“Do not cross a river if it is on average four feet deep.” – Ancient proverb

Crossing a river is no small task: a mistake can mean catastrophe. Rivers are murky. Rivers flow quickly. River beds are uneven.

Illinois’ public pension funds share similar risks, including an assumption that these funds will steadily gain an expected “rate of return” each year, for the indefinite future. Currently, the expected rate of return for our state pension funds is set at 7.5%. Pensions are always supposed to be 100% funded, so the contributions made in the year of work should, decades later, be sufficient to pay the promised benefits. A higher rate of return means the money will grow faster, so you can put in less now, while a lower rate of return means more money must be deposited up front to get the same benefits down the road.

Just like a river bed, the rate of return on a pension fund can fluctuate wildly. That four-foot-deep river bed may be two feet deep across two-thirds of the river—but it’s the eight-foot-deep drop that will drown you. But on average, the river bed is still four feet.

Here’s where the analogy breaks down: rivers are fixed and can be measured with some precision. But there’s no way to measure the actual rate of return of a pension fund. An expected rate of return is a prediction of the future, a prediction of future returns in highly volatile financial markets.

This uncertainty is a primary reason that most private employers no longer offer guaranteed pensions. And many private plans have gone insolvent, paying pennies on the dollar to retirees who had been counting on those funds. The Teamsters’ Central States Pension Fund recently announced a bid to cut payments to current retirees in half (or worse) starting in July, to avoid the collapse of that fund.

Now, you may say, that 7.5% expected rate of return doesn’t sound unreasonable, so what’s the big deal? Well, up until 2014, the experts had set the expected rate at 8%. But in 2014, the pension funds lowered the rate to 7.5%. With that 0.5% reduction in expected growth of the funds, the math changed, meaning that we had not put in enough money up front, so our unfunded liability went up by billions of dollars. And the annual pension payments were immediately increased by hundreds of millions to make up the shortfall.

And, unlike a mutual fund or stock portfolio, pensions are supposed to be safe. The bankruptcy courts recently forced the City of Detroit to lower its estimated rate of return to 6.75%. The federal government requires private plans to use a 6.2% estimated rate of return. And Moody’s Investment Services relies on the safe, guaranteed nature of pensions in using a 4% estimated rate of return when calculating pension debt.

If the true future rate of return earned in the financial markets by our pension funds turns out to be closer to 6.75%, much less 4%, the consequences for your tax bill will be grave.

Right now, roughly 25% of general revenue tax dollars go to pay pensions, a large majority of it to pay off the back pension debt earned for prior years’ work, and a smaller portion to make the annual contributions for this year’s work. A majority of the debt was incurred year after year because state politicians refused to annually set aside the estimated amounts necessary to cover the pension benefits earned for each year.

But a substantial part of our pension debt is due to overly optimistic estimated rates of return. It’s a little-known fact that, even if pensions were funded at the estimated levels, we would still be tens of billions short of what we will need to pay our pension obligations. Going forward, if reality proves the “experts” wrong, and their estimated rates of return are too high, taxpayers will be on the hook for their mistakes, to the tune of billions and billions of dollars.

Everyone should have a sound retirement fund, but the question is how to get there. Should taxpayers bear the risk of guaranteeing against the swings of the private financial markets? Or should each family bear the burden of putting together a large enough amount in mutual funds, stocks, bonds, and other investments to ensure for retirement? The answers may not be easy or simple, but we won’t solve these big problems without honestly and seriously asking questions like these. The risks of drowning in the uncertainties of the future are way too high.
State Representative Peter Breen (R-Lombard) has filed legislation that would close the loophole on pension windfalls for end-of-career payments to public employees who are part of the Illinois Municipal Retirement Fund (IMRF).

Across the state, local governments are being hit with unexpected pension liability due to regular end-of-career payments, such as accrued sick and vacation time, along with other severance payments. In the Village of Lombard, which Breen represents, one such payment translated to a $12,000 boost per year in pension liability for the village. “We must root out and stop pension spiking, wherever it is found, in every government unit. Our pension liabilities are at unsustainable levels across the state, and it’s the taxpayers who are forced to pay the extra costs,” said Breen. “My HB 5684 will close the loophole in municipal pensions that has plagued towns across Illinois.”

Municipal pension spiking often occurs when longtime public employees who have accrued large balances of unused sick time and vacation time are allowed to convert those days into cash. Combined with retirement bonuses, which are also prevalent, this new income drives up the amount of final paychecks. Many such pensions are based on an employee’s best four years of employment, which is typically the last four years on the job. Today, the statutes only limit how much of the final three months of an individual’s compensation can count toward their IMRF pension—but if these one-time benefits and bonuses are paid out more than 3 months before retirement, they count toward and increase pension payments for the rest of the pensioner’s lifetime.

Through HB 5684, the IMRF Article of the Illinois Pension Code would be amended to state that any income increase that exceeds 6% during an employee’s final 12 months of employment would not be deemed as “pensionable” income. The bill allows for an exception in cases when the governing board of the municipality has separately confirmed the additional payment, by ordinance or resolution, at an open meeting that conforms to the provisions of the Open Meetings Act.
We’re just over half way through this term of the Illinois House, and all eyes are on the primary election coming up next week. Our state is still no closer to a budget. Instead, we’re taking vote after vote on measures designed by Speaker Michael Madigan to secure advantage for himself and his allies in the election this Tuesday.

In this tumultuous time for our state and country, we have to keep speaking the truth and shining a bright light on corruption and corrupt practices.

Democrats Reject Republican Attempt to Continue Working on Budget, Adjourn until April 4
On Thursday of last week, House Democrats refused Republican attempts to stay in session to work on a budget, instead adjourning the chamber until April. As business was concluding Thursday afternoon, Republicans made a motion to reconvene the next day, on Friday, so that the House could continue work on the critical issues facing the state. After several minutes of huddling, House Democrats then ruled the motion “out of order” and headed to their cars for a five week break.

We were ready to keep working, but Speaker Mike Madigan and his majority caucus forced us into this 5-week break. The people of Illinois deserve a balanced budget, honest government, and the responsible reforms necessary to return our state to economic vibrancy. It’s time to stop the games and get the job done.

Click here to watch the video of the Republican request and Democrat response. If you would like to weigh in on the issue after reading the information, please use this link to take a single-question survey. Speaker Madigan has determined that the House will return to session in Springfield on April 4.

House Democrats Advance Budget-Busting Spending Plan
Last week, House Democrats advanced yet another set of budget-busting spending bills, seeking to spend $3.7 billion on a variety of hot-button items, while only providing $454 million in revenue to pay for them. The Democrat bills were introduced and brought to the floor for votes in less than 24 hours, without any attempt at input from House Republicans or the Governor.

The Governor’s Office of Management and Budget (GOMB) indicated that these Democrat bills, House Bill 2990 and House Bill 648, would blow another hole in our state’s unbalanced budget: that means lots more money promised without any way to pay the tab. Even now, the Comptroller’s Office currently reports a backlog of unpaid bills totaling $7.2 billion, with almost 50,000 unpaid vouchers on hand.

House Committee Considers Pension Proposals
With Illinois facing increasing challenges to fund existing defined-benefit pension commitments, some of us in the House are trying to find places where we can compromise to solve our pension crisis, where unfunded pension liabilities top $110 billion.

I’ve cosponsored HB 4427, which would give vested pensioners a buyout option (into an IRA) of 75% of the estimated value of their payments. Many private pension plans have a similar provision, and this option would reduce state taxpayers’ long-term liability by 25%. The measure would also meet the constraints of the Illinois Constitution, which prohibits reduction of pension benefits. Some estimate savings of $1 billion or more per year in annual pension payments by giving pensioners an option.

Breen Challenges Democrat Representative on Lack of Accountability in Levy Mandate Bill
Last Wednesday, I led an effort on the Illinois House Floor to defeat a measure that would force Illinois residents to pay municipal property taxes, even if their municipality does not adopt a tax levy. After a spirited debate, bill sponsor Anthony DeLuca (D-Chicago Heights) withdrew HB 4434, recognizing that it did not have adequate support to pass.

During the debate I specifically identified oversight provisions lacking in the bill, stating that, “This is a bill that reduces responsibility, it reduces transparency, it risks corruption, it hurts the taxpayers.” You can watch my floor debate by clicking on the image.


DuPage County Acclaimed as Great Place to Get Start in Life
American City and County magazine named Illinois’ DuPage County as the No. 1 county in the U.S. as a home base that offers children and young adults a statistical chance to enjoy upward mobility. The findings, based upon statistics gathered by the Equality of Opportunity project operated by social economists from Harvard University, showed that children from low-income families who grow up in DuPage County are likely to earn 15.2% more than children from similar socioeconomic backgrounds who grow up in similar families elsewhere.
On Thursday, House Democrats adjourned the chamber until April by refusing Republican attempts to stay in session to continue work on a budget. As business was concluding Thursday afternoon, Representative Tom Demmer (R-Rochelle) made the Republican motion to reconvene the next day, on Friday, so that the House could continue work on the critical issues facing the state. House Democrats ruled the motion “out of order” and headed to their cars for a five week break.

“We were ready to keep working, but Speaker Mike Madigan and his majority caucus forced us into a 5-week break,” said Representative Peter Breen (R-Lombard). “The people of Illinois deserve a balanced budget, honest government, and the responsible reforms necessary to return our state to economic vibrancy. It’s time to stop the games and get the job done.”

Click here to watch the video of the Republican request and Democrat response. If you would like to weigh in on the issue after reading the information, please use this link to take a single-question survey. Speaker Madigan has determined that the House will return to session in Springfield on April 4.
Imagine you’re at the shopping mall on a Saturday afternoon. You fought through the crowds, eventually found a few nice things to buy, and you’re headed back to your car. As you approach, you see something under your windshield wiper.

Maybe another pizza coupon? An ad for driveway sealing? No, it’s a $50 city ticket! You’re a law-abiding citizen, but you missed the deadline to renew your license plates, because the state government didn’t mail you a renewal notice. Since Springfield pols can’t balance the budget, you’re out another fifty bucks.

This isn’t a fairy tale. The Village of Schaumburg recently decided to take advantage of the lack of renewal notices to make extra money off folks shopping at Woodfield Mall. Schaumburg staff attacked the parking lots of that private shopping mall, ticketing cars with reckless abandon. And they made a ton of money doing it: monthly fines from tickets are up 25%, 50%, or more.

Not to pick on the good people of Schaumburg, but theirs is the same municipal government that put a red light camera at the main entrance to Woodfield Mall, even though there was no indication that the intersection was unsafe. They made millions, but boycotts of the mall ensued, eventually shaming village officials into removing the camera.

Why do we see so many examples of this kind of “gotcha!” government?

The news is full of stories about how government is breaking down across the state, from social services to universities to pension funds. Instead of tightening their belts to match programs to the funds available to pay for them, governments turn to increasingly outrageous cash grabs. Springfield doesn’t help matters: the majority party in the House and Senate won’t even consider a balanced budget, much less the sorts of reforms that could help school districts, municipalities, and other units of government lower their costs.

For instance, did you know that the state requires universities to use soybean-based ink in all their printing? That requirement alone adds millions to the cost of our children’s educations, but it doesn’t do a thing to help those kids get good-paying jobs or become better citizens. (However, it does keep the soybean lobby checks flowing to the politicians!)

I get a lot of special interests demanding that I vote to raise taxes. But recent studies have shown that, accounting for inflation and population growth, Illinoisans pay a lot more in taxes than we did 15 years ago. In other words, even though more money goes into the system today than it has before, we’re more broke than we’ve ever been.

More money isn’t the answer, but reform. We can have the government we want and need, but we have to focus on delivering effective services to taxpayers, not on propping up bureaucracies and special interests.

On Wednesday, March 2, State Representative Peter Breen (R-Lombard) led an effort on the Illinois House Floor to defeat a measure that would force Illinois residents to pay municipal property taxes, even if their municipality does not adopt a tax levy. After a spirited debate, bill sponsor Anthony DeLuca (D-Chicago Heights) withdrew the bill, recognizing that it did not have adequate support to pass.
During the debate, Breen specifically identified oversight provisions lacking in the bill, stating that, ”This is a bill that reduces responsibility, it reduces transparency, it risks corruption, it hurts the taxpayers.” You may watch Breen’s floor debate by clicking on the image above.