire systems should be understood for what they are...demands for tax increases. That would be a slap in the face to the taxpayers. We all deserve better.

Updated Polls and Trail Sightings

I'm continuing to add updated polls to the "Polling Place" page. The latest poll of the Governors race shows Rauner leading Quinn by 3 points, which is within the margin of error. The page also has an updated poll chart from Reboot Illinois and an average of the polls from Real Clear Politics. 

Getting into the spirit of the election, here's the cover of the October Illinois Municipal Review magazine. 

I had the privilege of seeing both candidates speak at our annual conference last week. The Governor spent the balance of his time talking about his record and demonstrating his familiarity with various mayors and local projects. Candidate Rauner gave what I'm told is his standard stump speech on the need to fundamentally change the state's political culture.  The reaction to Governor Quinn was receptive and polite, and he received applause following his speech. Candidate Rauner had a few lines that elicited applause from the audience during his speech. I snapped the two pictures below:

GOP Candidate Bruce Rauner at the IML Annual Conference

Governor Pat Quinn at the IML Annual Conference

What's Up With the Tribune's Latest Poll?

As a political junkie I greatly enjoy a good election cycle. This includes following and comparing polling data and methodologies. 

The Chicago Tribune released a poll on September 13 showing Democratic incumbent Pat Quinn with an 11 point lead over Republican challenger Bruce Rauner. This rather large lead for Governor Quinn goes against the grain of almost every other poll that had Rauner ahead. An exception was the Democratic Governors' Association poll that had Quinn up by 3. 

But a poll showing such a stark difference from the rest raises some questions. First and foremost, why is the result so different? It certainly appears to me that the poll is an outlier. And that's not to say that Governor Quinn won't or can't win in November, or that the polling won't oscillate back and forth over the next several weeks. But compared to other polls released around the same time, it provided a result that was, well, weird. Consider these poll results that were released in the neighborhood of the September 13 Tribune poll:

YouGov had Rauner up by 4 (September 11)

DGA had Quinn up by 3 (September 11)

WeAskAmerica had Rauner up by 8 (September 3)

Excluding the WeAskAmerica poll published over a week ago and just focusing on the more recent YouGov and DGA polls suggest that the race is probably very close. And that's why the Tribune poll showing an 11 point Quinn lead is so striking. So what's up?

First of all, most of the polls employed a "likely voter" model. The Tribune poll conducted by APC Research utilized a "registered voter" model. But it gets a little confusing. This morning I listened to the Trib's Rick Pearson discuss the poll on WGN Radio's Sunday Spin (great show). He indicated that it was based on registered voters, but then suggested that the pollster asked the registered voters if they were likely to vote. It doesn't appear that the pollster used the traditional methodologies to determine if a voter was more likely to vote, such as whether they voted in previous elections, if they knew where their polling place was, etc. If the Trib pollster was trying to narrow the universe to likely voters, they used a pretty weak approach. A lot of people will tell a pollster that they intend to vote even though they probably won't show up on election day. That's why pollsters utilize a screening process to determine who really is a likely voter based not on intent, but historical practice. If the Trib pollster used a more involved screening process, it hasn't been fully explained. Since the paper said it polled "registered voters," then that's what I'm going with. And no less than stat guru Nate Silver says that registered voter polling is suspect. 

The second major issue with the poll is that it finds a party identification breakdown similar to a Tribune poll released in the fall of 2008. This equivalency suggests that the electorate will behave as it did in 2008. This partisan breakdown was determined by asking registered voters about their party identity. Even if this partisan breakdown is accurate, the political currents in 2014 are running in the opposite direction compared to 2008. Not only was 2008 a huge Democratic year as a result of war fatigue and an historic meltdown in the financial sector, but it was punctuated by tremendous voter enthusiasm for Barack Obama in Illinois and elsewhere. 

President Obama isn't on the ballot in November and there's a growing sense that the GOP may benefit from structural and policy advantages in 2014 that will result in an electorate favorable to their candidates. Illinois Democrats are sufficiently concerned that their voters won't be as motivated to come out on election day that they are pursuing strategies to mitigate this feared apathy. These include Democratic-favored ballot initiatives, a coordinated campaign with organized labor, and attempts to change the electorate by registering hundreds of thousands of new voters and turning them out. Time will tell if these efforts are ultimately successful. 

The 2014 Governor's race is likely to be very close either way. It's true that polls are just a snapshot in time and that an eternity remains in the Illinois Governor's race. Even so, I suspect that the Tribune snapshot is the equivalent of a blurry photo for the reasons stated above. It will be interesting to see what the next major poll suggests about the state of the race. 

Do Voters Influence Politicians, Or Is It the Other Way Around?

Vox posted a story about a fascinating "chicken or egg" study on whether voters' opinions are influenced by the positions taken by their elected representatives. The study utilized a VERY small sample size (8 state legislators), but suggests that the views of voters can indeed be shifted after learning that their elected representatives hold a contrary view. From the article:

For the first study, with one legislator, Broockman and Butler find that the letters "significantly moved his constituents' opinions to be more in line with his policy positions." Voters who disagreed with the legislator but got a letter were 6.5 percent more likely to agree with him in the follow-up survey. For the second, bigger study, voters getting a letter laying out their legislator's disagreements were about 5 percent more likely to agree in the follow-up than people who got a letter without issue positions stated. 

There's reason to believe that most respondents read the letters they got. In the first study, over 50 percent of respondents getting a letter remembered getting it in a survey performed after the follow-up, compared to just 20 percent of those not getting the letter who erroneously reported receiving one. in the second study, over 60 percent of respondents said they remembered receiving a letter, and voters who got policy letters were likelier to correctly identify their legislators' positions. 

They further found that opinion change was no more likely when an extensive argument was included in the letter; the legislators aren't persuading people with reason and evidence, but with the bare fact that they're the ones holding the positions in question. And legislators didn't suffer a loss in support from constituents they didn't convince: "citizens who received letters from their legislators taking positions they had disagreed with previously evaluated their legislators no less favorably." And while responses to the letters varied for different issue areas, they didn't differ so much that the results were "driven by a small set of atypical issues."

It's surprising that the study conferred no benefit on a legislator that offered a detailed explanation as to why they hold a different view from the targeted constituents. Apparently just an indication of the contrary view was enough to either change the opinion of the voter, or at least not alienate the constituent. 

I have to wonder if the bigger dynamics at play involve (1) whether a legislator is already well-liked by the constituents for which a policy disagreement exists; and (2) whether the constituent is influenced because of their perception that the legislator is paying attention to them by sending a letter. 

As an example, the conventional wisdom is that former House Republican Majority Leader Eric Cantor lost his reelection bid because he lost touch with his constituents. I have to think that Cantor's policy views were probably shared by a majority of participating voters in his district. Even so, he lost his race in stunning fashion because of his perceived aloofness. If voters believe that an elected leader is earnest and accessible, they'll probably cut them a break even if they disagree with them on an issue or two.

I had the privilege while in grad school to attend a guest lecture by a former aid to British Prime Minister Margaret Thatcher. He offered what I thought to be sage advice when he urged my classmates and I to "win the people, not the argument." There's a lot to be said for that. 

To substantially amend Machiavelli, is it better to be liked or agreed with?