Bill Daley Blames You Pensioners for the Anchor on Their Necks

Bill Daley on You and Your Pensions: Your Benefits are “a financial anchor around our necks.”

Bill Daley, making the effort to become third member of the family to be Mayor of Chicago, has amassed a $5 million war chest, received the recent endorsement of Al Gore, and carefully followed the guideposts of retiring Mayor Rahm Emanuel.

Emanuel, who inherited a terribly anemic pension system from Rich Daley who bled the system from the moment he took office, has always sought to blame the victims for the deficits accrued over the last many decades.

(From an earlier post in December) Emanuel’s office, like the State, faces an ever-increasing pension liability for public workers, teachers, police, firefighters, etc. For that, he blames the promise of an annual compounded 3% Cost of Living Agreement.  “Think about it.  What kind of progressive sustainable system guarantees retirees three percent annual pay increases when inflation has been basically at zero and current employees have at times been furloughed, laid off, or received minimum pay increases?”

Bill Daley has now taken up the same lamenting complaint.

“We have 50,000 retirees in the city of Chicago.  Former employees. And 50,000 present employees. That’s about 100,000 people. That’s less than 5% of the population of Chicago.  It amounts to a $29 billion-dollar anchor around the city’s neck.  In order to solve this everything must be on the table: reforms to the pension system, which will probably require a change to our constitution.  (Dick Kay WCPT Program)

Daley is fixated on the Pension Protection Clause of the Illinois Constitution (1970), which the Tribune characterizes as “rigid,” and which states; Membership in any pension or retirement of the State, any unit of local government or school district, or agency or instrumentality therof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.” (Article XIII, Section 5)

Sadly, Bill Daley has neither an understanding of the historical reason for the inclusion of a compounded COLA nor the needlessness of trying to alter the Illinois Constitution (a formidable and divisive task) to curtail the COLA.

The change in the Clause has already been done, legislatively.

History: The annual compounded Cost of Living became a serious concern in the 1970’s.   It was a time of rampant inflation.  Inflation rates for the entire decade of the 70’s was 7.25%, and in 1978 and 1979 the numbers were vaulting back again (as in ’74) to over 12%.  People were choosing ridiculous balloon mortgages for housing ,and essentials were often unavailable or found at the end of a meandering queue.  In Illinois, concerns for the well-being of those on fixed income/pensions resulted in an attempt by the General Assembly to find some remedy.

The TRS AAI remained unchanged until 1990, when the formula was altered in state law to require subsequent increases to be compounded – calculated from the member’s current pension amount instead of the original amount. Inflation at the beginning of 1990 was 5.4 percent.

The 3 percent compounded AAI is a product of a time when inflation was higher than it is now and had been increasing at a steady pace for many years. Inflation averaged 6.37 percent during the 20 year period prior to 1990, with a high of 13.9 at the beginning of 1990 and a low of 1.46 percent at the beginning of 1987.

Again, Bill Daley: “And I believe we have to and at the same time (there’s) revenue.  The problem has been the last four years have been a waste because the former governor and the fight in Springfield and all that stuff.  But some people want to just put it on the backs of the pensioners. Others want to solve it with the revenue side.  Property tax increases some people want.  Casinos. Marijuana…I’ve said everything must be on the table but there must be reforms to the system.  Which means we’re going to have to change the constitution and we ought to get on with it.  And then allow labor and management – the government – not just the city and remember the state’s problems are much worse than the city’s.  To sit down and bargain some of these things in an honest way to make changes.”

But an effort to amend the Pension Protection Clause is unnecessary: Incoming and new hires coming in to the public sector in Illinois do not have access to a compounded COLA in their retirement.  Nearly a decade ago, the legislature in the General Assembly passed a bill generating a second Tier for incoming educators which would force them to work longer (age 67 without penalty), for a simple and capped interest COLA based on the CPI, and the same payments to the pensions as Tier One (those who have 3% compounded).  The dwindling population of Tier One teachers is now already in or heading toward retirement.

The General Assembly can (and has) made changes to the COLA as well as other requirements and diminishments for public sector workers who are entering the public work force.  That is legal and easier to do.  From the Center for Tax and Budget Accountability, Ralph Martire: “Why take away the constitutional protection for workers when legislatively, you can create a Tier II, Tier III, Tier IV that has a different cost of living adjustment, COLA, for workers going forward? You accomplish the same thing in much less time, because passing a piece of legislation through Springfield is a much quicker process than getting a constitutional amendment.”

Like most arguments made by various Daleys through Chicago history, their voices express a kind of confused exasperation: “To be honest with you…I’m not saying it’s on one side only, but it cannot be but when you have a system that cannot be changed right now.  And I’m not talking about gutting anybody’s pension.  Take a simple 3% COLA a year compounded, compounded a year.  Somebody retiring at age 55.    Lives to 85 or 90.  And be getting whatever they’ve earned on their pension, and still be getting 3% a year compounded, okay…which is incredible.  If someone came to you and said I will guarantee you 3 % compounded for the next 35 years you would take that investment in a minute.  Right now, everybody is basically stuck to try to solve this problem and all I’m saying is we ought to take the handcuff off in order to be fair. I’m not sayin’ be unfair to people unless you believe absolutely no way going forward new employees or present employees you cannot change anything no matter how bad the city’s finances get for no matter how few people live here …you know, the pensioners who I admire, you know many on pensions from government… the minute they retire and they have a right to they can move anywhere- they can go anywhere – and they can pay taxes in other places…and they are not the ones who are not necessarily here having to pay those obligations albeit legal obligations…but all I’m saying is let’s get real and together try to figure this thing out.  But if you don’t change the constitution being able to do that in a fair and balanced way it is almost impossible.

And although he may have family and people he knows on government pensions in Illinois…well, it’s just not fair and (exasperation) you’re the problem.

Summary: The calls by the outgoing Mayor of Chicago and Bill Daley identify the critical costs and debt the city (as well as the state) have built up over the last 80 years, but to try to blame a single reason (like the compounded COLA) ignores the truth as well as the answers.

The legislature has already addressed those issues through Tier developments even if unfairly.

The Illinois Supreme Court states that such an attempt will not affect current Tier One retirees.  Any changes, even those by constitutional amendment, can only be enforced “going forward.”

The refusal to amortize the pension debt and subscribe to an artificial “ramp” that is draining services is undermining the general revenue. By 2030, $6.5 billion in General revenue will be required to pay the pension ramp (PA88-593) unless the General Assembly acts.

Tier Two and Three (and other) employees will never be given protection against inflation.

Bill Daley states: “We have got to get real out here.  The leadership.  The political leaders on how to deal with this financial anchor around our neck… and that is if we just think short term either personally that my pension is the only thing that matters and I’ll be outa here the minute I retire so it doesn’t and I’m not living here and I’m not worrying about the real estate taxes not worrying about anything else…That’s not fair either. The rest of the people here who are trying to pay your pension. That’s…that’s not fair. “

Yeah, let’s get real, Bill. And, please study up a bit.

Amortize the unfunded liability to pensions, dispense with the 1995 pension ramp used to short pension payments, recalculate the annual required contribution to meet the current (not smoothed) needs, create a tax structure which is both progressive and comprehensive to the people of our state. And start paying the full amount.