Eric Madiar |
SB17: Eric Madiar, Master Architect
"We
have a state fiscal system that is so poorly designed that it failed to
generate sufficient revenue growth both to maintain service levels from one
year to the next and to cover the state's actuarially required
contributions."
-
Eric Madiar, Senate President Cullerton’s Advisor, Consultant and
Designer of SB17 to the City Club of Chicago, Sept. 2015
Despite Mr. Madiar’s unblemished observations before the
City Club of Chicago nearly a year ago, his draft of a new “reform” measure to
reduce the costs of unfunded pensions by placing the burden directly upon the
backs of those who work as public employees illuminates the characteristic
politicians’ unwillingness to accept a clear, legal and moral path earlier provided
by the Illinois Supreme Court.
Enter stage right:
SB17. The offering to an obstinate
Governor Rauner to possibly break the ongoing deadlock in the state budget while
guaranteeing the certainty of another battle in the courts over Article XIII,
Section 5 of the Illinois Constitution.
“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.”
From a Cullerton
“Issue Background” Memo: “Savings would be recognized by giving Tier 1
public sector employees a choice of benefits related to raises they may receive
in their careers and the annual cost of living adjustments to their pensions in
retirement.”
In legally, overly- simplistic words, Madiar’s argument for
Cullerton to Rauner is that as the employer, the state has the right to decide
compensation. And compensation is never
guaranteed. Just as a faculty or union
may argue for an increase, so may a state (the employer of a public educator)
define a raise or decide to withhold one.
In other words, this is not “consideration; it’s an
employer’s negotiable prerogative.
In SB17, Tier 1 employees are asked to give up the 3 percent
compounding COLA increase for which they would be eligible each year after
retirement. Instead, they would elect
the lesser simple compounding formula for Tier 2 employees, but their future
raises would qualify for figuring their final base pensionable annuity.
Sweeteners include a refund of what they have already paid
into the pension funds of 10%, and a 10% reduction in payments going
forward. On the other hand, if they
retire early? – no (simple)Cola until age 67 or five years after departing the
profession.
But the state’s argument will identify the right of the
employer to determine salary, not the choice between two diminishments. Emphasis on salary adjustment, not choice.
Disagreement is sure to follow. A recent bulletin from IRTA reminds all
retirees “The legal team who
represented the IRTA Members against Senate Bill 1, Gino DiVito and John
Fitzgerald, recently wrote an opinion concerning Senate President Cullerton's
proposed "consideration" language in the bill.”
In short, the
attorneys for IRTA do not accept Madiar’s position regarding SB17 or the
vulnerability of Tier 1 active teachers; however, they do not represent them.
Likewise, Madiar
himself never really supported his own scheme either:
“Our current
pension disaster cannot be blamed on salary or pension cost increases. Between 1985 and 2014, pension funding
liabilities grew by $97 billion. Benefit
increase only counted for 8%, or $8 billion of that growth. Pay increases were actually less than
actuaries had assumed they would be. And the actually helped bring down the
unfunded liability by $1.3 billion. The
state's failure to fund the system accounts for 49 or 47% of that growth. So simply out, the main reason we are in this
mess is for insufficient pension contributions” (City Club of Chicago).
Yet, SB17
provides no recognition for future salary increases over the years for those
Tier 1 employees who “choose” to accept the status
quo in pension law. Their salaries will be frozen when it comes to
computing a compounded benefit of cost of living.
Yes, it all
begins to become complicated unless you happen to be someone in Tier 1 looking
at your future and a possible retirement some 5 – 10 years away. Then it gets downright terrifying.
Complication
aside, another laurel to Rauner includes the offering of a 401K buy-in for the
up-to-5% Tier 1’s who just want out of this whole legal labyrinth. The 5% limit prevents the stampede of people
(will there be?) from further undermining the pension system funding by
employees.
A
good friend of mine who called me on the morning of May 8th 2015, to
inform me of the Illinois Supreme Court’s unanimous decision overturning
Madigan’s Pension Reform SB1, reminded me that they’ll (General Assembly) never
stop. “They’ll be back again because
they won’t ever do the ethical or moral or right thing.”
He
was right, but Madiar knows this too.
He’s given them momentary hope with another method to avoid the larger
issues: a progressive income tax, taxes for services, a re-amortization of
state debts, an increase in income taxes, etc. But he also commented:
“In
the end, while contract principles and other permissible options can help
mitigate the burden of State and municipal pension obligations, the state must
still restructure its revenue system so it can meet, not simply defer its
fiscal obligations. As Paul Simon observed in 1971, "We mortgage the
future not only when we create bonded indebtedness; we also mortgage the future
when we don't pay into the pension systems as we should.
“Revising
our State's revenue system, of course, will require political courage and
entail tax increases. Welching on public pensions, however, is still not an
option for Illinois”.
Political courage? In
Springfield?
It is much easier for liars and thieves among the Illinois General Assembly (and the one-percent governor and mayor of Chicago) to continue their charade of political posturing and scapegoating public employees and retirees then to address the revenue and pension debt problems they have ignored.
ReplyDeleteThe state’s regressive tax rate is what few legislators want to confront. For the past six or seven years, corrupt politicians, the Civic Committee, Civic Federation, Illinois Policy Institute, the Chicago Sun-Times, the Chicago Tribune, and the general news media have been calling for radical pension reform as the solutions for the budget problems in Illinois.
Furthermore, as we both know, the current “Pension Ramp” does not work for the five public pension systems. The “Ramp” entails much larger payments today as a result of the 1995 funding law – Public Act 88-0593 – to pay the pensions systems what the state owes. There needs to be a required annual payment from the state to the pension systems. The debt needs to be amortized for a longer frame of time (a flat payment) just like a home loan that is amortized; though the initial payment will be difficult in the beginning, over the long term it will become a reduced cost and a smaller percentage of the overall Illinois budget as it is paid off throughout the years.