The Capitol Fax Blog » Chicago’s coming “Ameren” crisis

Thursday, Jun 28, 2007

* As the deadline approaches for mass transit service cuts and fare increases, Chicago and suburban legislators are getting more and more calls from frantic constituents who are wondering how they’ll get to work. A million and a half people ride the CTA every day and lots more depend on the RTA and PACE. Needless to say, the panic levels are rising in legislative circles as more and more constituents become convinced that they hold the keys to solving this pending crisis.

Without a solution, the mass transit situation has the potential to be every bit as politically explosive for Chicago-area legislators as the Ameren rate hikes have been for Downstaters. So, while yesterday’s CTA union agreement is welcome news, it puts additional pressure on the Statehouse to come up with a real funding solution.

The agreement calls for 10,200 employees represented by 17 unions to receive 3 percent pay raises during the first three years and 3.5 percent in the final two years. The CTA has also agreed to double its pension fund contribution — from 6 percent of payroll to 12 percent to satisfy the Legislature’s demand that a pension fund now 34 percent funded reach 90 percent by 2059.

In exchange for those pay raises and a no-layoff clause, active employees will contribute 3 percent toward retiree health care and double — from 3 percent to 6 percent — their pension contribution.

Employees hired after Jan. 1, 2008, would become eligible for a full pension at age 64 instead of 55.

Illinois’ auditor general would be represented on an 11-member “pension reform trust” and on a seven-member health care trust that would sustain itself through investments and contributions so the CTA could wash its hands of the headache.

The bottom line for CTA unions is an agreement that would force bus drivers and motormen to lose money during the first year, break even in the second and finally start making money in the third year.

* And it turns out that the CTA needs far more money than previously believed…

It had been believed the CTA would need $100 million or $125 million next year to avert a crisis, but CTA President Ron Huberman on Wednesday put the figure at about $200 million to cover health-care and pension expenses and other operating-cost increases.

* Mayor Daley tossed the ball in Springfield’s court yesterday…

“Now it’s time for the governor and the General Assembly to follow through.”

* The governor supports giving the CTA $100 million, which it now turns out will only meet half the need.

The problem with Blagojevich’s plan is that it uses precious state dollars and would only send cash to the CTA, while mass transit advocates are pushing a proposal that would impose a tiny quarter percent sales tax in the areas served by the CTA and the RTA and a real estate transfer tax in Chicago. That proposal would generate far more money over many more years and would help solve the system’s structural problems. But Blagojevich has promised to veto the legislation if it ever reaches his desk…

House Majority Leader Barbara Flynn Currie (D-Chicago) said she doesn’t want to see the proposal for a quarter-cent increase in the regional sales tax called for a vote unless legislative leaders can persuade Blagojevich to not veto it.

“People are not going to want to be on the line for the bill if it isn’t going to happen,” Currie said.

- posted by Rich Miller

15 Comments

- Bill - Thursday, Jun 28, 07 @ 9:09 am:
The constituents are right. They do hold the key. Quit fooling around. Raise taxes and support the level of services that the Illinois public demands. The employees have done more than their part. These types of concessions are unheard of. There is no excuse for allowing this situation to fester any further.

- fed up - Thursday, Jun 28, 07 @ 9:18 am:
I never thought bill wold say a semiresonable thing but the tax increase for transportation is needed. I still believe the CTA has far to many middle managers and can be run much more efficantly more needs to be done to fix the structural problems in the cta RTA and metra like merging them into one agency and getting rid of some burecrates.

- GA Watcher - Thursday, Jun 28, 07 @ 9:30 am:
What’s up, Bill? Not standing behind your man, Milorad, and his pledge to veto any general tax increases?

- Commonsense in Illinois - Thursday, Jun 28, 07 @ 9:44 am:
I commented on this story yesterday, but it was buried pretty deep. I’m not sure it’s a great idea to put the Auditor General on the Pension Board. It sets up an immediate conflict of interest if the General Assembly, the only entity to whom the General reports, orders an audit of the CTA. As far as the tax goes, it’s either that or a pretty sizable fare increase…choose wisely (as the knight said in the Indiana Jones movie).

- green eyeshade - Thursday, Jun 28, 07 @ 9:58 am:
Actually, Rich, every cta and rta budget presentation has included the exploding pension costs ($270mm in 2009) as part of the shortfall. The 200m number is included in the sales tax/rta reform bill passed out of the House mass transit committee. Since the union deal is over five years, it has to address the pension shortfall

- Leroy - Thursday, Jun 28, 07 @ 10:05 am:
The City of Chicago is the biggest (by far) beneficiary of the CTA - via higher property taxes due to higher property values, and due to higher sales taxes.

Make the city pay more than the $3 million a year it is currently giving the CTA. The city probably makes $3 million a week in tax revenue because of the CTA.

- Captain America - Thursday, Jun 28, 07 @ 10:24 am:
I agree completely with Rich’s Ameren/mass transit analogy.

Julie Hamos came up with a modest sales tax solution that with bipartian support that resolves the metropolitan transit funding crisis. Blago has been and is the only impediment to gerring this done.

Rod’s really behind the eight ball on the mass transit issue, unlike the Ameren situation, in which he has been passive and become irrelevant.

- Tom - Thursday, Jun 28, 07 @ 10:34 am:
Has Hamos done a roll call? I bet there aren’t 45 votes for the sales tax increase. ROd isn’t coming off it. It would be political suicide since he has repeated his no tax stance 100’s of times. Hamos should come up with something else. Otherwise it’s just uber liberal legislator getting people’s hopes up for nothing.

- plutocrat03 - Thursday, Jun 28, 07 @ 11:09 am:
The defined benefit pension system is the ruination of any governmental entity.

The root cause is that many years ago, governmental employees were truly poorly compensated. In order to get employees, the current, overly generous pension systems were developed. Independently, salaries were raised to the point where in many cases governmental compensation substantially exceeds private compensation. (I know of a specific entity where the position of receptionist commands a starting salary of more than 30K with full benefits.) Overly generous pay along with spectacular pensions is a dangerous mixture when compiling a budget.

When you layer on the cost of the pensions, starting at age 55, the ‘average’ state employee has the interest income of more than $1,000,000 at their disposal. (Just ask your friendly annuity salesman how much a policy yielding the pension income would cost, including annual cola increases.) I realize that there is an employee contribution to the pension plan, but that amount of money would not provide 20% of the resources needed deliver the monthly benefit.

The days of the defined benefit pension plan are going to end soon because it is unrealistic to provide this type of costly benefit to the state workers while those who pay the taxes have no such benefit of their own.

- patient advocate - Thursday, Jun 28, 07 @ 11:38 am:
I respectfully disagree with the last post regarding defined benefit pensions. The IMRF pension system is a defined benefit system and is fully funded, because employers made the scheduled payments they were supposed to make. It is not in any sort of crisis and provides good value for employers, workers, and the public.

The state pension systems are in a hole because over many years political leaders failed to provide for the employer contribution. They are not in a hole because benefits are excessive. The average retired state employee has a pension of about $18,000.

A defined contribution system for state employees was attempted in Nebraska. It was dropped because participants earned a poor return on investment when compared to funds put in the state’s defined benefit pension fund.

The fact that defined contribution pensions have become dominant in the private sector is not a good reason for converting the public pensions. Defined contribution pensions are part of a general risk shift from employers to workers that is going to leave many middle class families much worse off when they face retirement.

- plutocrat03 - Thursday, Jun 28, 07 @ 12:38 pm:
Part of the reason the retirement of the middle class it threatened it the insatiable requirements of the government. Property taxes (dollars, not rates) have been rising at more than 7% per year. That means the Property tax will DOUBLE in 10 years. I have a neighbor who pays half of his social security in property taxes. Why should he be subsidising a system where 100K pensions are common. Seems like he needs the subsidy.

Defined benefit has become dominant in the public sector because they rely on the infinite pocketbook of the taxpayer. After all these years, perhaps it it no longer infinite.

The private sector has long recognized that the financial exposure of a defined benefit plan is unquantifiable and as such can kill an organization.

Of course a governmental organization does not fear dissolution if its legacy costs are excessive

- patient advocate - Thursday, Jun 28, 07 @ 2:09 pm:
Yes, property taxes are too high. That’s because this state has an unfair and regressive system of taxation that needs to be fixed.

However, cutting government will not make the middle class more secure. The middle class depends on Social Security for retirement income, Medicare for retiree health care, Medicaid for nursing home care, etc. The fact is, government is central to the retirement security of the middle class.

- plutocrat03 - Thursday, Jun 28, 07 @ 6:06 pm:
I must respectfully disagree. I do not want to eliminate essential services, I want to improve the efficiency of how the services are delivered.

Cutting the fat out of the government while still delivering the necessary services should be the goal. The changes in productivity that the private sector has achieved need to be put into place in the public sector.

This means increase departmental functions to that of the private sector or the jobs get outsourced.

Unfortunately the managers who are in place do not know how to manage their workloads in any other way than they have. They have no incentive to do better.

- Peoria Pete - Thursday, Jun 28, 07 @ 6:29 pm:
FYI- property tax rates have not gone up much in any location in the state. The tax bill goes up because of increases in the property value. Folks like plotocrat want to have their cake and eat it too- enjoy rising home values but not pay the taxes associated with their increased wealth. As far as “cutting the fat” goes, that almost always means the person making the comment knows next-to-nothing about any government agency or program and where the money goes. The answer, as always, is “outsourcing”, which means pay Republicans to do the work.

- Jerry - Friday, Jun 29, 07 @ 8:59 am:
LeRoy - the city provides a lot in the way of services for the CTA, free of charge. Chicago police are primarily responsible for security, unlike METRA, which pays for its own police force. The City has paid for the subway station rehabs that are ongoing downtown.

And when are the suburbs going to step up and pay for Metra? They benefit from Metra in huge ways. People couldn’t live that far from downtown without reliable transit. Maybe its time for Naperville and Aurora and Joliet and Crystal Lake and Arlington Heights and Palatine and all those other towns to step up and pay for at least as much as the city pays for in regards to the CTA?

And I generally find the privatization argument to be so off base its hilarious. For starters, why the assumption that the private sector is automatically more efficient? I work for a big corporation. I can tell you that there are huge inefficiencies everywhere. Second, when you privatize, you automatically take at least 10% of the funding and lop it off. There’s gotta be a profit there somewhere, which isn’t the objective of government. Services generally suffer due to cost cutting when a government function is privatized. And, in some cases, costs soar under privatization. Look at military privatization. The Feds are paying mercenaries $300 to $1000 a day in Iraq. Our soldiers don’t get paid that much. And, finally, privatization creates even bigger opportunities for corruption. Crony capitalism and all that. You republicans who hate Blago, do you really want to give him more opportunities to hand out fat contracts to his buddies to run state agencies? Some functions may be more efficient to privatize, but there is a limit.

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