Legislative Update - March 10, 2010
Proposed Legislation Changing Public Pension Benefits Not Yet Introduced
Legislation to address long-term stability of the public pension systems is still in draft form at this point. Even if the legislation is introduced in the near future, we expect the legislative process to be slow and deliberative in this crucial political year. It is likely any votes on such a proposal will come post-election this fall.
Still, the long-term challenges facing the public pension systems continue to be front-page news in Ohio. The historic downturn in the stock market has had a significant impact on all five public pension funds, including the Ohio Public Employees Retirement System (OPERS). The drop has caused the amortization for the OPERS pension fund (the number of years to pay off obligations) to increase from 14 years in 2007 to beyond 30 years today. The fund is required by law to have a plan to keep that number below 30.
The proposal that has been presented by OPERS to the Ohio legislature modifies several major elements of the pension plan to restore balance (outlined below).
| Current Pension Benefits | Proposed Reform Plan |
|---|---|
| Unreduced retirement at 65 (with at least 5 years service) or any age with 30 years. | Raises unreduced retirement age to 67 (with at least 5 years service). Raises retirement at any age to 32 years of service. |
| Reduced retirement at 60 (with at least 5 years service) or 55 with 25 years service. | Raises reduced retirement at 62 (with at least 5 years service) or 57 (with 25 years service). |
| Benefit formula: 2.2% for first 30 years of service, 2.5% thereafter. | Benefit formula: 2.2% for first 35 years of service, 2.5% thereafter. |
| Annual Cost of Living Adjustment (COLA) set at 3%. | COLA tied to Consumer Price Index (inflation) not to exceed 3%. |
| Final Average Salary determined by 3 highest years. | Final Average Salary determined by 5 highest years. |
In addition to other smaller changes, the proposal recommends a transition to the new structure. Those within 5 years of retirement eligibility would be grandfathered under the current structure, except for the COLA change. Those within 10 years of retirement eligibility would be grandfathered in most elements, except COLA and the reduced retirement benefit calculation for those who would retire early. The new structure would apply to all OPERS members more than 10 years from retirement.
It is important to remember that the legislature will likely make changes to the proposal as it moves through the legislative process, so nothing is set in stone. It will be important for SEIU members to advocate for common-sense reform at the appropriate time to stave off any efforts by those who would rather dismantle our public pensions. Stay tuned.
State Revenue Update: CAT and Personal Income Tax Revenue Weaker than Expected
Although total revenues coming into the state's General Revenue Fund are at one percent below expectations for the first seven months of the fiscal year, January's income tax receipts were a different story. Income taxes for January were 15.6% below expectations (or $139.5 million.) If shortfalls of this magnitude continue in the second half of the fiscal year, additional budget cuts may be necessary.
In addition, the Commercial Activities Tax (or CAT), which was phased-in beginning in 2005 as other business taxes were being phased-out, is coming up short of projections. Even before the recession, the CAT was not expected to generate enough revenue to replace the other eliminated business taxes. Those taxes were helping fund school districts and local government. Without adequate CAT revenue, additional general revenue funds will need to be diverted to fill the hole, adding to the projected $8 billion shortfall we could be facing in the next state budget. All of this points to the need to focus on having a serious debate about how we raise revenues to adequately fund the services provided through the state budget.
Decision Time for National Health Care Reform, Let's Get It Done!
President Obama has called on the Congress to take action on comprehensive health care reform. He also recently released his vision for health reform legislation. The President's plan starts with the Senate-approved bill as a foundation and includes several key changes. Major provisions include:
• It makes insurance more affordable by providing the largest middle-class tax cut for health care in history, reducing premium costs for tens of millions of families and small business owners.
• It sets up a new competitive health insurance market giving tens of millions of Americans the exact same insurance choices that members of Congress will have.
• It brings greater accountability to health care by laying out common-sense rules of the road.
• It will end discrimination against Americans with pre-existing conditions.
• It reduces the deficit by $100 billion over the next ten years by cutting government overspending and reining in waste, fraud and abuse.
• It eliminates "special deals" such as the arrangement made for Nebraska.
• It includes a new provision to prevent insurance companies from making arbitrary rate hikes.
President Obama hosted a televised bi-partisan summit in an effort to get both parties to come together on issues of common interest. Unfortunately, very little common ground was found. The current thinking is that in order to enact comprehensive health care reform, the House would pass the Senate bill, and the Senate would make improvements to the bill through a simple majority up-or-down vote. Votes are expected by the end of the month. We encourage all members to contact their members of Congress to ask them to support President Obama's comprehensive health care plan.
Prepared by SEIU District 1199 Public Affairs Division Staff
REMEMBER: POLITICAL ACTION TAKEN ON THESE ISSUES MADE POSSIBLE BY MEMBER CONTRIBUTIONS TO COPE/PAC
