Now We Know That SB1 Is Not Enough To Cover The Crime

Prescience: Looking for Answers in Illinois

Had the real purpose of SB1 been to show how disconnected forced diminishment of workers’ compensation was to Illinois’s fiscal problems, it couldn’t have been more successful. 

A week-old report by the Fiscal Futures Project at the University of Illinois points out glaring contradictions to the lustrous predictions handed out by supporters in both houses and drafters like Rep. Elaine Nekritz (Northbrook) and Sen. Daniel Biss (Skokie). The report warns that not much if anything will be fiscally ameliorated by the passage of SB1, even if courts later allow its dubious constitutionality.

In December, Representative Nekritz promoted SB1’s savings of $187 billion over the next 30 years, including knocking off an estimated $21 billion of Illinois’ unfunded pension liabilities.  She indicated SB1 cold save the state as much as $1.9 billion by 2015.  Exceptional promises.  But her comments dispute the recent study by U of I’s Fiscal Projects Futures Project team of Dye, Hudspeth, and Merriman.    (http://rogersanders.tumblr.com/post/51692621955/action-on-pension-reform-imminent)

Senator Daniel Biss of Skokie was a bit more circumspect and politically shrewd in his choice of words to endorse SB1.  “SB1 saves a significant enough (my italics) amount of money to stabilize the state’s finances while protecting current retirees, those who rely on small pensions and those who have worked longest” (http://senatorbiss.com/index.php/component/content/article/1-latest-news/127-update-pension-reform).

In other words, if teaching were not the primary earners’ profession, your secondary income would be hurt less drastically like, well, let’s say any other hamburger flipper.  Those of you with two or more Masters, Doctorates, specialties, extra work and stipends – you need to rethink your commitments and efforts, Mister!

Senator Biss also lionized the inclusion of a commitment to move to a “responsible funding schedule.”  This was an historical first, according to the Senator.  Really?  Funding to eliminate your debt to the pensions?  Nope.

In disagreement, the Fiscal Futures Project sees the SB1 budgetary outcome differently, very differently.  The income savings hoped for and predicted by advocates Biss and Nekrtiz in December will not be likely to appear.  In fact, according to the report, there is likely to be a shortfall of $3 billion by year 2015, increasing to $15 billion by 2025. 

Adding salt to this economic wound is the project’s further prediction that significant deficits will occur even if the current increases in income tax rates continue past 2015, when they are scheduled to fade away.  How bad?  One billion dollars in 2014 and $5 billion by 2025.  (http://igpa.uillinois.edu/system/files/Pension-Reform-Will-Not-Fix-Deficit.pdf)

How can this recent report be so at odds with the glowing promises of those who prepared the bill, those like Senator Biss and Representative Nekritz?

On July 3, 2013, delegates from the Center for Tax and Budget Accountability came before the Pension Conference Committee to provide oral testimony regarding the potentiality of “pension reform” and fiscal issues facing the State of Illinois.  Besides warning that SB1 would NOT accomplish the remedy to the state’s budgetary woes, the CTBA warned that other fiscally corrosive factors would continue to negate the General Assembly’s shortsighted attempts to correct a very long-standing problem.

They warned, “It is primarily this borrowing – and more specifically the amortization schedule passed into law in FY 1995 that delineates how it is to be repaid – that is straining state resources today.  Over 80% of the payment by the General Fund to  the pension(s) contribution is for debt service (http://www.ctbaonline.org/sites/default/files/reports/ctba.limeredstaging.com/node/add/repository-report/1386537800/T_2013.07.03_CTBA Pension Committee Testimony.pdf).

“The debt service therefore is the driver of the fiscal problems generated by the unfunded liability.  Because of the 1995 “Ramp-Up, the entire $1.08 billion in year-to-year increase in the state’s General Fund pension contribution called for in FY 2014 is caused by debt service (the Ramp), not the cost of benefits earned.”

SB1 was never about what workers earn or earned. 

As much as politicians like Senator Biss determine what workers are acceptable earners and which are not; as much as Representative Nekritz wants to play with numbers and overlook those who worked their entire lives giving the state of Illinois their professional commitment – it was always about what had been stolen to begin with.  About not keeping promises then…and now.  And so huge, so very immense was the amount diverted from those who were owed; the only thing to do was to identify them (the workers) as the problem.  To make them bear the pain and pay the state’s thievery. 

But now we know that even SB1 is not enough to cover the crime – even if the arrogant/Madigan-inspired law were to be upheld.  Now we are finding out that it is not the workers at all.  It was the theft, then the 1995 Ramp, and the continual structural revenue deficit in Illinois. 

Let’s start talking about fixing that.

Structural Deficit: What It Means in Illinois

Structural Deficit:  Illinois’ Forever Problem

Structural Deficit:  According to the Financial Times, a structural deficit is a budget deficit that results from a fundamental imbalance in government receipts and expenditures, as opposed to one based on one-off or short-term factor (http://lexicon.ft.com/Term?term=structural-deficit).   

While a government budget deficit occurs when a government like Illinois spends more than it receives in tax revenue, a structural deficit occurs when a budget deficit persists over the very long term.  When fiscally appropriate adjustments are not made – in the case of Illinois, for decades – serious problems will arise. 

Of course a short term response employed by Illinois has been the borrowing of money to provide financing for services, but this has lead to increasing and mounting debt for the state.  As this ever-increasing debt has grown over the years, various investors and bond rating companies have looked warily at Illinois as a not-so-safe place in which to invest, as the state may face such insurmountable debt that it may find itself defaulting on payments.

Augmenting this constant borrowing is the history of thievery from the funding expected set aside for the contractual promises made to the public employees of the State of Illinois.  Note: The money taken from promised payment to public employees, like the money borrowed in bond purchases, cannot be avoided.  That is, if the debt of $100 billion is owed to the pension funds, the State of Illinois cannot walk away from the bill they created anymore than the state can walk away from its bond debt – regardless of SB1 or an SB2404 or an SBXXX. 

SB1 accomplishes only a means to cut off future expenses by cutting off future promises.  Eliminating cost of living expenditures for current workers and retirees will provide the greater bulk of savings.  This course of action is undoubtedly legally arguable, and the results will be telling.  Nevertheless, the State will owe what it has already taken, and a recent study suggests that Illinois may be so deeply in debt that even the self-appointed savior/Governor’s hope for legal constitutional acceptance will do little now.

In a very recent study by University of Illinois Futures Project, the authors – Richard Dye, Nancy Hudspeth, & David Merriman – propose that “Illinois has a chronic, structural fiscal problem so huge that it cannot be eliminated by increases in economic growth alone, increases in taxes alone, or – alas – aggressive pension changes alone” (http://igpa.uillinois.edu/system/files/Pension-Reform-Will-Not-Fix-Deficit.pdf). 

Projections by the authors of the study entitled “Illinois Still Has Serious Fiscal Problems After December 2013 Pension Law Changes” warn that the structural budget deficit issues will not close a predicted gap of nearly $14 billion by 2025 by any more than $1 billion.  In other words, a structural deficit of $13 billion will remain in place and in effect in 2025 – despite the promises being floated about actuarially by Speakers and Governors that SB1 will be the answer to the budgetary crises.

In fact, the authors suggest that no single response will be sufficient. 

One answer in several, according to the study, is to maintain the current tax rate in Illinois; in other words, ignoring the sun setting of current tax rates - as proposed by all Republican candidates for Governor.  According to the study, the maintenance of current taxation levels (and the big IF of SB1 being declared constitutionally legal) would result in a structural deficit of $5.5 billion by 2025.    That still renders the state unable to meet its bills.    

In essence, the answers to Illinois’ fiscal woes are not going to be found in the preservation of the tax rate, the possible court acceptance of any part or all of SB1, or any other single factor.  It certainly will not be ameliorated by the fence-sitters in the General Assembly who hope to return to SB1 to find ways to augment what is constitutionally acceptable and discard what is not.  A patchwork plan is to return to the old ways of dealing with Illinois’ haphazard and less-than-honest fiscal governance. 

It will take real thinking about what might move Illinois into the future, not just the same old tax loopholes, TIF’s, Tax giveaways, etc.  It might just be the time for someone looking for a real way out of our structural deficit to consider a graduated tax system, a transaction tax, an elimination of corporate welfare, etc.

Anybody come to mind?

Tribune: Repeat After Me: Pensions Bad; Slavery to Unbridled Business Good.

Repetition:  The Tribune’s Constant Refrain

“The most brilliant propagandist technique will yield no success unless one fundamental principle is borne in mind constantly - it must confine itself to a few points and repeat them over and over.”

― Joseph Goebbels

Returned to Chicago the other day and I picked up a copy of the Trib on an empty chair at the airport.  Another editorial warning: Chicago and Detroit are inexorably linked in an economic death spiral if we don’t do something about our pension obligations – like ignore them.

“We’d like to view Illinois’ new pension law as the first in a constellation of policy, tax and spending reforms that would make this state once again attractive to employers” (http://articles.chicagotribune.com/2014-01-17/opinion/ct-detroit-auto-show-renewal-edit-20140117_1_detroit-institute-city-debts-pledges).

Hmmm, sparkling constellation to employers like ADM, Boeing, Caterpillar, CME, Sears, and others in our state?  Think Black Hole for workers in Illinois.

 In the Trib editotial, even the passage of SB1 is treated as a fait accompli; there are no questions as to legality, constitutionality, rationality, logic, or historical explanation.  That would be old-time journalism.  The Tribune does not do journalism. 

On review, the entire piece reads like something crafted by our watch-wearing hedge-fund manager Bruce Rauner.  Pensions and the promises to those who worked their entire lives (even after their monies were diverted [aka stolen]) are characterized as “dead weight.”  Of course, even though teachers went without social security, one imagines that the Tribune would consider even that federal program dead weight, too. 

Says the Trib, what we need to save cities and states like Detroit, Chicago, and Illinois is some kind of deus ex machina.  And the Tribune is quick to find just the appropriate savior to all of our needs.

Enter big business, stage right.

“Business is throwing Detroit a lifeline.”  “…that city hopes to prosper anew by promoting its commercial advantages.”  Detroit’s … business communities certainly are stepping up.”

Sadly for a great many, the Tribune’s faithful idolatry of “Big Business” in Illinois is tainted by the long record of loopholes, TIF’s and tax giveaways which have become part of the state’s operating behaviors.  In fact, the current Governor Quinn warned his business leaders that he would not consider any tax rebates and handouts to major companies until the General Assembly passed some form of pension “reform.”  In Illinois, pension “reform” may actually be throwing Big Business another lifeline…after so, so many. 

Note to self:  If teachers and other public sector workers were to have signs along highways that stated “This highway is provided in the name of John Q. Teacher or Mary P. Firefighter, etc., nearly every major paved road in Illinois would be dedicated to the roads we drive in lieu of taxes not paid by citizens. 

Finally, the puppets for Big Business at the Tribune describe what businesses are really looking for (after they say that business does not look for handouts LOL).  They want a competitive tax structure – this means a flat regressive tax which undermines the very workers they’d employ – responsive agencies – reductions in regulations and oversight that protect workers and citizens against abuses -  and public support systems that can support growing companies – government funded services for workers of our businesses (training, etc).  

I expect the Trib’s refrain will pick up in speed and intensity as we approach the primaries and as our money-funded legislature reconvenes in Springfield.  Already, those many politicians who remarked that we could visit the concept of a progressive tax amendment in Illinois after passage of some pension adjustment have decided not to honor their spoken word. Indeed, others now describe SB1 as a constant work in progress, one that will be adjusted after each and every moment of litigation in order to find something acceptable or some crack in the wording of the Illinois Constitution.

Expect the Tribune’s sound to increase forte accelerando.

“Think of the press as a great keyboard upon which the government can play.”

Joseph Goebbels

A New Reality: Between the Devil and the Deep Blue Sea

A New Reality: Between the Devil and The Deep Blue Sea

Just a few years ago during the immediate aftermath of the Great Recession’s long tenure, I remember a young, African American legislator on the federal level wondering aloud how Americans would react to this financial maelstrom.  He described what was to come as a true measure of what we are as a people.  “Will this upcoming crisis have us turn to each other or turn on each other?” 

The looks of anguish and anger on the faces of those Seattle-area aerospace workers who watched their hard-fought pensions and health benefits eviscerated in a close 51% vote to accept Boeing’s final ultimatum suggests that there is a very New Reality at work here, in Washington, in Illinois, and everywhere.  And, if “the times they are a changin’,” it does not bode well for the many of us who remember and honor collective bargaining and contractual promises. 

Last spring at an IEA - Retired convention, respected IEA lobbyist Will Lovett described to an increasingly unsettled audience the great differences in the NEW Springfield environment.  “It’s not the same anymore.  There is no listening, no sharing…it’s completely different than it used to be.”  Later, Director of TRS Dick Ingram had called this sea change in relationship between legislator and unions  “the New Reality,” and began discussing how one might communicate in this different atmosphere – to the astonishment and ire of many, including me.

Back in Washington State: Having been tutored by states like Illinois, nearly 21 other states made obsequious offers of preposterous tax avoidance and other unseemly fiscal assistance to Boeing Corp. to move the development and manufacturing of their new airliner 777X to “their” state.  This after the International Association of Machinists in Seattle first refused the hardball “take it or leave it” of Boeing in December as ridiculous.  

After the union’s initial snub, Boeing quickly began the evocative dance of the “New Reality,” which involves offers of significant employment for possibly long term if the offers of tax avoidance, fiscal gifts and payment by the state for worker training are included.  In the end, Washington State gave nearly $8.7 billion in tax relief and other incentives to land the teasing temptress while Boeing Corp. waved the recent past warning - production of the 787 Dreamliner that was shipped off to South Carolina.

Of course, Boeing appears an already wealthy ($5B in annual income) courtesan doing the suggestive dance for various state governors to get what she (really CEO McNerny [receives $21.1 B in annual salary] and the Board [increased dividend to shareholders by 50%]) want, but this is the New Reality.  Remember ADM, and OfficeMax, and Sears, and CME, and Etc. have all learned how to do it.  By the way, Illinois was in the game of tribute for Boeing’s manufacturing too, although Quinn and group would not identify just how much was offered.   In fact, some have suggested that with its consistent historical behavior, money saved in Quinn’s and Madigan’s SB1 would be used to euchre other businesses to Illinois; this while they figure out how to steal more from the public sector workers. 

And, in the New Reality, some of the biggest backers of accepting the Boeing demand (forget proposal) to move new workers to 401K programs, to lose on healthcare costs, etc. were the national leaders of the International Association of Machinists.  In fact, the rift is palpable between the two, national administrators recommending the local vote yes to Boeing’s demands.  On the other hand, the local leaders of I.A.M. felt that too many hard-fought concessions were being given away.  Looking at the changes in the contract and the stagnation to incoming workers eventual pay, a spokesman for the local union named Bryan Corliss described the mistake of paying people who build airplanes as the same price for lowest wage workers in American retail(http://www.thenewstribune.com/2014/01/02/2975148/some-workers-set-to-reach-100k.html .  Others have warned Boeing that there will be a price to pay Washington workers who willingly bailed out manufacturing snafus in right-to-work and unskilled South Carolina and then received this corporate slap in the face. When we turn on each other, locals and nationals quickly separate in the clamoring for identity and fiscal security.  

But it is Democrats in the New Reality that truly deserve another wary look by middle class workers, and for very good reason.  What Fred Klonsky once described as a Bizarro World only endemic to Illinois has spread like an invasive species to many other places as well – take Washington State for example.  In a recent Bloomberg article, Justin Bachman described important lessons to be taken from the Boeing Corp. win:  Corporate threats now work.  Getting the work back to Washington will make a better plane than the “good ole boys” of South Carolina.  Boeing saves more, much more than the incentives offered to sign the contract.   And…

Unions can no longer count on the Democrats.

Local Democrats in Washington State, like Iliinois Democrats, bent like reeds in the wind to the demands from above (Madigan or Quinn).  In the case of Washington State, they “pleaded for workers to accept the Boeing contract and keep the company’s workers in the region” (http://www.businessweek.com/articles/2014-01-09/boeings-victory-in-labor-fight-hurts-pensions-helps-the-777x).  Likewise, in Illinois, Democrats are writing to their constituencies that they had to vote for SB1,”Even though it was ‘the most difficult decision in my life.’” 

Subtext:  workers’ unions in Illinois can no longer count on Democrats.

And some, like my Senator Jones(my Representative doesn’t do communication) suggest that we can all revisit SB2404 when the Illinois Supreme Court finds SB1 unconstitutional. 

Are you out of your ever-loving mind?

Do you believe that our unions would ever revisit another variation of forced consideration if they were to win in this upcoming court battle?  We would accept the SB2404 concept, as described by legal representative Mr. John Stevens of We Are One, “What?  Choice?  Whether to have you shoot me or I have to jump off the cliff?” 

Madigan, Quinn, and even you Senator Jones have played the same cruel card Boeing and others play: Take it or leave it.  Let’s turn on each other.  We took your constitutionally promised benefits and now we’re going to penalize you for our theft.

You really think the unions will come back to the table to re-visit SB2404?  I can’t imagine them doing that.  That’s a New Unreality.  Somewhere uncomfortably between a rock and hard place.