Why the Tribune Is Pushing a Constitutional Amendment Change

Tribune Calls on Pritzker to Propose a People’s Vote on an Amendment to the Pension Protection Clause in the Illinois Constitution 

An up-to-date reader of the Chicago Tribune would have to scratch his/her head at the newspaper’s strained reasoning to force a voter’s amendment to the state Constitution remove or “fix” the Pension Protection Clause in Article XIII, Section 5.  

Why?   Major changes made to the benefit structures of current and future hires in Illinois’ public workers’ sectors will make drastic reductions in eventual pension earnings in the approaching future.

There’s no need to make any alterations in a promise to pay the contractual benefits.  Not when the contractual benefits are being diminished by the General Assembly every year or so.  

The Pension Protection Clause protects what you were promised once you started, but if you are getting less and less when you start, the “protection” isn’t worrisome when it promises less or little.  

Tier One teachers who have the benefits afforded to current retirees were those who began working and contributing to their pensions before January 1, 2011.  The General Assembly changed that for all those hires who began working and contributing on or after January 1, 2011, by creating a new benefit structure called Tier Two.

Tier Two public sector workers are required to work an additional 12 years (age 67) before retiring or face penalties of 6% of the annuity for each year before age 67.  A wall will stop the determination of a final average pension payout as the Consumer Price Index (currently approximately $110,000).  Any Cost of Living adjustments will no longer be 3% compounded; instead, the COLA will be 3% simple or ½ the Consumer Price Index, whichever is less.  

This is getting thorny, so take my word that Tier Two workers are getting taken to the retirement cleaners.  In fact, the benefit structure is so bad, there may be later consequences for the state of Illinois in not meeting the “safe harbor” requirements for retirement thresholds determined in Social Security returns.  (See Glen Brown for more information there)

But wait.  There’s more.

The General Assembly has also created a new benefit structure for those entering public sector work called Tier Three.  Tier Three has so many moving parts that the exact benefit structure is still being hammered out.  The thorns are thick in this structure too, but suffice it to say that an individual choosing to remain within this yet-to-be-introduced benefit structure would need to work 60 years to attain the level of pension benefit afforded to a Tier One retiree.  

60 years.  Start working at age 21 and – for the full pension – work until 81.  

I say, defibrillators in every room, kids. 

Within the Tier Three plan, whenever it should appear, are other reductions in benefits which give ample reason for anyone still in the public sector to jump at the chance to move (one time only) to Tier Two.

In short, very short – There’s not really any need whatsoever to force a 3/5ths vote by the senate and the house on a proposed change to Article XIII, Section 5, in the Illinois Constitution which promises a protection of the benefit structure of a pension when continual removals of benefits are forced into the structure before hiring.  

So, I’m back to why? The Chicago Tribune knows full well about these Tier I, II, III changes. The Tribune knows that changes in the benefit structures of public workers will leave them severely short on retirement funds.  The Chicago Tribune knows full well that the $130 Billion debt from money diverted from funding pensions over seven decades will still remain as an ironclad and legal IOU to the pension funds as determined unanimously by the Illinois Supreme Court. 

Because, I believe, the Chicago Tribune – like the Illinois Policy Institute and the Better Government Association in Illinois – want to blame, scapegoat, and eliminate collective bargaining, unions, and pensions altogether.  

It doesn’t take a lot of perusing the editorial pages of the Tribune to see that they invite I.P.I. perspectives and anti-union slant to form their editorial positions.  In June of 2018, it was once again editorial board member Kristen McQueary who found the opportunity to present the Tribune’s singular trope: unions are bad, the pension debt is all the unions’ fault,  the tax increase (using some kind of convoluted mathematics) was the fault of the unions, politicians are corrupted by unions, the unions have too much influence, and (God forbid) the unions have an affinity for the democratic party rather than the Republicans (like the Tribune). 

“And taxpayers are on the hook. The union advocates for tax hikes and government growth — last year’s 32 percent income tax hike and now a proposed graduated income tax — to shore up its strength to the detriment of Illinoisans en masse. All those years of unbalanced state budgets and shortchanged pension funds? AFSCME, an ally of the Democratic majority, was an enabler.

“On the political side, the union is an operative in political campaigns. Its leaders interview and endorse candidates up and down the ballot. They provide staff for petition-gathering and campaign strategy. They dump cash into dozens of races. They coordinate with other unions and political party officials to elect and defeat candidates.

“From 2013 to 2017, 74 percent of the union’s political contributions went to Democratic committees or organizations, according to the Illinois Policy Institute, a right-leaning think tank. Six percent went toward Republican committees or organizations.”

Janus decision aside, the Tribune wants to eliminate the Pension Protection Clause altogether as just one step in an ongoing right-leaning process of falsely blaming unions for the unfunded liability, and eradicating collective bargaining until we too descend into a right-to-work state like Wisconsin and Michigan and Indiana.

Why Teachers Have Compounded COLA of 3%.

Compounded Cost of Living for Teachers?  How Did That Happen?

If you read the editorial pages of the Chicago Tribune or follow the voices of many of their right-bent guest writers, the 3% compounded cost of living (COLA) provided to retirees in Springfield was a smoky backroom deal done in the dark of night by unknown legislators looking to feather their own retirements.  Unknown, except for Madigan, who is deemed the Master Illuminatus controlling all past and present evils in the General Assembly.  

The real story is actually a bit more interesting and, believe it or not, an attempted bit of fiscal compassion.    

Mr. Peabody: “Set the Wayback Machine, Sherman, for 1980.”  Sorry, Millennials, this is a reference to a short series included in the original Rocky and Bullwinkle series on TV…oh well, never mind.

1980:  a year when Fax machines became operational, Rubik’s Cubes went on sale, John Lennon was sadly killed, and PacMan hit the arcades.  

More importantly - Following previous years of equally high inflation, 1980 delivered an additional blow to consumers with a country wide annual rate of 13.58%.  

Despite the median price of a home at $63,000, interest rates were running so high that people were taking out balloon mortgages that offered lower beginning rates but were tethered to an arrangement which required a full payment at the end of a specified time. That last payment was called “the bullet.”  No amortization, just a total payment for the balance later.

(If that sounds familiar, then you are too knowledgeable about pension ramps in Illinois).

Sorry, Millennials, I digress…again.

The inflation rate for our past year 2018 was 2.44%.  

But starting in the mid 1970’s and into the 1980’s, inflation rates were stubbornly high.  

1975 – 11.3%

1976 – 5.75%

1977 – 6.5%

1978 – 7.62%

1979 – 11.2%

1980 – 13.58%

1981 – 10.35%

1982 – 6.16%

1983 – 3.22%

1984 – 4.3%

1985 – 3.55%

1986 – 1.1%

1987 – 3.66

1989 – 4.83%

(The People History)

As past Illinois Teachers’ Retirement System Trustee Bob Lyons observed, “In the 21 years from 1969 through 1989 there was only one year that inflation was less than 3.3% and the average annual rate of inflation was just over 6.2%.  In making the decision in 1989 to change our annual increase from three percent simple to three percent compounded, the members of the General Assembly made what they felt was a reasonable assumption that inflation would continue and that it would grow at the rate that it had been for more than 20 years.  Since state pensions had not kept up with inflation they would provide a necessary increase, but they did not ask anyone to pay for it because they assumed it would not really be expensive.  The change would cost the state, but they assumed it would still run behind inflation. And growing inflation would mean the state would collect more tax revenue.”

Anticipating further elevated inflation rates, the General Assembly granted a change from 3% simple to 3% compounded COLA in 1989 to the retirees in TRS. 

Since 1990, (high of 4.1% in 2007 and low of .1 in 2008) the average inflation rate for the country has been overall 2.4%.   As Mr. Lyons writes, “The reality is that the change from 3% simple to 3% compounded did just what it was supposed to do and it has more than protected us from inflation.”

And he’s right.  On average, thus far, we are looking back nearly 30 years with a .6% positive break.  And in our current media environment of people turning on each other rather than to each other, this COLA correction seems unacceptable to those who criticize the Illinois “Pension Problem” as simply an issue of too many benefits. The finger pointing by the Tribune and other anti-union organizations ignore the truth: the cost of pension would not be so overwhelming if there were no debt payment as a result of decades of avoiding payments.  

Eric Madiar, the past Chief Legal Counsel for Senate Leader John Cullerton and author of a thorough exegesis “Is Welching on Public Pension Promises…,” speaking before the City Club of Chicago, once reminded his audience: “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). 

But like any Zen Balance question, we are all awash in what may decidedly come again in another inevitable wave.  Okay, so now maybe we are .6 ahead.  Now.  But in the 15 years before the 3% compounded (1975-1989), we were battling an average of 6.7% inflation – or a 3.6% disadvantage even if pensioners had compounded COLA’s.  

Maybe the General Assembly didn't foresee a lessening of inflation or the Great Recession, but they understood what continued rampant inflation was doing to state retirees.  

And, it’s not pensioners that created the fiscal problems at the state or municipal levels; it is and will always be the avoidance of funding the pensions that now comprise the interest-laden debt which must be serviced yearly.  As Bob Lyons also wisely points out, “The truth is that this year 76% of the 8.5 billion going to pensions is to make up for the continuous past underfunding of the five systems.  If Illinois pensions were fully funded, all it would take to fund the pensions for all current employees would be just a little more than two billion dollars. The so-called pension problem in Illinois has in reality not been caused by the cost of our pensions, but by the failure to fully fund them.”

The next time someone suggests that retirees’ benefits are the cause for the “pension problem,” “pension crisis,” or the “pension’s unsustainability,” please help them see the truth.

Thank you, Bob Lyons.

Mark the Calendar. April, Vote for Doug Strand

Doug Strand for Trustee of TRS

You’ll remember that the Illinois Retired Teachers' Association was the legal spearhead in the battle to prevent the stripping of pension benefits under SB1’s argument of financial necessity (aka sovereign powers argument). It was the IRTA that legally held the line and secured the unanimous decision by the Illinois Supreme Court in May of 2015 that the Pension Protection Clause in the Illinois Constitution cannot be ignored.  Cannot be brushed aside out of a state’s sudden needs, especially when the state’s underfunding was causal for the “emergency.”

Now, the Illinois Retired Teachers Association has unanimously endorsed Doug Strand for Trustee of the Teachers Retirement System.  

Here’s some background: 

Mr. Strand holds two Bachelors and one Master’s degree.

He was an accounting intern during his undergraduate years at Luther College with Price Waterhouse in Chicago, Illinois.  

After college, Mr. Strand worked as an account auditor in Minneapolis, Minnesota. 

After that experience, Mr. Strand worked as an educator for forty years until his retirement at United Township in East Moline, teaching history, consumer education, and economics.

Mr. Strand served as a member of the East Moline’s Police Pension Board and the East Moline City Council.

Currently, Mr. Strand serves as Vice President of the Blackhawk College Board of Trustees.

Mr. Strand also sat on the Board of the Service Plus Credit Union, a credit union founded by educators of East Moline High School.  

And the IRTA, a stalwart and resolute defender of retirees’ pension benefits, has selected this individual to steward and protect our funds and benefits. That’s more than a significant reason to vote, and make sure to vote for Mr. Strand.  

But you should listen to Mr. Strand himself.  You’ll see what the IRTA liked too.

Remember to Vote! 

Vote Doug Strand for TRS Annuitant Trustee

Why to Vote for Doug Strand for TRS Annuitant Trustee

I gladly borrow this retrospective from Glen Brown and sadly attest to its accuracy.  Recent communiques from TRS as well as the IRTA indicate that little or less is being done to correct the continued exploitation of the Illinois Pensions System by legislators in Springfield.  We need stalwart representation in order to sincerely protect our earned benefits.  I too will vote for Doug Strand.

From Glen Brown: 

It was under the IEA leadership and agreement of Bob Haisman when the flawed “Pension Ramp” (Public Act 88-0593) was signed into law in 1995. It was later discovered that "the Statutory Funding Plan's contribution schedule increased the unfunded liability, underfunded the State's pension obligations, and deferred pension funding. The resulting underfunding of the pension systems enabled the State to shift the burden associated with its pension costs to the future and, as a result, created a significant financial stress and risks for the State..." (In re Pension Reform Litigation (Doris Heaton et al., Appellees v. Pat Quinn, Governor, State of Illinois, et al., Appellants)). 

It was under the IEA leadership and agreement of Ken Swanson when SB 1946 passed on March 24, 2010 in approximately 10 hours, a senate bill where Tier II members would begin subsidizing both Tier I and Tier II benefits, where the state would eventually not owe any annual contribution to TRS because the Tier II members would be paying down the entire cost, where Tier II members will receive a TRS pension that will be less than Social Security, and where school districts will be responsible for making up the difference. 

It was the IEA leadership of Ken Swanson and Cinda Klickna that “proudly supported” Senate Bill 7 signed into law in June 2011, the bill that ensured that teachers’ evaluations and their tenure were tied to the Performance Evaluation Reform Act (Public Act 96-0861), the bill that ensured a so-called “streamlined process for the dismissal of teacher tenure,” the bill that also required an authorization of 75% for a strike vote in Chicago, to name just a few complications that confront today's teachers.

It was on July, 2, 2012 when Fred Klonsky, John Dillon, Michael Cousineau, Catherine Lenzini, and I met with Cinda Klickna and other IEA leaders to discuss our concerns about the IEA's willingness to negotiate teachers' and retirees' constitutionally-guaranteed pension benefits and rights. Of course, the IEA leadership did not heed our advice. 

Instead, 10 months later we witnessed the folly of the IEA leadership's agreement to a reduction of pension retirees’ benefits and rights in Senate Bill 2404 in May, 2013.  The IEA leadership believed SB 2404 would have thwarted any further attacks on the Pension Protection Clause. Fortunately, Michael Madigan never called for a vote on this bill.  What soon followed, however, was Michael Madigan’s Senate Bill 1 in December 2013, another diminishment and impairment of teachers’ and retirees’ constitutionally-guaranteed benefits. Senate Bill 1 was ruled unconstitutional by the Illinois Supreme Court on May 8, 2015.

It is the current IEA leadership under Kathi Griffin that recently endorsed candidates, such as Michael Connelly, Don Harmon, Sue Rezin and others, who had voted to diminish and impair teachers’ and retirees’ pension benefits.

It is the current IEA leadership of Kathi Griffin that recently stated: "...It’s refreshing to have a governor not only focused on what is best for students and Illinois’ future, but who is willing to work collaboratively to get the best results... We applaud Gov. Pritzker for looking at various funding sources because funding has to play a role in the future he’s building for Illinois. A starving state cannot grow. And, we find the Governor’s pension proposal an interesting start to the conversation..."Both the Illinois Retired Teachers’ Association and the Teachers’ Retirement Association have emphatically disagreed with Pritzker's proposed state budget.  

The Illogical Argument of Kristen McQueary on Pensions, etc.

Correlative Fallacy and the Illogical Argument of Tribune Editorial Board member Kristen McQueary

Correlative Fallacy: An argument that tries to redefine a possible correlation (from a multiple of options) so that one possibility encompasses the others, making only one alternative possible. 

Example: Many men who lift weights and work out are bald.  Therefore, lifting weights and/or working out will cause hair loss.

In the Tribune today, Kristen McQueary’s opinion piece ends with an exaggerated font and bold recap stating: “There’s nothing ‘fair’ about politicians spending recklessly for decades, failing to pay what the government owed into pension funds, raising the flat tax rate with no reform, refusing to advocate for changing the pension clause of the Illinois Constitution – and then blaming the rich folks for not pulling their weight.”

There’s lot to unpack here. 

I think McQueary would find most public sector workers in Illinois agreeing with her first two clauses. But they would likely link them both. 

“Spending recklessly,” meant diverting money from pension payments to public sector workers for services without asking taxpayers to make the kind of concessions other people in other states were paying for, like improved roads, health services, public education, etc.  Over the decades as a result, the debt (also known as the unfunded liability) has now reached a whopping $131 billion.  

That’s a lot of unpaid bills over a very, very long period of time.

But Illinois seemed little concerned about that, and even though the state (Edgar) put together an emergency plan in 1995 to pay it all off by 2045, they were only buying more time.  And by skipping or skimping in pension payments, the then fault-filled design did little to help.  In fact, the Commission on Government Forecasting and Accountability, the fiscal research arm of the General Assembly, concluded in 2013 that the largest cause of the unfunded liabilities was inadequate contributions from the state. Underpayments between 1985 and 2012 totaled $41.2 billion...” 

McQueary’s right.  That’s not fair to the thousands of public sector workers who made their nearly 10% payments to expect a pension when they retired. 

As for McQueary’s complaint in the opening comments of her opine that Indiana pays all their bills within their required deadline, but Illinois must put off bill paying for inordinate lengths of time?  And pay interest? 

But trying to link Indiana’s payment of bills within the timeline set by their legislature and Illinois’ rate of delinquency cannot be connected (as she would have us believe) with the unfunded pension liability.   That’s due to much history but more recently to Rauner as it might be to balding men in his administration.  

Rauner’s hardline impasses created all sorts of havoc, devastating nonprofit social services, state-run universities, contractors of all types and vocations. “Meanwhile the backlog of unpaid bills shot up again.  Illinois was spending about the same amount it had spent when the income tax had been higher, but the state was n jo longer collecting enough money to sustain the spending.  By last November, Illinois was $16.7 billion behind in its payments.”  

After her love for Indiana, McQueary argues that Illinois voters should reject a graduated income tax rate because, well, because it was done in 30 other states “and Illinois could have – should have – done so a long time ago.”  But now, Illinois is doing this to make the systemic revenue shortage work to pay the bills while other states (Iowa and Wisconsin) did so for fairness to taxpayers and to stabilize budgets. And unlike other states “(they) have not jacked up the rates irresponsibly as a way to claw out of abysmal financial management.”

So….  Even though Illinois faces a budget deficit after decades of a flat tax, a graduated income tax which would offer more fairness and budgetary assistance is not allowed because you asked too late.  As my dear old mother used to say when we were trying to explain what had happened to her best and now destroyed outdoor plant, “Well, you cannot argue with logic like that.  Now, go face the corner and figure out how silly you sound.”  

McQueary throws some tea party history at the reader in the end, resurrecting the Stamp Act of 1765 and complaining that “Taxpayers deserve respect.”  And in one of her continuous tropes, she equates the inefficiencies of government taxes with pensions to begin with. McQueary wants “relief" on the constitution’s pension clause.  

She somehow correlates the protections reinforced by the Illinois Supreme Court in May of 2015 with the history of skipped payments we both agreed on in the beginning of her essay. Quite the jump.  Especially in that even if she did get her way to strike the pension clause, Illinois would legally still owe every bit of the part it never paid.  That $131 billion that is still owed.  Governors like Big Jim Thompson loved to tell we people that he gave them all these services without increasing taxes.  But it was pensioners who gave their money, not the State of Illinois.  And now we all (emphasis on all) have to pay.

An amendment to provide for a more fair and better balanced state budget through a graduated income tax, or one to strike a pension protection clause which will still be owed? I am pretty sure on where I’d place my energy.

A Letter Penned to Illinois House Minority Leader Jim Durkin

A Letter Penned to Illinois House Minority Leader Jim Durken

February 22, 2019

Dear Representative Durkin,

I read with great interest your observations on the dangers of new-Governor Pritzker’s extension of the pension payment program in order to save money.  It is not often that a Republican Leader and the IRTA (Illinois Retired Teachers Association) often agree, and so emphatically.  (see below)

“The Governor recommended reducing contributions to TRS by $576 million dollars in his budget address. He is basing this reduction on his anticipated legislation that would add 7 years to the ramp, making the date to reach 90% 2052 instead of 2045. Essentially, this reduces contributions annually by several hundred million dollars. He is also proposing, and anticipating savings from, an extension of a buyout program that was passed last year but never put into place. This proposed pension holiday of $1 billion a year for every year of Pritzker’s term will ultimately cost the State of Illinois taxpayers around $150 billion. It is impossible to know the exact amounts until TRS performs an analysis.” (IRTA)

On the other hand, you also call for an immediate reduction in benefits for pensioners, one that both the Tribune and city mayoral candidate Bill Daley promote.  

If I am wrong, and I’d like your opinion, that avenue was closed in May of 2015 when the Illinois Supreme Court ruled unanimously that any or all benefits earned or even accrued during a public employee’s work career are protected from any impairment or diminishment.   Even (as in Kanerva), additional ancillary benefits like health care are shielded from reductions.  

The Illinois General Assembly later designed two new Tiers (II and III) to reduce the benefits available to any of those employees entering the work force after 2011 and 2019 respectively.  Hasn’t the reduction in benefits already taken place through legislative action, Representative Durkin?  Tier II employees are effectively paying more than they will ever receive in return after retirement, will have only a simple COLA, and will retire later in life to avoid significant penalties.  Tier III employees will work an entire career paying more as well, and they will never break even on the payments made to the system unless they toil for over 50 years in the field.  

Here’s how I see it: Tier I employees are protected.  Period. We may be expensive, but we are a diminishing population.  I suppose that’s one positive takeaway.  Is my observation wrong?

In fact, Tier II and Tier III employees are paying for Tier I, and they will never recoup the payments they have made into the pension system; thus, they are working to repay the unfunded liability owed to TRS for decades of the state’s shorting the necessary payments.

That brings me back to your and the IRTA’s critical observation.  Why on earth would Governor Pritzker, especially with an advisor like past Governor Edgar, decide on an extension of the original postponement of paying what’s due, one which will increase the unfunded liability and the interest (compounded) that is attached to it?  The “ramp” plan adopted in 1995, if not so detrimental, would be laughable in the increased accumulation of debt as payments were once again calculated to avoid full payment, etc.  

We have communicated before, and I look forward to your thoughtful response.

Sincerely,

John Dillon

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.

RESCIND THE 3% CAP ON LOCAL DISTRICT CONTRACT NEGOTIATIONS.

From IEA/NEA:

Sign the petition! The Illinois General Assembly: Protect our Profession

Friend,

I signed a petition on Action Network telling The Illinois General Assembly to protect our profession.

IEA members and all supporters of public education are asked to sign this petition to reverse a harmful piece of legislation that was inserted in the budget passed by the Illinois General Assembly last week. Without warning or discussion of the damage it would do to students and schools, Illinois lawmakers imposed a 3 percent threshold on final average earnings salary increases for any education employees participating in the Teachers’ Retirement System (TRS) or State Universities Retirement System (SURS). 
Please sign this petition to encourage lawmakers to reverse this terrible piece of legislation and show educators that their work is valued and that teachers and professors deserve respect. Tell them to rescind the 3 percent threshold. 

Background: 

In the final 48 hours of the 2018 legislative session, Illinois’s four legislative leaders sneaked into the budget implementation bill a measure making school districts or universities financially liable for any contribution to those employees’ larger than a 3 percent increase in the final 10 years of their careers. Because educators qualify for a pension after five years and can leave at any time, districts and higher ed institutions would likely institute a 3 percent threshold across the entire contract. 

Impact:

 
As a result of this legislation, teachers would likely be denied extra compensation for after-school work that benefits students, such as coaching, directing plays, tutoring in the evenings, taking classes toward master’s degrees and, therefore, devaluing the continuing education of our educators and ultimately harming students. In addition: 

Reducing benefits to educators will make the already serious Illinois teacher shortage even worse. At a time when committees are being formed to try to figure out how to keep graduating seniors from fleeing the state and choosing instead to stay at Illinois higher education institutions, this action will drive professors away from the profession. This would financially harm the teachers of this state who devote their careers to teaching the next generation of students, impacting their salaries now and in the future, by limiting salary growth to no more than 3 percent, when rates of inflation hover around 2.5 to 3 percent each year. Please sign this petition to encourage lawmakers to reverse this terrible piece of legislation and show educators that their work is valued and that teachers and professors deserve respect. 

Tell them to rescind the 3 percent threshold.

Can you join me and take action? Click here: https://actionnetwork.org/petitions/demand-lawmakers-protect-our-profession?source=email&

Thanks!

JD

Amending the Pension Protection Clause Is Unnecessary, But It's Great Political Theater

Amending the Pension Protection Clause Is Unnecessary, But It’s Great Political Theater

Recent calls by outgoing Chicago Mayor Rahm Emanuel to “amend” the Illinois State Constitution, specifically the Pension Protection Clause, are getting significant traction in the local press and the city newspapers. The lead in Thursday’s (December 13) Tribune Editorial page opines, “Calling all mayors: Join Emanuel’s pension push.”   

The Tribune, understandably, embraces the exiting mayor’s position: “There’s no question Chicago Mayor Rahm Emanuel can influence public policy with unique firepower.  Even as he leaves the city’s top post, his ideas to address Chicago’s pension challenges can perk the ears of a wide and influential audience.”  

Mayor Emanuel, who has decided not to run again for mayor of the Chicago, is nevertheless quite willing to provide a veteran’s advice to those many who would replace him.  Breaking from a Democratic/progressive position on pensions and liabilities, Emanuel juggled two disparate political concepts:  promotion of a graduated tax system for the state and the overturning of the public pension protection clause for state workers.

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?”

The Pension Protection Clause of the Illinois Constitution (1970), which the Tribune 

characterizes as “rigid,” states: Membership in any pension or retirement system of the 

State, any  unit of local government or school district, or any agency or instrumentality 

therof, shall be an enforceable contractual relationship, the benefits of which shall not be 

diminished or impaired.”  (Article XIII, Section 5)

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.

Since 1990, the growth in the cost of living from year to year has been slower. In the 29 years since the current TRS AAI was set, inflation has averaged 2.47 percent, with a high of 5.4 percent in 1990 and a low of -0.09 percent in 2015.

But now, the 3% compounded COLA has become the villain in our state’s sordid financial 

drama.  Emanuel stated, “The truth is, going back decades too many elected officials, labor 

leaders, and civic leaders – people in positions of responsibility – agreed to a funding and 

benefits system that was not sustainable and therefore not responsible.”  

Actually, that’s not the truth.

The real truth is going back decades too many elected officials – people in positions of responsibility – shorted the actuarially required contribution to the pension funds while workers 

contributed their required amounts; thus, a shortage that snowballed over the decades to 

become what is now a behemoth of debt for which the departing Mayor of Chicago would 

blame an increase in COLA costs provided 40 years after pensions were provided for Illinois workers and the 40 years after their provision.  

Looking back at the truly culpable elements in the increase in unfunded pension liabilities, 

the Center for Tax and Budget Accountability has found that nearly 42% of the increased 

debt is due to inadequate state contributions.  Benefits like the compounded COLA are 1.6%.    

Finally, Emanuel’s lame-duck advice to dismantle the Pension Protection Clause through a Constitutional Amendment is unconstitutional, difficult, and unnecessary.  

Unconstitutional:  If we learned anything in the unanimous decision of the Illinois Supreme 

Court in May of 2015, it was the antecedent court cases and the careful wording of the 

Illinois Constitution that prevented Lisa Madigan, Pat Quinn, and the General Assembly 

from using a crisis of their own making from undermining the contractual promises to public sector workers.  (Thank you, Henry Green and Helen Kinney).  As Director of the Center for Tax and Budget Accountability Ralph Martire reminded during a recent NPR radio interview: “You cannot reduce a benefit that was a pension benefit that was promised to an employee 

in the state of Illinois that’s a public sector worker as of the date of their employment.  That 

is their benefit for their tenure.  Period.  End of story.”  

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 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.  Again, 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.”    

In addition, a Tier III is being added after 2018, if approved by the Internal Revenue System for meeting basic requirements for a state retirement program to be used in lieu of the social security system.   A hybrid plan, the Tier III program in Illinois will also dispense with the 

compounded COLA and provide only a simple interest COLA linked to the CPI or an 

opportunity to move to a 401(k) rather than a defined benefit.

Emanuel calls on the incoming Mayor and the General Assembly to combine an amendment for both the progressive tax schedule and the alteration of the Pension Protection Clause.  The latter, as I have tried to explain, is unnecessary as well as unconstitutional.  It is also 

unnecessarily difficult as 3/5th’s of each of the House and the senate of the General 

Assembly must agree to the Amendment and the voters can them approve or disapprove in the next general election (2020).

 Summary: The calls by the outgoing Mayor of Chicago 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.

What should the departing Mayor advise?  

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.