Friday, February 27, 2015

Rep. Elaine Nekritz: The Audacity of…(well, ...the audacity)

Rep. Elaine Nekritz: The Audacity of…(well, …the audacity)

Falling snow, polar vortices, unending darkness, and listening to Representative Elaine Nekritz on the radio defending the indefensible…this truly is the winter of my discontent.

On the other hand, legal teams representing the public sector workers are providing opening arguments before the Illinois Supreme Court in contradiction of Lisa Madigan’s “sovereign powers” defense.  The language in their opening is rational, clear, succinct, and as hopeful to me as spring. 

 “…The plain language of the Pension Protection Clause, the stated intentions of its drafters, and this Court's precedent all compel the conclusion that the Act [SB 1] exceeds the constitutional limits of legislative power. The Pension Protection Clause unambiguously prohibits the diminishment of public pension benefits. Notwithstanding the defendants' insistence that the Clause incorporates unstated exceptions to that absolute bar, the Clause cannot be read to include the defendants' implied terms. It contains no exception for exercises of the General Assembly's police powers or reserved sovereign powers”.

Right now, Illinois public workers and members of any union know how painful it will be as primary targets of our new governor; in addition, the most vulnerable in our state are about to be sacrificed as step one in “’changin’ our ways.”  It’s agonizing but not surprising to be the objective of so much zavist and anger by the new governor. 

But it’s also disheartening to be the topic of a kind of echoing doublespeak that passes for the “new” Democratic perspective in the General Assembly.  Self-described “Chief Architect of SB1” Rep. Elaine Nekritz is a case in point.  Listening to Rep. Nekritz, one realizes our pension systems are not a revenue source by which to make billions in hedge fund investments win or lose…. but instead (for controlling Democrats) a ready cash account from which to pay off creditors for the decades of fiscal dissolution in the capitol. 

In short, while our new iteration of Mitch Daniels resides in Illinois’ leader’s mansion, even the opposing Democratic Party is salivating at the possibility extracting a court-approved revenue source – our pension system.   SB1 is the perfect Madoff-like vehicle, one even a hedge fund manager like Rauner would envy.  Money paid into the pension system by workers would be used to pay the bills owed to the same system.  Extra money extracted from this plan would be used to pay off other bills to services, etc.

Sound like a Republican strategy?  Wrong. 

Here are some of the arguments/positions by the Democratic, Assistant to Speaker Madigan’s Elaine Nekritz regarding the upcoming battle in the Illinois Supreme Court over Senate Bill 1.

Question:  “So, Representative, what does your bill actually do?”

The bill is designed to address two things:

“It address the enormity of the unfunded liability that the pension systems face which right now is about $105 or $110 Billion.  And when you talk about that in the context of our state budget, general revenue funds are about $35 or $36 Billion so this (pension unfunded liability) is about three times our annual budget.

The Representative’s misuse of the term “enormity,” which actually means evil, not size, is appropriate.  The $105 billion is what is owed for not making the payments into the pension systems for half a century and diverting (stealing that money) for services without exacting any price from the citizens of Illinois.   

“The second problem is the percentage of the general revenue fund that is dedicated to paying the bill due for the pension system. And that has basically tripled in the last six or seven years.

“And its growing dramatically and part of the reason is that I got into this is that its a trajectory that is unsustainable, ...and it does crowd out all the other priorities that I feel are educating kids, making college affordable, and keeping seniors in their homes…all these services are strained as the pension bill goes up.”

This consistent drumbeat by both Republican and particular Democratic legislators (like Nekritz) to combine the annual normal cost of pension payments with the unfunded liability (that is, the amount owed from half a century of not paying what was owed and its permanent position at the head of the line of bills due with interest). It is the quick and specious attempt to combine what was owed (huge) with what is annually owed (small) to make it seem an impossible task altogether.

In addition, the massive increase in the amounts owed to the unfunded liability (money owed from not paying before) are due to the General Assembly’s own adoption in 1995 of a crazed punitive plan to pay exponentially more each year for the debt, rather than amortize the debt over many years – something they still could do to lessen the pain. 

Question: Will Senate Bill 1 result in a loss of pension earnings?

Representative Nekritz said the changes in SB1 called for three things:

“There will be some impact on benefits of those currently working and those already retired.

“ The bill dedicates over the next 25 years more money than the state is obligated to pay under current law.

“And it has a guarantee that if the state does not make a pension payment, the pension systems can go to court and enforce that commitment legally.”

Interestingly, in the last month a similar legal requirement (chapter 78) to making an expected payment in New Jersey (after serious concessions by the public unions) was reneged upon by Governor Chris Christie, and at the urgings of the unions, NJ Courts demanded his reimbursement later.  As of right now, Christie is in the process of fighting the Court’s order.  One need not wonder if Rauner might also line-item veto such a payment by the General Assembly despite an earlier “legal” agreement. 

Question: Aren’t people upset about the loss of the compounded COLA?

“The miracle of compounded interest when it works against you is less than miraculous,” aid Representative Nekritz.

(For current retirees) “There's no reduction in the pension payment.  It's only the increases going forward that would be impacted.  so yes - no reduction. 

“Here’s the bottom line:  Your pension check will not get will increase at a slower rate than it currently increases...but it will not get smaller.”

The alterations and byzantine calculations/loss of compounding will reduce the amount of money you will receive, but it does not reduce your base annuity??  Imagine going to your broker who tells you that your $10,000 investment is not going to lose money, but the interest you earned would be now lowered from $100 a year to $1 a year.  Will you have lost money in ten years?

“The state would save $20 Billion in owed money to the pensions in this bill (by making the pensioners and others pay for their own earned pensions).

“And for those who are currently working, the formula as to how you calculate the check remains the same.  We didn't change any of those things (multiplier, calculation of final average salary).  We didn't change any of those things with exception of those who receive salaries already in excess of $110,000 a year which in my mind is mostly school principals, superintendents, and those kinds of folks.”

This sounds eerily familiar.  Perhaps we should remember the new Governor Rauner’s identification of the thousands of retirees (as Rep. Nekritz suggested – Superintendents, Principals, and Doctors…) in his budget speech as exemplary of all public employees who make too much.  

Question: What makes you believe that the Illinois Supreme Court will uphold SB1 given the recent decision in Kanerva v. Weems at the Circuit Court level?

For Nekritz (and AG Madigan), the court did not answer whether the General Assembly can reduce benefits under the Constitution, and that's where their affirmative defense argument before the Illinois Supreme Court differs from the earlier Kanerva v. Weems case. 

Rep. Nekritz maintains the real test is one of “threshold.”  That is, does the Pension Clause meet any requirement of being absolute?

“And the argument the Attorney General put forward (and other Amicus Briefs) is that there really is no such thing as an absolute protection whether you're talking about the First Amendment, the right to free speech - or the Second Amendment,  the right to bear arms...  There's nothing absolute about any of those, and the Pension Clause in the Illinois Constitution is the same protection. It's all dealt with in context and the legislature has the ability to impose reasonable regulations and to balance competing demands under the constitution.” 

In other words, the General Assembly may determine that words such as impair or diminish may not mean necessarily what they mean in a contractual or even constitutional understanding when other instances occur – like the sunset of an increased tax requirement, or the refusal to make earlier payments into a system dependent upon payment by contract by the state as ratified by its people.  Try going to the bank and suggesting that you have determined that their requirement for a certain percentage payment on your loan for the Hyundai is not absolute and instead subject to your context – paying for something I now deem more important after half a century of not.

But what about the Pension Clause – Article XIII, Section 5, in the Illinois Constitution which states that employment is a contract that cannot be diminished or impaired?”

“My understanding of the history of it is that in the debate over 1970 Constitutional Convention this particular amendment did not go through the normal committee process.  It was actually a kind of a floor amendment proposed at the last part of putting the constitution together.   And it really did not get the same sort of study or debate that many of the other - most of - did at the 1970 constitutional convention had.  (Republican representatives proposed it...)

This personally dismissive and revisionist history is interesting but not in line at all with previous court findings – and certainly not with the Chief Legal Counsel’s for the Illinois Senate Eric Madiar’s exhaustive study of the history of the Article’s process, proposal and purpose: “Is Welching on Public Pensions an Option for Illinois?”  The careful exegesis of nearly 75 pages is available to readers and Representatives: Clause Article Final.pdf

In the preamble to Senate Counsel’s careful study, one will find his illustrative quote: 
“There is no moral exemption for any man or body of men that breaks contracts.  Nor is there any hope of public or private respect for a contract breaker.  A contract breaker is an utter misfit as a citizen or a business man.”  - Franklin MacVeagh, former President of the Commercial Club of Chicago and U.S. Secretary Treasurer

And, again - In the opening of the arguments presented this day:
“The Pension Protection Clause unambiguously prohibits the diminishment of public pension benefits. Notwithstanding the defendants' insistence that the Clause incorporates unstated exceptions to that absolute bar, the Clause cannot be read to include the defendants' implied terms. It contains no exception for exercises of the General Assembly's police powers or reserved sovereign powers.”

Dum vita est, spes est. 

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