When we first moved to Arlington Heights, 23 1/2 years ago, we lived a mere three blocks away from Arlington Park, the race track. In fact, the neighborhood itself was called Arlington Park, and was platted at the same time as the racetrack, which is just a few years shy of its 100th birthday. (No houses were actually built until after the war, as only speculators bought lots, but that’s your obscure trivia for the day.) Shortly after we moved in, the racetrack shut down for two years — Wikipedia states, unfootnoted, this was “due to contract disputes,” but the disputes were not with some sort of union but with the state, as management had said they simply couldn’t run the track at a profit, and the state eventually promised that some cash from casino profits would go to enhanced purses — or maybe that happened later; I’m not sure. In any case, there were a few concerts held there in the meantime, and there was talk of auto racing or other uses for the property before racing restarted.
Now Churchill Downs, the owner, has announced they are selling the track. There were suggestions initially that this was just a bargaining position, an attempt to get the state to reduce its taxes, and there were likewise hopes that other investors could purchase the track and keep the tradition of racing alive. Perhaps it is still possible to make a profit, in terms of operating costs, at the racetrack, but, presumably, such a group of investors wouldn’t be able to top bids of those hoping to put the 350 acre property to more lucrative uses. Is this a matter of the state unjustly making racetracks unprofitable by expanding casino gambling excessively? Is this, rather, a matter of the state simply relenting on its prior restrictions on gambling? Or were the state’s taxes on the racetrack indeed unreasonably high and the difference between profitability and loss, in an era when the number of people who visit the racetrack and the sums of money they spend out of enjoyment of that form of entertainment isn’t supplemented by people who simply want to gamble in any fashion available? I don’t really know, but in any case, there was no discussion of whether regulations needed re-writing, and we seem to be past that point.
But let’s consider the question: what if they are serious?
On the local Facebook pages, some of my fellow Arlington Heights-ians are getting excited about the prospect. They imagine it would be an engine of prosperity, and bring us a magnificent new entertainment showpiece — but really? 8 games a year and a few concerts are not going to provide enough predictable revenue for restaurants, hotels, etc. It doesn’t make sense. To be sure, my fellow Arlington Heights-ians have plenty of other fantasies as well, dreaming of a nature preserve or a botanic garden or a museum, or other uses that require that some billionaire be interested in buying the property just to fritter away money rather than to make a profit off of the investment, but none of this is realistic.
At the same time, well, Soldier Field, or at least its shell, has a 100 year old-ish history, but the Bears have only played there since 1971. This is not some unbreakable bond. Is an infrequently-used stadium surrounded by a sea of parking lots really the best use for Chicago’s lakefront? If it isn’t, Arlington Park is probably as practical a place to locate a new stadium as any, with its proximity to Route 53 and the Metra station — so, given the principle that a city has no business getting in the way of a business transaction if it doesn’t do harm to the community, I don’t see what grounds Mayor Hayes and the city would have for blocking the transaction.
But on the third hand — again bearing in mind that the rebuild from 2002 was $600 million funded by the city, rationalized as money to be paid back by out-of-towners through hotel taxes and the like — I am tremendously leery that the mayor and the trustees will be able to resist the lure of fame, the promise of something that puts Arlington Heights on the map, some consultants’ calculation of enormous sums of money to come in the future, and rationalize tax breaks, bonds the city would be on the hook for, tax hikes crafted in a way that’s meant to hit only out-of-towners (but it never really does), and so on. After all, consider what happened to Bridgeview, which thought it would create a moneymaker by building a stadium for the Chicago Fire soccer team at a cost of $100 million; instead, residents’ tax bills had tripled, as of 2012 reporting, with the expectation that the costs would grow even more.
And it’s easy to say, “oh, Arlington Heights would never be so foolish,” and, indeed, Bridgeview’s decision was as much about corruption as foolishness; as the Trib reported, “Once Bridgeview started borrowing the cash, millions flowed to those who contribute to political funds controlled by town leaders.” Surely Arlington Heights isn’t corrupt!
But are we really so protected from this sort of bad decision-making? If the Bears are serious, and if they have made an offer to Churchill Downs that beats their alternatives, and if the Bears condition that offer on tax breaks designed in such a way to allow promoters to claim they “pay for themselves,” then Hayes and the trustees may find it hard to resist the temptation of that national name recognition, especially in their pursuit of something “special” rather than a generic mixed-use development or, heaven forfend, a commercial or (light) industrial use instead.
Which means I’d just as soon not take that chance.
https://commons.wikimedia.org/wiki/File:Chicago_Bears.jpg; Mike Morbeck, CC BY-SA 2.0 <https://creativecommons.org/licenses/by-sa/2.0>, via Wikimedia Commons
An elected school board, it would appear, is headed for Chicago. As Capitol Fax reports, the Illinois House voted for the bill on Wednesday and passed it to Pritzker to sign. This bill would create a 20 seat bill, initially split between mayoral appointees and elected members, with a phase-in to a fully-elected board and a board president elected by the entire city.
Boards members would be elected from individual districts rather than at-large, which the bill’s supporters claim would help ensure that the candidates are people involved in the community rather than outsiders or special-interest-supported people (and in particular counter claims that the school board will be union-dominated in this way), but each board member would represent about 135,000 people, which is a number that’s far higher than that threshold (whatever it is) at which people are elected by being known in their community vs. being elected by gathering the funds for mailers. For reference, each state House representative represents about 110,000 people, and no one imagines they are elected by “communities” who choose that one person who most closely represents their concerns due to intimate knowledge of them. The reality is that when the Democrats were building their maps, they openly stated that their view of the election was “party first” — here’s Stephanie Kifowit of Oswego, per Capitol Fax: “The party is what connects with voters, represents the voters and therefore gets elected by the voters. That is the true essence of being an elected official.” And here, too, the General Assembly would draw those maps, presumably based similarly on, perhaps not partisan geographies, but concentrations of various ethnic minority groups. How precisely this all plays out — whether there are factions, parties, and slates even in a nominally non-partisan election, and how much power the board president has and which faction has the power to win that election, is yet to be seen, but in any case, the notion of a community sending as its representative a dedicated parent known and cherished by all, is a bit of a fantasy.
But nonetheless, supporters say that it’s a matter of having “an elected representative school board that is accountable to us,” according to Rep. Delia Ramirez of Chicago and a move towards “providing democracy and voice to students and their families,” according to the CTU’s statement.
Is it really?
Does the current school board structure lack democracy?
Not at all.
You’d think the Chicago Public Schools are run by outsiders, or by some sort of dictator, or maybe a billionaire or two has seized control. But in fact, it is the elected mayor of the city of Chicago who, at present, controls the schools, who has ultimate authority over key decisions such as union contract negotiations and the recent union negotiations over school reopening processes. And, frankly, that’s as it should be.
Schools, after all, do not exist in a vacuum. While they set their property tax revenues independently (more or less), the level of property tax levied is part of a larger picture, and schools cannot simply boost their revenues endlessly and expect the city to moderate its taxes to keep the overall tax burden in check. And at the same time, especially in a city like Chicago, schools and other governmental bodies work together to provide services: should schools be a source of healthcare for students? What about mental health treatment or referrals? Referral for other sorts of social services? Finally, there are aspects of CPS expenses which are funded by the city. (Don’t ask me for the details.) Especially when enhanced social services has been such a key part of Lightfoot’s promises to the community, it makes far more sense for these sorts of decisions are made by a single governmental body, rather than setting up clashes between the mayor and the board president.
So, yes, suburbs have elected school boards. But that’s more of a historical anomaly, due to the fact that school district borders do not generally pair with city borders, and that even unincorporated areas have school districts. And (yes, speaking from experience) an elected school board does not ensure community representation; all too often, it is the unions which, through their activism and their money, ensure their candidates win their seats. This is not a model to follow for a city where it is an uphill battle to ensure that poor students have a level of education that enables them to improve their lot in life.
school bus, public domain, https://www.maxpixel.net/Bus-Vehicle-Education-Transport-School-Bus-School-4406479
Originally published at Forbes.com on June 7, 2021
Earlier today, the FDA gave its approval to a new Alzheimer’s medication, the first to be approved in nearly 20 years: aducanumab, given the brand name Aduhelm. The wife of one patient, cited in the New York TimesNYT-1.4% credited it with slowing disease progression “enough to allow him to participate in tasks like choosing an assisted-living facility.” Another, cited at Sky News, said it “changed my life.” A third, at Stat News, described “improvements in his cognition and ability to focus, he said, which has been massively positive for his family.”
But the reality is that the relevant studies submitted to the FDA are troubling. As described at the Times (above, as well as here) and at Stat News, and in a commentary piece by experts at the Times, the drug’s initial trials were deemed a failure. They were halted in March 2019, but afterwards, the company, BiogenBIIB0.0%, analyzed the data and announced that one of the trials showed evidence of effectiveness. Because they only submitted this one effective study, rather than the two the FDA usually requires, they will be required to conduct additional studies — though it seems unlikely they would be able to recruit particularly many patients if the drug is already on the market, and study participants wouldn’t know if they have the drug or a placebo. What’s more, it is simply not appropriate, from a statistical analysis perspective, to cherry-pick studies, and rationalize reasons why the studies showing an effect are “good” and the ones showing no difference are not. As one expert, Dr. G. Caleb Alexander from the Johns Hopkins Bloomberg School of Public Health, explained at the Times,
“Biogen’s interpretation of data using after-the-fact analyses was ‘like the Texas sharpshooter fallacy — the idea that the sharpshooter shoots up a barn and then goes and draws a bull’s-eye around the cluster of holes that he likes.’”
What’s more, the FDA used a special process called accelerated approval, “using a regulatory pathway that lets the agency accept different types of evidence in areas where patients lack options,” as described at Bloomberg.
And this approval comes despite the latest scientific research calling into question the very theoretical explanation for how it might work. Aduhelm removes the amyloid brain plaques long believed to be the cause of Alzheimer’s. But this explanation has been never been proven, and, in fact, according to other researchers, “almost 40% of patients with dementia do not have amyloid plaques in their brains while many people who die with normal cognition do have them.”
And there is real harm to this development. In the first place, this treatment is not without side effects, including brain swelling. In the second place, the list price for the medication is expected to be $56,000 per year, not including the cost of brain scans used to assess eligibility. Because it’s an injection administered at a doctor’s office, rather than a pill, it’s covered under Medicare Part B — and, yes, while the Biden administration pledges to cut the cost of drugs through “negotiation,” existing Medicare Part D rules tie insurer’s hands with a long list of drugs that must be covered, limiting negotiating power.
But we cannot even begin to travel the path towards lowering the cost of medications and of Medicare spending, generally, if that path includes covering drugs with benefits that may be more mirage than real. To be sure, the FDA’s mission is not to evaluate cost-effectiveness of drugs, but there is no other agency with this role in the United States, and the FDA’s bend-the-rules approval suggests that anyone who truly dares suggest that the path towards lowered Medicare costs must necessarily include a more skeptical eye and greater demands of proof of effectiveness, will struggle to find a receptive audience.
December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.
Originally published at Forbes.com on June 7, 2021
The Illinois legislature ended its regular legislative session on May 31, in a flurry of legislation passed late into the night. One of those bills was a set of changes to the 30% funded pension plan of the Chicago Park District. Were these changes long-over due reforms, or just another in the long line of legislative failures? It’s time for another edition of “more that you ever wanted to know about an underfunded public pension plan,” because this plan illustrates a number of actuarial lessons.
To start with the basics, the Chicago Park District is a separate entity than the city of Chicago, although its commissioners are appointed by the mayor. Its liabilities are not included in the city’s accounting; if they were it would be a small sliver, only 3%. But that’s still over $800 million in debt.
Some history
The Chicago Park District pension, as with the other city pensions, has its benefit provisions fixed by state law. In addition, also by state law, it has a dedicated property tax levy sufficient to contribute to its pension 110% of employee contributions, which themselves are set at 9% of pay. Just as was the case for other state and local pensions, legislators created a Tier 2 pension benefit for those hired after 2010. And just as there were reductions to other state and state-legislated pensions for Tier 1 workers and retirees, the same was true here: regarding COLA, the retirement age, and disability benefits, as well as an increase to the required employee contribution, which the court struck down in 2018. (This was later than the ruling for other state and city pensions, because the reform legislation was passed later and park district workers waited until the court decision on the other reforms was finalized before filing their lawsuit.)
That reform legislation also contained changes to pension funding. However, unlike the other plans, those changes did not set a funding target, neither using the public-pension concept of Actuarially Determined Contribution, nor the approach of other Illinois pensions, setting a target date 30, 40, or 50 years into the future and setting contributions as that percent of payroll that would reach full (or mostly-full) funding at that date. Instead, the law merely prescribed new multipliers, in which the district would have to pay 2.9 times employee contributions until the plan was sufficiently funded.
In any case, that new funding requirement was lost when the reform law was struck down, and the plan has been on a path to insolvency in 2027 since then.
Some deeper history
In many respects, the history of this plan is similar to the Municipal Employees’ pension. In both cases, this woeful level of debt was not always so. As recently as 2001, according to actuarial reports, the plan was essentially fully funded.
Funding history of Chicago Park District
own work
This chart looks very similar to that of my 2019 Municipal Employees’ pension analysis, in which the early 2000s full funding is actually a peak after a steady climb from 45% in the early 70s. In that case, the path to full funding was explained in part by an increase in the funding valuation interest rate from 5% to 8%, and likely as well not just increases in interest rates but a shift to equities from a prior traditional fixed-income investment strategy. In the case of the Park District, older reports are not available online, so we don’t know whether the same pattern held true, and whether that near-100% funding level was a consistent one in the past or a one-time aberration due to the confluence of favorable investments and demographics.
In any case, it’s been downhill since then. What happened?
The easy answer is that the city did not make its Actuarially Required Contributions, or Actuarially Determined Contributions — the label changed in 2014 to reflect that this is merely a standardized method of calculating contributions that amortizes debt over a fixed number of years, not an amount required by law. By the time the city started making the temporarily-higher contributions as prescribed by the reform law, it was too late.
ARC/ADC vs. actual contributions, Chicago Park District
Own work
Pension plans, of course, grow in liabilities regardless of what the law says should happen regarding contributions. In fact, here’s what’s happened over the past 20 years:
Park District pension assets and liabilities, 1997 – 2019.
own work
Believe it or not, this twenty-year doubling of the liability is actually less steep than for the municipal plan, indicating that the bonanza of benefit provision increases in the latter plan did not take place here to the same degree.
But, again, the actuarial math remains unforgiving.
And thus we have Lesson 1:
A pension plan which promises guaranteed benefits to its recipients must be willing to make all prescribed contributions. There is no getting around this math. A plan which is not firmly committed to these contributions, however much they may swing due to market changes and demographics, or which does not have the ability to make this commitment, simply must have some flexibility in its plan design.
This is made all the worse with a disproportion of retirees. That’s true with multiemployer pensions, and that’s true with public pensions, whether that’s due to a generous early retirement age or a declining population. In the case of the Chicago park district, there are virtually identical numbers of retirees/beneficiaries and active workers.
Consider, too, this rather dramatic change in fortunes:
The 2013 pension reform’s increased multipliers did not provide any guarantees that the pension would reach full funding. However, in 2014 and 2015, actuaries calculated that the plan would reach 90% funding in 2048. But in 2016, it was a different story. At that time, the court had ordered that one of the reform changes, reductions to COLA, be un-done, even though the entirety of the law was not yet struck down. This change in itself was enough to set the pension on a path towards insolvency, declining to a 6% funded status in the last year of the report’s projection, in 2055.
And, again, to say that public pensions must be funded seems fairly obvious, but, regrettably, some people who hold themselves out as experts and gain attention as such, still manage to claim the opposite, that it’s acceptable to leave public pensions un- or under-funded as long as they can be deemed “sustainable,” with future pension payments projected to be a tolerable level of the state or local budget. That’s the claim made by Brookings scholars James Lenney, Byron Lutz, Finn Schuele, and Louise Sheiner, which has been picked up by such media as Reuters and MarketWatch.
But the speed with which a public pension can find itself in such a serious hole means that it simply is not reasonable to shrug off debts as tolerable as long as a projection determines it to be so under ideal circumstances.
And that’s not the only issue. Here’s lesson 2: a pension plan is not sustainable without proper governance and actuarial analysis.
Let’s revisit that 1.1 multiplier: this was the property tax levy prescribed by the Illinois state legislature. But the Chicago Park District was never restricted to only this contribution level. At any point, the city could have chosen to use its operating budget for higher contributions, and, in fact, in fairness, the city has done so at times. Even after the legislative mandates were ended, in 2019, the park district contributed an extra $13.1 million beyond the designated property tax levy, and in 2020, the park district had budgeted a supplemental contribution of $20.6 million. Pension funding was also an issue in a narrowly-averted park district union strike in 2019, though the specifics were never made public, except with the implication that the district was constrained in the amount of increases it could offer due to its need to fund the pension.
But at the same time, in 2004 and 2005, the Illinois state legislature authorized the park district to cut back its pension contributions, siphoning off $5 million in each year from the dedicated tax levy to ongoing operating expenses. (”Parks ‘06 budget raises flag,” Chicago Tribune, Dec. 1, 2005).
Can any local entity be trusted to fund its pension plan, when other groups are clamoring for money right now, pension benefits must be paid in the future, and the risks of population decline or other issues feel so intangible?
At the same time, the legislature’s reform attempts repeatedly fall short.
Consider, again, the Tier 2 reform, in which state and local pensions in Illinois provide lower benefits for those participants hired after 2010. I’ve discussed in the past the issues facing the Illinois Teachers’ Retirement System, in which the Tier 2 changes pared away benefits so much that the state likely faces a lawsuit in the future for failing to provide benefits even at the level of Social Security itself for some teachers.
For the Chicago Park District, the Tier 2 benefits are, for the workers as a total group and based on all the plan assumptions, pretty much equal to the contributions the workers pay. The sole benefit those workers receive is due to the guaranteed nature of the benefit, in the form of, basically, a guaranteed 7.25% investment. But benefits are highly unequal; because all workers must have 10 years of service to receive Tier 2 benefits, based on the plan’s valuation assumptions, only about 30% of Tier 2 workers will ever collect a retirement benefit at all. In fact, turnover in the first few years is so high that even for Tier 1 workers, nearly half aren’t eligible for retirement benefits — and in either case, all they get back is their employee contributions without even earning any interest on them.
No actuary would have designed a plan like this. And no private-sector plan would be legally allowed to have such a strict vesting requirement as 10 years; ERISA requires the private-sector DB plans vest after 5 years, and 401(k)s after 3 years.
And now, finally, we get to the last-minute legislative changes, with the legislative text filed on the 19th, passed by the State Senate on the 27th, and passed by the State House on the 31st, the last day of the session. There are three major provisions: a new funding schedule, authorization of pension bonds, and a new Tier 3 group of participants. None of these appear to have been based on actuarial analysis (inquiries to the Pension Board and to the office of sponsoring state senator Robert Martwick were not responded to).
Most egregiously, the Tier 3 benefit simply increases employee contributions by 2 percentage points, from 9% to 11%, and reduces the retirement age two years, from 67 to 65. As it happens, this is similar to the Tier 3 for the Chicago Municipal Employees’ pension, but there are two key differences: first, employees in the latter system only pay contributions at this higher rate until funded status improves, and, second, employees are guaranteed to pay a contribution rate that is no higher than the normal cost (annual benefit accrual) rate, so that they are not obliged to subsidize other employees. This new Tier 3 has no such provisions, and it is wholly unknown whether new employees will benefit or merely subsidize the system.
Second, the plan provides for a new contribution schedule: the amounts necessary to reach 100% funding in the year 2058. For the years 2021, 2022, and 2023 (in each case, paid a year later), there is a “ramp” in which only 1/4, 1/2, and 3/4 of the amount otherwise due must be paid. In addition, not later than November 1, 2021, another $40 million must be paid, though the law specifies that this sum “shall not decrease the amount of the employer contributions required under the other provisions of this Article.” (Does that mean that the projected employer contributions to 2058 must be done as if this $40 million didn’t exist?) This, it turns out, is a lot of money — approximately the equivalent of 60% of payroll or 25% of the total budget (making some estimates based on valuation data). It is the inevitable consequence of past failures to fund and of poor plan design — but I wonder how many of the legislators who cast their votes truly knew what they were voting for.
And, finally, the bill authorizes pension obligation bonds, in the amount of $250 million in total, or $75 million in any one year, and, like the additional $40 million in 2021, the law specifies that “Any bond issuances under this subsection are intended to decrease the unfunded liability of the pension fund and shall not decrease the amount of the employer contributions required in any given year under Section 12-149 of the Illinois Pension Code.” Does this mean that the park district would be required to make contributions on a schedule as if the bonds didn’t exist, so that they would accelerate the funded status of the plan to a point earlier than 2058, while being paid off outside the plan? It is again wholly unclear, and this legislation was passed without any discussion on how these pension bonds would actually work.
This is not how to pass pension legislation. Regardless of whether it’s the $230 billion in liability of the five Illinois state systems ($137 billion unfunded) or the comparatively small $1.2 billion in liability here, no such legislation should be passed without actuarial analysis laying out the impact of the changes, and without making this available to the public.
December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.
So why aren’t our elected officials, and why aren’t Americans themselves, more concerned?
When it comes down to it, I’ll suggest to readers that they don’t really believe that it matters. And with the Biden administration’s 2022 budget proposal comes a fairly strong indication that this is their point of view as well, that they expect, when the Trust Fund well comes dry, to simply tap general federal revenues for the necessary funds, in exactly the same manner as is done for Parts B (doctors) and D (drugs).
Here’s the key sentence:
“The President supports providing Americans with additional, lower-cost coverage choices by: creating a public option that would be available through the ACA marketplaces; and giving people age 60 and older the option to enroll in the Medicare program with the same premiums and benefits as current beneficiaries, but with financing separate from the Medicare Trust Fund.”
To be sure, this is more aspirational than concrete, and wholly lacks a cost estimate. But previous proposals from Biden or other Democrats had been unclear about the nature of the proposal and its financing, with various iterations suggesting that the near-retirees would pay “at cost,” benefitting from Obamacare subsidies as well as the lower cost of a buy-in, relative to private insurance, due to the low provider reimbursement rates fixed by Medicare.
This single sentence makes it clear that’s not the case: the only premiums paid by Medicare recipients are partial-cost payments for Parts B and D. For Part B, this is 25% of the cost for most retirees; for those with income above $85,000/$170,000 single/married, premiums are higher, reaching as much as 85% of the total cost for the highest earners. For Part D, the premium is set to cover 25.5% of the standard drug benefit, plus any extra costs charged by particular private providers for enhanced benefit levels, and an extra flat charge for higher earners. The remaining cost, 75% of Part B and 74.5% of Part D, is funded by the federal government through its general revenues.
To declare that Medicare Parts B and D will be funded from general revenues for individuals ages 60 – 64, is simply to expand existing government-funded benefits.
To provide Medicare Part A, premium-free, to those ages 60 – 64, likewise funded from general revenues, is to create a path, whether intended or not, towards the funding of Part A from general revenues, for everyone, to the extent that the dedicated FICA revenues fall short. It is simply inconceivable that Congress could establish a system in which hospital charges are handled differently for the two groups of ages 60 – 64 and 65+, and apply a cap or alternate reimbursement rates for the second group. The only way this proposal makes sense is if is paired with a plan, or, less concretely, at least an intention, generally speaking, to meet future shortfalls in Part A, with general tax revenues, rather than any more elaborate cost-control and dedicated tax revenues approach.
And that’s not necessarily a bad thing. Given the complexity of Medicare funding as it stands, and the intertwining of Medicare expenditures with ordinary public health spending, perhaps the entire concept of a Trust Fund and fixed, dedicated, funding for one, but only one, part of Medicare, doesn’t really continue to make sense. (For example, the fact that it is Medicare that funds the hospital residency system for the training of new doctors, and that there is a cap on the numbers of residencies, may be contributing to a shortage of physicians. Does this make sense?) It will continue to be crucial that the government find a way to pay the medical costs of the elderly in a manner that maximizes their well-being while being financially prudent and responsible, but that does not necessarily mean that the artificial construct of a “Trust Fund” should be an ongoing part of this effort.
December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.
“The strain of longer lives and low fertility, leading to fewer workers and more retirees, threatens to upend how societies are organized — around the notion that a surplus of young people will drive economies and help pay for the old. It may also require a reconceptualization of family and nation. Imagine entire regions where everyone is 70 or older. Imagine governments laying out huge bonuses for immigrants and mothers with lots of children. Imagine a gig economy filled with grandparents and Super Bowl ads promoting procreation.”
This is not just a matter of those countries with historically low birth rates, like Japan or Italy: “Even in countries long associated with rapid growth, such as India and Mexico, birthrates are falling toward, or are already below, the replacement rate of 2.1 children per family.”
And the consequences are not merely a matter of closed maternity wards, kindergartens and schools converted to nursing homes, or universities competing for students instead of vice-versa. Instead, scholars and researchers are asking questions such as these:
How will the need to provide financial support as well as medical and personal care to an increasing proportion of the population affect a country’s economy?
How will these shifting needs, and the shrinking proportion of the population in the labor force, affect the country’s ability to function, purely from a labor market perspective?
What less quantifiable impacts will a greying population have on a country’s vitality and prosperity?
Some of this is a simple matter of math. The World Bank provides old-age dependency ratio projections through the year 2050, based on consensus assumptions regarding future fertility and mortality rates. In 2010, the ratio for the US stood at about 20 oldsters (age 65 and above) per 100 working-age people (ages 15 to 64); in fact, this ratio had been more or less level throughout the 90s and aughts as well, but then it began to climb. In 2020, the ratio stood at 26. In 2038, it’s forecast to hit 35, at which point it more-or-less levels off again.
(To be sure, the standard population forecasts at the United Nations from which this data appears to be derived, are based on assumptions around fertility rates which may not, or may no longer, be reasonable, in particular for the United States, where the calculations, as of 2019, are based on a fertility rate of 1.78 children per women, projected to increase gradually, to 1.80 in 2030 and 1.82 beginning in 2065. The most recent actual data is a fertility rate of 1.64 for the year 2020 (that is, with only a small impact of Covid 19 and generally reflecting longer-term declines); while these low rates have been explained as only temporary and artificial due to a calculation method that uses old and no-longer-valid expectations of childbearing ages, recent calculations at Brookings project a longer-term TFR only recovering up to 1.77 children per woman, using “moderate” assumptions, but potentially declining to as low as 1.44 if using more conservative assumptions. For comparison, the UN forecasts that fertility rates for Germany will recover from 1.61 now to 1.71 in 2050, for Italy from 1.30 to 1.51, for Japan from 1.37 to 1.57, and for Korea from 1.08 to 1.44.)
Worry 1: finances
This math is daunting, to be sure. But in the year 2020, the old-age dependency ratio for Germany already stood at 33, almost as great as our projected “doom” scenario. And in Japan, that ratio already stood at 48. Both of these countries remain economic powerhouses, with reports on worries about the impact of needing to provide for the elderly in those countries always framed as a concern for the future. The balance of workers to the elderly in Germany has not affected the country’s debt-to-GDP ratio, which stands at 57%, And while Japan has a ratio of 238%, this has been a matter of deliberate fiscal policy rather than a crushing burden of caring for the elderly.
To what extent is Japan, right now, experiencing the ill effects of a population imbalance, in terms of its finances and its government’s ability to meet the needs of its people without destructively-high levels of government spending? Readers, each time I’ve tried to find the answer to this question, I’ve come up empty.
Worry 2: labor shortages
Germany, in 2015, publicly welcomed a mass migration of asylum-claimants with hopes that they would fill in forecast holes in the labor force, though optimistic reports at the time of highly-educated Syrians faded and Germany struggled to integrate its new residents with a forecast that even after five years in the country, migrants still had only a 1 in 2 chance of being employed.
And, indeed, however much immigration advocates use forecasts of future labor shortages as grounds for increasing legal immigration normalizing illegal immigration (e.g., Vox, in 2019: “The US economy needs more low-skilled immigrants”), at the same time, there is no shortage of predictions of worker displacement due to automation, such as this 2019 Brookings forecast that a quarter of U.S. workers could be displaced by automation. Some even believe that worker displacement will be so dramatic that it will warrant a Universal Basic Income to accommodate a significant portion of the population exiting the labor force without suffering in poverty.
What future we’re actually headed towards is unknown, but adds up to, at least, less cause to worry about shifts in the proportion of workers.
Worry 3: less-quantifiable changes in vitality and prosperity
What happens when a country shifts from young to old, and when its population declines in absolute terms?
This question is the hardest to answer.
One set of concerns is with absolute population decline. A columnist at The Japan Times, Hisakazu Kato, posed some hypotheses:
“First, the larger the population, the higher the chance that great innovators will emerge. This is called the ‘genius hypothesis,’ and since the innovation is the source of technological progress, a simple inference shows that economic growth will stagnate as the population declines.
“Second, a larger population increases the opportunity for intellectual interchange with diverse human resources, which in turn promotes technological progress . . . .
[Because of t]he aging of the population . . . society gradually loses the creativity and aggressiveness associated with younger people.”
But how can you quantify the number of people, or of young people specifically, needed to maximize innovation and creativity? Certainly at some point there are diminishing returns here.
The other half of that question, issues around the effect of a age shift in the population on the culture itself, is just as difficult to address, in part because those cultures which have had low birthrates for long enough to be far along this path are distinctive in other ways. Is it possible to identify elements of Japan’s cultural distinctiveness which are a result of its aging society, rather than being the cause of the low birth rate, or unrelated to it?
One piece to the puzzle is what’s called the “low-fertility trap hypothesis,” an idea put forth that suggests that countries which reach a particularly low level of fertility will be unable to return to “replacement fertility.” The key paper here, from 2007, asks the same question I’ve been asking: how can researchers justify assuming that every country will regain a higher fertility rate? The authors propose several reasons why fertility rates will continue to decline once a decline has begun. In the first place, generally speaking, people tend to have fewer children than they consider “ideal” but that ideal family size is driven by what they see around them, so that as each generation shrinks their expectations and their actual family size will continue to shrink. In addition, each generation boosts its material asperations, seeing a prior generation’s luxuries now as necessities and perceiving themselves as less well off and more reluctant to have children. What’s more, as fertility rates decline, generational inequity (e.g., government spending shifting to the elderly) increases and reduces fertility rates further.
To be clear, this is a hypothesis, and has neither been proven nor refuted. The cases of countries with “recovered fertility” are few and the “recovery” may be only temporary (e.g., Sweden) or due to migration from high-fertility countries (Germany).
But beyond that, think for a moment about what values a society holds and how it lives out those values. Countries like China and Japan were historically based on a Confucian values system emphasizing respect for elders; how this may change (or has already changed) when to be old is not rare or unusual, is unknown.
In the United States, even without the social welfare policies of European “social democracies,” we have a self-image as “child-friendly.” If it remains the case that most American adults are parents, though of fewer children each, this may still be a part of our identity. On the other hand, if the age at which Americans have children continues to climb, and the share of Americans who do not have any children at all does likewise, then fewer of us, generally speaking, will identify as “parents,” with all the consequences that entails.
December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.
Chicago Tribune columnist Eric Zorn made a pitch in favor of gerrymandered legislative districts in a recent column, asserting that to reform Illinois’ district-drawing process while “red” states with Republican legislative control did not, amounted to “unilateral disarmament,” and would therefore be a mistake. And Zorn’s concerns are reasonable but place the wrong entities at the center of the districting process. A political party has no “right to maximize its seats” or even a “right to be treated fairly.”
It is the voter who have the right to representation, and to representatives who truly represent the interests of voters and their communities rather than pursuing the agenda of a given political party.
That should be obvious, shouldn’t it? We do not live in a country with a proportional representation method of allocating its legislative seats. Representatives represent voters directly, not through political parties. If we wished to have proportional representation, then, heck, the Democrats completely control the legislature and the governorship both; nothing would stop them from amending the Illinois constitution to implement this.
And, yes, voters are also represented by their specific legislators rather than by a caucus of legislators of their particular race/ethnicity. Again, if those in power believed that black voters and Hispanic voters’ interests were wholly defined by their black-ness and Hispanic-ness, respectively, well, then proportional representation would be the way to go for that, too. (Yes, I know there are federal and state voting rights laws at play here as well, but it remains troubling that the very notion of representative districts is so wholly demolished in the way this plays out.)
I say this because the Illinois Democrats have revealed their legislative districts for the Illinois House (official map here; link source here; existing map for comparison here). This is not the final map but potentially just the first part of a long process; if the Illinois legislature cannot finalize a map by June 30 of a post-census year, an eight-member bipartisan panel is selected, and if they cannot agree by July 10, a tie-breaking name is drawn from a hat. This procedure was intended to compel compromise, with each side being unwilling to leave the outcome to chance and settling on half a loaf, but, as the Trib reports, the tie-breaking procedure was used in 1971, 1981, and 1991. In 2001, “the legislature left the process to the state’s congressional delegation to draw a compromise map, which state lawmakers then approved,” and in 2011, the Democrats already controlled the legislature and the governor’s office, so they solidified that control with their remap. This year, the Republicans have staked their hopes on a legal challenge around the type of data being used, that would run out the clock on the legislative process that the Democrats would otherwise use to steamroll them, thus forcing the name-drawing. (Sorry, no link; I can’t find my source for this analysis any longer.)
There’s no analysis yet of what sort of partisan split this map will produce, that is, how lopsidedly in favor of Democrats this map would be but let’s look at it visually anyway:
Now, some of these districts don’t look thaaat bad: the ones in the southern half of the state I suppose they figure are mostly going to go to Republicans no matter what, so you might as well make them reasonably contiguous. At any rate, the 115th from the prior map looks like the sort that was drawn to exclude a particular established legislator:
In addition, in the towns to the east of St. Louis, there’s clearly some funny business going on, with a C-shaped district in purple and a green district within:
For what it’s worth, these districts mirror ones now existing (though they’re more extreme), and the carve out actually seems to be racial: the purple district aggregating the black voters for a black (Dem) representative in the 114th (plus enough leftover Republicans once this majority is ensured), with the green district collecting the leftover (white) Democratic voters. The current officeholder, Rep. LaToya Greenwood, won her race with a margin of 57% vs. 43%.
But moving northward: Springfield and Decatur are combined into a single, narrow district. Maybe that’s reasonable enough as Springfieldians and Decaturians might have more in common with their nearby hinterlands. But this district is even narrower now than before:
This district’s rep, Rep. Sue Scherer, won her 2020 race 51.5% to 44.4%. Was this too narrow a margin for comfort, motivating the Dems to shift more Dem voters into the district and shift Republicans out?
But that brings us to the greater Chicago area.
This J-shaped district? Dunno what the rhyme or reason is here. My best guess is that even though DeKalb and LaSalle/Peru are small towns, they are larger than their neighbors, and the algorithms said that another seat would be gained by combining them.
And finally, these creations on the south side of Chicago and the south suburbs:
though, to be fair, there were many similarly bad long-and-narrow creations in the prior map, each of them creating districts of Democrats, and many seemingly designed to create districts “reserved” for black Democrats while tucking in white suburban voters who become a perpetual minority vote in their district as a result. And these narrow finger-districts are the most egregious of all, in so far as individual voters cannot reasonably have a connection to their legislator when there is no community being represented, no neighborhoods, when their neighbors, the folks with whom residents are connected with community organizations, churches, have no common legislator.
Finally, a group called CHANGE Illinois has been pushing for a “fair maps” reform and had previously pushed for a constitutional amendment.
But the Illinois constitution already says these districts must be “compact,” as well as contiguous and substantially equal in population (Article IV, Section 3). Yes, perhaps in the meantime courts have determined that “compact” is a meaningless word legally. But that still doesn’t make it right.
So, yes, there is nothing new under the sun. But Illinois politicians want Illinoisans to believe that they are reformed, that they are now ethically devoted to the common good, rather than in it for themselves. A map such as this, in which the people of Illinois simply, to such an astounding degree, do not have elected officials who represent them and their communities, means that no such claim is to be believed.
*Incidental footnote: How do the demographics of Illinois’ legislators compare to its population in general, in terms of racial/ethnic makeup? The most recent estimates are that Illinois is 61% non-Hispanic white, 15% black, 18% Hispanic, and 6% Asian. Among legislators, 71% are white, 18% are black, 8% are Hispanic, and 1% are Asian.
Are Hispanics unfairly underrepresented? A separate metric is the Citizen Voting-Age Population: here, 69% are white, 11% Hispanic, 15% black, and 4% Asian, and these percentages are much closer to the actual statistics. In any case, there have long been neighborhoods and towns which have a high enough black percentage that gerrymandering strategies can produce the desired result through their combining together of parts-of-town and the creation of multiple districts with “just-enough” desired voters to ensure the end result. But if new immigrants are coming to suburban apartment complexes spread throughout the area, there’s much less that can be achieved through these traditional gerrymandering methods. As the CVAP percentage of Hispanics grows, will Illinois look to other methods of determining who represents Illinoisans in the General Assembly, such as, in fact, a proportional representation system, or will they simply gerrymander ever more determinedly?
Originally published at Forbes.com on May 13, 2021.
It’s a tired story by now in Illinois: the graduated income tax state constitutional amendment on the ballot this past November failed because of a fundamental lack of trust by the people of Illinois in their elected officials. That’s not just my own claim; new House Speaker Chris Welch said as much, according to the Chicago Tribune, in making a pitch for another try at an amendment in which they would pinky-swear to use new tax money only for good purposes:
“In evidence by the failure of the progressive tax, folks don’t trust us . . . If we can rebuild that trust, it’ll be amazing what voters will help us do.”
And this same lack of trust is at least part of the reason why an amendment to the state constitution to eliminate the “pension protection clause” is a nonstarter. Yes, some Illinoisans believe that under no circumstances should benefits be altered for anyone, even the fat cats taking home more in pension benefits than they ever earned in public office, as was the subject of a WGN report on Tuesday. But others have been persuaded that any changes to pensions will impoverish the elderly, and are understandably worried — in other words, the electorate has as little trust in Illinois’ Republican legislators as in Democrats.
That’s why I had suggested in my Tuesday article a constitutional amendment that builds in protections for low- or even middle-income state workers, for example:
“Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired, for any plan participant whose salary or retirement benefit is less than the median salary or retirement benefit, respectively, in the state of Illinois” (addition in italics).
Does this sound off, too narrow and detailed? Should constitutions provide general principles and leave the specifics for legislation? Sure, yes, in principle, it would be nice to simply remove this clause from the Illinois constitution, but that’s not a realistic option.
And, in fact, the experience of Arizona five years ago suggests that the most pragmatic path, with the best chances of success, is exactly this very narrow, clunky, amendment.
In 2016, Arizona’s Public Safety Personnel Retirement System (PSPRS) was almost as unfunded as Illinois’ pensions, at 48% funded. Key stakeholders from both parties, and including the public safety unions themselves, recognized that change was needed, and the Pension Integrity Project team at Reason Foundation worked together with them to create a set of changes, primarily focused on reforming its out-of-control cost-of-living adjustment system, as well as instituting a risk-sharing system for new hires (with a proper actuarial analysis conducted at the time!), and new governance reforms, all of which together comprised S.B. 1428.
But how did Arizona ensure that this bill, which did, after all, cut (future) benefits for existing employees, would not be overturned by the Arizona Supreme Court? Through a constitutional amendment, Proposition 124. The text of this amendment? The italicized portion of the following:
“Public retirement systems shall not be diminished or impaired, except that certain adjustments to the public safety personnel retirement system may be made as provided in Senate Bill 1428, as enacted by the fifty-second legislature, second regular session.”
Honestly, I find this a bit mind-blowing.
This is nothing at all like what we expect from a constitutional amendment. It’s clunky, awkward. It feels like defeat, to acknowledge that this is the best we can do rather than the “pure” change of removing the trouble-making clause entirely.
But it worked. It passed by a 70-30% margin.
Would Illinois voters (or the Democrats who currently fully control the state) be willing to approve an amendment narrowly-tailored enough to ensure pension cuts only apply to the highest earners in the state?
Could Pritkzer have passed his graduated tax amendment if there had been guarantees built into the amendment itself, rather than having voters write a blank check to the legislature? The proposed amendment, after all, merely struck the requirement that any income tax be non-graduated; it was neat, clean, but should it have been more detailed to offer voters assurances that it would neither attempt to boost taxes one bracket at a time, divide-and-conquer style, nor attempt to fund government through such high rates on higher earners that they leave the state?
I don’t know. But I continue to mull over the question of whether this sort of amendment, which fully acknowledges voter mistrust and constrains the legislature as a result, is what Illinois, and states similarly trapped, need to be able to move forward.
December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.
Originally published at Forbes.com on May 10, 2021.
About a month ago, Illinois governor JB Pritzker signed legislation that boosted pension benefits for a group of Chicago firefighters, despite the urging of Chicago mayor Lori Lightfoot not to do so, because of the cost to the already-woefully-underfunded plan. As I wrote back in January, this change could drop the funded status from 18% funded down to an even-worse 16%. Each dollar that is spent on this benefit improvement is a dollar that must be extracted from taxpayers or found by cutting other needs.
As the Chicago Sun-Times reported,
“A Wall Street rating agency that alone gave Chicago a junk bond rating on Friday branded as ‘credit negative’ a bill Gov. J.B. Pritzker signed over Mayor Lori Lightfoot’s objections boosting pensions for thousands of Chicago firefighters.
“’The legislation is credit negative for the city of Chicago,’ said the advisory from Moody’s Investors Service, ‘because it will cause the city’s reported unfunded pension liabilities, and thus its annual contribution requirements, to rise.’
“With pension contributions consuming 17% of the city’s operating revenue and total liabilities pegged at $46.6 billion in 2019, pensions are the ‘largest credit challenge facing Chicago,’ Moody’s said.”
Why, then, did Pritzker sign this bill?
In his press release, Pritzker claimed that “HB 2451 creates a system that gives all firefighters certainty and fair treatment.”
And the promoters of this bill, most notably State Senator Robert Martwick, had claimed that, despite all appearances, the bill was actually prudent and responsible, because it removed a “birth date restriction” that, as the Sun-Times reported, “Martwick has . . . already has been moved five times as a way of masking the true cost to the pension fund.”
“If we ever hope to right our financial ship, we must finally put an end to the irresponsible behavior that put us here in the first place . . . . This law simply ensures that the city confronts the true costs of its pension obligations and makes the difficult decisions it needs to make today.”
But, again, as I explained back in January, this is misleading, to put it nicely. This restriction was imposed in 1982 and changed in 1995 and 2004 — then the benefit boosts stopped as the city and the state both finally recognized that pension funding mattered, with Tier 2 benefits implemented in 2011 and an attempted reform in 2013. Only in 2017, in a bill sponsored by Martwick himself, as a state representative, was the benefit boosted again by a further moving of the birthdate restriction, and after he succeeded in getting this bill passed, he set about getting the birthdate restriction eliminated, with a bill in 2018 which died in 2019, before re-introducing it for its final passage now. For Martwick to point to this past history to claim that the moving of the birthdate restriction is somehow inevitable and out of anyone’s control is, well, chutzpah at its finest.
But why, then, would Pritzker have signed into law a bill when the central claim of its advocate — that the state had an unalterable practice of benefit boosts that needed to be recognized honestly — was demonstrably not true, with the barest amount of research required to understand this?
Plainly, there are three possibilities.
First, that Pritzker truly believed Martwick’s claim that the legislature would always boost benefits, so the only option was to recognize this fact.
Second, that Pritzker was unwilling to stand up to legislators who, themselves, did not hesitate to support this bill, because, after all, no one is going to blame an individual legislator for going along with the rest of the party, with the safety in numbers it affords. “Fiscal responsibility” offers a plausible cover for what is, in the end, the action of a coward.
Or, third, that he knows full well that Martwick’s claim is absurd, but simply doesn’t care, because he himself, however much he claims otherwise, doesn’t particularly care about pension funding, and will take any opportunity available to boost benefits in an environment in which this is otherwise out-of-the-question. A statement becomes a purposely misleading, even if others think it’s the truth, if you have access to information to the contrary.
Does it matter?
Pritzker signed this bill a month ago. In the meantime, immediate fiscal crises in Illinois and Chicago have been lightened by the $7.5 billion in American Rescue Plan funds to the state and $1.8 billion to the city. Pritzker announced that, as a result, the state’s contribution to public schools would increase by $350 million and state Comptroller Susana Mendoza announced that the state’s bill backlog had shrunk down to $3.5 billion. Lawmakers are working on budget negotiations, with a May 31 deadline. The redistricting battle is also underway, with its own June 30 deadline, and with the Illinois GOP accusing Pritzker of breaking a campaign promise to support an independent redistricting commission. And Pritzker, as well as new House Speaker Chris Welch, want Illinoisans to believe that, regardless of the state’s past history of corruption that gave it its second-most-corrupt ranking, the state is “under new management” and is now being ethically and responsibly governed.
Can Pritzker be trusted? Can legislators and their leadership be trusted? Not only is the Democratic party in full control of the state, but there are no factions within the party arguing for different directions; bill after bill is passed wholly on a party-line basis, because legislators are expected to simply vote as they’re told to.
Actions like Pritzker’s decision in the firefighters’ bill seem small, but they add up, one signature after the next. And each decision matters, each one is a decision in favor of good governance and fiscal responsibility, or against it. This decision, and countless others like it, matter, even if Pritzker may choose to believe otherwise.
December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.
