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. 

Friday, February 20, 2015

Rauner's Compassion? "You Ain't Seen Nothin' Yet!"

…And, boy, did we…"
Rauner’s Compassion?  “You Ain’t Seen Nothin’ Yet…”

You may not have noticed this, but sunsets in winter are often much more colorful than in the summer.  With the humidity gone and less cloud cover, the pinks and purple hues are more pronounced.  Of course, this is because the western sky foretells an even colder weather the next day…and the next, and so on.  Welcome to the Midwest.

It’s 20 below wind-chill tonight, and the homeless begin arriving at shelters in the colorful dusk waiting for any opportunity for food and a warm mattress for the night.  Many are chronic sufferers of a world that has left them or their meds behind.  Others arrive newly down on their luck, without a job but sometimes with children.  Expressions range from fear, confusion, anger, to plaintive.

Nor Passion...
Thank your lucky stars…

But if the stars have aligned against you, or if your medical condition or workplace incident left you penniless, or if your own precarious stability in rough economic seas has left you like a broken but now tormented dream, DO NOT COUNT ON THE NEW GOVERNOR TO CARE AT ALL.

Some startling specifics from Housing Action Illinois (


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Governor Rauner’s Budget Devastating for Efforts to End Homelessness: Let Your Legislators Know You Support a Responsible Budget with Adequate Revenue
Illinois Governor Bruce Rauner released his fiscal year 2016 budget proposal yesterday. As we expected, Governor Rauner’s plan to solve Illinois’ longstanding budget problems includes devastating cuts to vital human service programs that meet the needs of people with the lowest incomes. Governor Rauner has increasingly called for “shared sacrifice” as of late, but his budget only calls for sacrifices from the most vulnerable among us.
Regarding the programs that most directly impact efforts to end homelessness and create affordable housing, we don’t have exact numbers in every area, as full budget details were not released.   However, this is what we understand Governor Rauner proposes to spend next year compared to the current year budget and our estimate of the reduction in households experiencing or at-risk of homelessness that will not be served:
   Supportive Housing Services:  A cut from $30.8 million to $16.7 million that would end services to 3,525 households.
   Homeless Prevention Program: A cut from $4 million to $3 million that would mean 955 more households become or stay homeless next year.
   Homeless Youth Program: A cut from $5.6 million to $2.5 million that would end shelter and services for 1,316 youth.
   Emergency and Transitional Housing: Flat funding at $9.4 million with 100% of funds paying for the program continuing to be diverted from the Illinois Affordable Housing Trust Fund, which is intended to build actual housing units, not cover the costs of social services.  At this year’s funding level, we estimate that more than 42,000 people will be served, but that funded programs will turn away people more than 55,000 times due to lack of bed capacity.
Overall, the proposed funding cuts for all these programs is 36% and we estimate that nearly 6,000 households will not be served.
Cuts to other types of human service programs were often similarly severe, including cuts to community care programs, mental health programs, substance abuse programs and many others.
Our state’s budget problems have been made much worse because the 5% income tax was lowered on January 1. The benefits of the tax decrease are primarily going to people with the highest incomes.
According to data released by the Center on Tax and Budget Accountability (CTBA), more than half (54.4%) of the dollar value of the tax relief from the reduction in the state’s personal income tax will to the wealthiest 11.8% of tax filers in Illinois. Millionaires do particularly well, as they will receive an average annual tax break of $36,797 per year. The bottom 50% of income earners in Illinois will fare particularly poorly, receiving just 8.1% of the total tax break generated by the phase-down of the state’s personal income tax rate. So much of the tax relief goes to upper income families in Illinois, that it will actually worsen income inequality in the state.
We have until the end of May to appeal to our state legislators and Governor Rauner to create a state budget with adequate revenue needed to put Illinois on a path to sustainable prosperity for everyone.
Please contact your state legislators and let them know you are not happy with the proposed budget and that you expect them to do their best of pass a responsible budget, including revenue increases.

Sunday, February 15, 2015

Rauner's Plan - Back Home Again in Indiana

Rauner’s Plan…Back Home Again in Indiana…

The other evening on Chicago Tonight, one of the incoming eager freshman Representatives (Rep. Breen of Lombard) excitedly suggested that our new Governor would be following the Mitch Daniels’ playbook to economic success.  Less than a week later, Rauner moved deftly to eliminate “fair share” for nearly 7000 workers in the public sector.  It wasn’t a shot across a bow; it was a frontal assault and clear declaration that Rauner is not going to play nicely (as he earlier offered) with Speaker Madigan or Senate Leader Cullerton, whom he originally cast as crooks in his successful bid for office. 

The Mitch Daniels playbook – like Rauner – isn’t really very complicated.  There are only a few major plays, and they’re likely to be run just as tutor Daniels of Indiana quarterbacked his state when he too assumed office.

Cap property taxes, negate any influence by unions, streamline and/or privatize services for the people, narrow the definition(s) of public assistance, restrict the worker compensation laws, reduce commitments to Medicaid, increase the number of Charter schools, reduce the overall population of state employees, cling to a flat income tax structure, etc.   

In the mind of our new Governor – and the Illinois Policy Institute and the Civic Committee and many of the righter-wing Republicans in the General Assembly – this new offensive will bring Illinois back to economic preeminence.  As a state, we will once again become a serious economic player, no longer the target of Indiana’s taunts on billboards overlooking our freeways.    “Stillannoyed…”   

Mitch Daniels, now the president of Purdue University still likes to crack wise about his neighboring state by acting amazed whenever Illinois does something well: “Hey, look, they (Illinois) had a successful program!” (re: tax delinquency amnesty) In fact, Daniels often joked that Illinois' near presence made his job easier.

But what will a more Hoosier-like Illinois look like exactly? 

Well, according to most serious research (as I pointed out last blog) it would be difficult to forecast, because each and every state carries a myriad variables from weather to education levels that can impact each significantly.  And to say simply that making our state a completely RTW (right-to-work) state will increase employment, even a little, is a stretch.  But Rauner, the Illinois Policy Institute and the Tea Party extremists of the Republican General Assembly will disagree – and most vehemently, as usual.

According to the Illinois Policy Institute, people are fleeing Illinois. “Recent data from the Internal Revenue Service shows that, in 2009, Illinois netted a loss of people to 43 states, including each of its neighbors – Wisconsin, Indiana, Missouri, Kentucky and Iowa. Over the course of the entire year, the state saw a net of 40,000 people leave Illinois for another state…Why are so many people leaving Illinois? Because the state’s poor public policies are forcing them out. Public policies drastically influence quality of life. On average, Illinois residents are leaving for states where they can have a higher standard of living“ {my emphasis}

But, according to the numbers, Indiana has been influenced as well by the Great Recession…and people are leaving that state too (  The gainers in incoming migrant populations of an economic workforce looking for greater opportunity have been – as you might have guessed – Texas and North Dakota.  Other states continue to be southern sunny/golf areas where retirees go to reside in comfort.  But the IPI likes/loves to use Indiana as a foil to any economic issues facing Illinois.

And in one case, they are not wrong in their one-sided position.  Illinois does face an unfunded pension liability so large and looming that it found it necessary to raise income taxes several years ago for citizens and for corporations.  That, of course ends possibly this year.

After a few years with Daniels at the helm, in 2012 Indiana actually had a surplus. In fact, Indiana, during the height of the Great Recession was able to provide a refund to its citizens in income tax rebates.  These refunds were greatly welcomed by the populace. 
Single tax return filers will get a $111 tax credit next year and joint filers will get $222 because the state surplus went over $2 billion. Eyewitness News caught up with some shoppers Wednesday to find out what the tax credit means to them.  It is that time of year when Hoosiers are out shopping for the holidays. Valarie Konger is among them. She was picking up last minute items before Thanksgiving. Her goal is to stay within her budget.
‘I think everybody wants more money. I know I do!’ she said”  ( ).

On the other hand, the costs for people in Indiana to follow their past Governor’s recipe for economic strength has left much of the state’s with services sorely lacking, industries struggling, and people willing to do just about anything and earn just about nothing to put food on the table.  Standards of living?

Unemployment rates in Illinois AND Indiana both hover above the national average – Indiana at 5.8% and Illinois at 6.2% (national average at 5.6%).  But workers in Illinois receive a minimum wage 17% higher than workers in Indiana.  And, with the collapse of the unions in a Right to Work state, one disgruntled worker described Daniels’ brave new experiment as somewhat lacking: “Mr. Meece, a trim ex-marine, gest $14 an hour when he works.  A decade ago, he earned multiples of that. ‘Nothing is union anymore,’ he says. ‘You’re just a day laborer’” (

Median income in Indiana has fallen by 15% in the last decade according to the New York Times, and “the so called real unemployment rate, which includes those too discouraged to work, stood at 17.4% last year (2011). And the percentage of Indianans who participate in the work force has dropped in the past two years, much faster than in Illinois and Ohio to the east” (see above NYT).

This, according to the Economic Policy Institute makes perfect sense: “But even as a policy of ‘immiseration makes growth,’ it doesn’t work. According to statistical studies (which I compiled in a paper for the Economic Policy Institute titled “Does ‘Right-to-Work’ Create Jobs?”), the impact of RTW laws is to lower average income by about $1,500 a year and to decrease the odds of getting health insurance or a pension through your job—for both union and nonunion workers. But while RTW succeeds in cutting wages, it fails to boost job growth”(

Not surprisingly, personal bankruptcies in Indiana also outstrip Illinois.  While no one can touch Nevada’s 11.1 bankruptcy filings per 1,000 residents, Indiana leads Illinois in bankruptcy/family by an unsettling 13% (  More than 7 in 1000 Indiana homes files for bankruptcy in 2010, during Daniels’ great recovery. 

Education was not an escapee of the playbook either.  Remember that Rauner is a devotee of the concept capping or freezing property taxes in Illinois.  In Indiana, many have learned that “you get what you pay for,” and providing a cap to property taxes in their state constitution has left many of the state’s school districts flailing to make educational programs available if not viable.  Indiana’s school districts – a state which also clings to its mandate to teach evolution as science -  have been the most vulnerable victims of the capping of property taxes to one percent of assessed valuation for homes. 

With funds limited and/or disappearing, many Indiana school districts struggle with maintaining structures, keeping a talented work force, providing comprehensive curricula to ever-increasing sizes in classrooms.  While taxpayers in Indiana gained over $700 million in savings overall, their lack of largesse for services prevented school districts from receiving more than $245 million in property tax assistance for running schools.  In fact, new initiatives in the Indiana playbook will require greater limitations on taxes for businesses, equipment, etc.   Kyle Stokes of Indiana Public Media created a short video demonstrating just how injurious the tax caps have been to struggling districts in Indiana, while Mitch Daniels has identified increased Charter Schools as a significant mover in Indian’s future.  Watch the video and understand Rauner’s plan’s eventual effect:

Like the meager and laughable bone of minimum wage he threw to the General Assembly the other day during his state-of-the-state speech, Rauner has no intention of letting anyone except the wealthy off the hook when it comes to the fiscal pain he is about to bring to our state. 

His first play from scrimmage is RTW.  Daniels may be his model, but Wisconsin’s Scott Walker is another Rauner  emulates.

Walker also knows the playbook.  When first elected, he proclaimed: “We can no longer live in a society where the public employees are the haves and the taxpayers who foot the bills are the have-nots” (

Rauner’s plan, like Daniels’, is to create an angry division between the have-less (as in Indiana) and the have-anything (pension, collective bargaining, job security).  In the end, like Valarie Konger who is trying to make ends meet, we can be exuberant with our trip to Wal Mart – but it will be at the expense of roads, education, or services we might ourselves eventually need.