Senate District 9 Candidates on the Pension System
Find out where candidates Daniel Biss and Glenn Farkas stand on different issues.
The candidates' answers have been lightly edited.
According to the Chicago Tribune, the Illinois pension fund is underfunded by about $80 billion, which would make it the highest underfunded pension system in the country. Do you believe it is possible to save our current pension system as it stands today without decreasing benefits for retirees?
Farkas: No, we can't solve it without reducing benefits.
We are going to need to start all new employees on 401k plans that are defined benefit plans, defined contribution plans like the private sector has. I’m going to need to ask retirees to look at the cost of living adjustments and I’d recommend freezing them until we get a handle on this.
I think the cash-balance pension plan is a potential good starting point, which is a hybrid between a 401k and a traditional pension plan, we could potentially merge some people into that plan.
The number one the thing I would make sure is the politicians take the cuts first before they’ve put us in this mess … The politicians have to take the brunt of the cuts first before I could ask any public worker to make any adjustments.
Biss: Unfortunately, I don't see the math work out for us to get out of this problem without making substantial adjustment to people in the system.
We have to go after the fundamental cause of the problem, which is the state kept skipping payments for decades. We have to put a mechanism to ensure going forward the state will pay its share. For new people on the system, we have to acknowledge not only did we make promises we didn’t fund, but we also missed our estimates, we underestimated how much things would cost so we have to put a mechanism in place for new employees that shares that risk between the employee and employer, that’s why I support a cash-balance plan for new employees … Most states were unable to make (401k) plans work, and most states that have tried that have had to move back, including Nebraska, which has moved to a cash-balance plan.
Farkas: I think he’s incorrect at that because Rhode Island just moved into a plan similar to what I’m proposing, I think at the end of the day for all private-sectors workers in the room who held or hold a 401k plans, no one guarantees your retirement, no one guarantees mine or my wife’s retirement … what a pension does is put the onus on taxpayers to guarantee the returns of that fund. Nobody, no taxpayers I’ve talked to want to be on the hook for guaranteeing these retirement benefits.
Do you believe it would be possible for Illinois to increase revenues to save the pension system, as opposed to simply decreasing benefits? For example, switching from our current flax tax income system to a progressive tax rate system?
Biss: I support moving away from flat tax, I think it’s a plausible mistake for Illinois to have a constitution that mandates a flat tax, however I don’t think you can make the numbers work out to solve the pension problem with tax increases.
In terms of solving a problem without any benefit adjustment with revenue alone, I understand there’s strong constituency that wants to do that, I tell you I feel the pain and anger of people who say, ‘Look you made me a promise, you didn’t fund it, it’s your problem, go raise the taxes to go do it.' I appreciate where you are coming from, but I don’t think that would be wise for the economy of IL, I don’t think it would be fair to a ton of struggling taxpayers having trouble making ends meet. I don’t think there’s any chance that’s the best way forward and that’s not the proposal that I’m going to support. I do support a balanced approach, I support a balanced approaches to all manner of our deep fiscal problem because I think realism about all the options is, is what we never used to have, and the lack of realism is exactly what got us into this moment and just as you need to be realistic about revenue, you have to be realistic about spending and that’s what I intend to continue doing.
Farkas: He’s on the record multiple times saying he favors constitutional amended to go to a graduated income tax, just like California, New York, Hawaii, All these states with very high progressive tax. If that was the solution then all these states would be very well run but they are not. They are in same predicament we are in, sometimes even worst. So high taxes give the government more money to go spend some more.
I know he’s on the record for wanting a progressive tax code, he says he’s not for taxes, but he voted for the government tax increase last year that raises taxes up for personal income tax rate to almost 70 percent from 3 to 5, for corporate tax rates it went from 4 to 7. So I’m not sure if he’s ever met a tax-rate increase he did not like.
He can say that he is not going to be for tax increases but his party, which has been in power for the last 10 years, has been all about tax increases. It’s a knee jerk reaction to solve a problem. We don’t have a tax problem for the state to bring in $30 billion; we have a spending problem. We are going to have to look up and down the budget to find ways to cut spending in all areas. We cannot continue to tax, spend and borrow and think we can get to prosperity.
As it relates to the pension program, we are going to need a balanced approach and we are going to have to go toward that defined pension plan because it will work. It will take our liability off the back end and give our younger public-sector worker a fighting chance. As an investment person, I couldn’t tell my clients to put their money in a pension plan that’s bankrupt, I’d tell them to put them investment that’s not bankrupt.
Biss: I wish I had won my election in 2008 but unfortunately I wasn’t even a member of the General Assembly when the income tax increase went through. But I want to say a word about the progressive income. There are 43 states that have income tax of some kind, 35 of them have progressive income taxes. Like who? What’s the state with the best budget situation? North Dakota – progressive income taxes. What’s the most conservative state out there? Mississippi, Alabama – progressive income tax. This is not a right, left, more or less idea, it’s a question of common sense and understanding. If you were to go to Washington and tell them to live with a flat income tax people will laugh at you out the road.
One of the teacher pension reform proposals that has been suggested recently is to shift pension funding from the state of Illinois to the individual school districts that employ the teachers. Do you support this reform idea?
Farkas: That’s the way it should have been from day one and for all of you out there not following this, what she’s talking about is the local district pay their teachers and then the pension obligations are sent to the state to pay for.
If that’s the way it had been from day one, I don’t think we’d be in a lot of the problems we have right now because the local school districts would have had their hands tied a little bit.
You know the teacher spike in the last few years; they would have owned that salary benefit from cradle to grave. So knowing that, had it been that way from the start, yes, I would support moving it back but not until we deal with the debt problem.
They are talking about moving that back to the school district to only paying the funding going forward but this enormous $100 billion hole is still sitting there that we need to address. I wouldn’t want to put onus on taxpayers in this district until we clear up the problems that got us here in first place.
We need to look at all of the issues, the spending, the 401k, on the front end, moving up the retirement ages. We are going to need to do all of that first. I don’t want our district move first to say, ‘Yes, we’ll take it back.”
At the end of the day, even if we did move it back, the way I saw the plan written, the state would still set the benefits, so we’d have a big problem locally is if they gave us back the funding of it but then they raise benefits at the state level. I would want to do that over time, but I think we need to deal with the real issues first before we think about moving that pension system that funding back to local school districts.
Biss: If you are employer in any context besides being a state university, or community college or school district in Illinois other than Chicago Public Schools, if you are an employer, public sector, private sector, nonprofit, whatever, you are on hook to pay your employee’s retirement. Common sense, they are your employees, you help determine that cost.
We have this bizarre system in Illinois where the Chicago Public School pension funds is paid for out of CPS’ budget, but every other teacher pension and teacher’s retirement system is paid for out of general state funds. And what that allows is a situation where folks that are setting the salary for teachers, which determine the pensions, aren’t on the hook to pay the consequences.
We’ve seen the salary spiking is way more rampant in the suburbs and excerpts in down states than in Chicago. If CPS does any spiking in the salary to bump somebody’s pension up near the end of their career, who’s on the hook for it? CPS is.
It’s very clear that this pension cost issue is an opportunity to control overall cost to local taxpayers. Now, changing it is very, very, difficult, very painful and would cause disruption to the status quo, which is why I, and some of my suburban colleagues, were able to fight very hard to slow down the speed of action. It was initially going to be immediate but then it was going to be 1 percent of payroll per year then it was going to be 0.6 percent of payroll per year, and we kept on fighting where it’s now to a place where it’s 0.5 percent of payroll per year, which I believe is manageable.
Farkas: Slowing down is not an option; if anyone in here thinks their property tax is too low, please raise your hand.
We have some of highest property taxes in the nation, and if we shift this back now, even if we did that with a little bit of funding, we are not going to get it down. The property taxes are going to spike up here in this district and we are all going to see higher property taxes to pay for this. Without a tax cap, we are going to see high property taxes to pay for funding these pensions. We have to fix on the front end first before we push any money back to local districts.
Check back on Patch this week to see where the candidates stand on education, jobs, economy and Medicaid.