Reprise: Charter Schools

“But the internal document, prepared at a time when school leaders faced a December deadline to make their decisions public, lays out multiple scenarios for closing neighborhood schools and adding privately run charters – a key component of Emanuel’s plans for improving public education.” – Ahmed-Ullah + Chase.  CPS had closings draft months ago.  Chicago Tribune.  19 December 2012)

Charter Schools (Rahm’s Uncovered Plan for the “Fat Cats”)

Recent developments have pushed Mayor Emanuel’s emphatic need to close public schools, open profit-making charters instead, and create selective non-union schools.  We’re not supposed to know this secret plan, but if you’re looking to invest in a money making operation, this reprise vocabulary may help in your decision to choose the Rahm’s “new normal” for education in Chicago. Later we'll review what one can make running one of these privatized paradigms.  

Charter School - noun – A Charter School is an institution of learning with accountability to a specified, written charter developed to outline certain expectations for its students, often tailored to more specific outcomes than normally found in public schools.  For example, a Charter School may emphasize a certain field of study like visual art, mathematics, or science.  On the other hand, some Charter Schools may instead promote a more general curriculum.  Whatever the desired effects, the summative target is described in the written charter of the institution. 

Like public schools, charter school students are expected to also participate in state mandated requirements – testing, for example.  The differences, however, are also worth noting.  They also cannot charge tuition, unlike like parochial schools, for they are still considered “public” schools – even though charter schools may be quite selective about their admissions process.  Furthermore, the very ambiguity of their nature – public/private, curricularly- isolated /comprehensive, selective/inclusive, privately funded/publicly funded (or both), etc., create a hierarchy of creatures only Carl Linnaeus might fully comprehend. 

Finally, almost all charter schools in Chicago operate outside and away from the collective bargaining of public unions.  Any attempts at unionizing a charter school must be done in affiliation with the Chicago Alliance of Charter Teachers, not with recognized public unions like the AFT/IFT or NEA/IEA; consequently, herein lies the slippery slope for anyone seeking to organize an opportunity to bargain collectively with the administrative leaders of a charter school for improvements in evaluations, health care, pay, class-size, building improvement, etc.  When suggesting collective bargaining as a possible benefit, teachers or staff at Charter Schools face the immediate scrutiny of the CEO’s who run these operations, operations like Green Dot, Noble Network, or (in New Orleans, believe it or not) Capitol One Bank.  At times, scrutiny without the benefit of due process (tenure) can be unsettling.  By the way, the CEO of Noble Network (our specific case in this vocabulary) receives an annual salary of well over $200,000 per year.  Something is working well in “charter” education.  In fact, according to EduWeek.org, at least 10% of charter schools are managed by for-profit companies (5 Oct. 2004.  “Privitization of Public Education.” www.eduweek.org).

Let’s review what happened at one charter school, Chicago Math and Science Academy, a couple of years ago when one teacher became so bold as to suggest organizing her fellow teachers in order to provide for the students’ and faculty’s benefits.  Indeed, the issue is still unsettled today. 

While meeting with her principal, in June of 2010, the teacher, a specialist in adapting curriculum for lower-level learning students, was given a glowing performance evaluation by the principal Mr. Yilnaz.  Teachers annually meet with the principal regarding performance and retention at the end of each year.  Later in that day, the same teacher joined other hopefuls in the faculty as they assembled in the principal’s office to present, in sorts, a petition (results of a card check union election) to acknowledge their wish to join the Chicago Alliance of Charter Teachers, a subsidiary of the IFT/AFT.  At that time the same Alliance represented eight other charter schools in Chicago (Lydersen, Kari.  9 Aug. 2010.  “Firing of Pregnant Chicago Teacher…”  www.inthesetimes.com). 

Surprisingly or not, the same teacher, instrumental in organizing the group of concerned teachers in order to assist students and improve working conditions was summarily released due to “reductions in state benefits,” although the same school later hired additional teachers for the next year.   The lesson was clear. 

Despite the desire to organize for their students’ improvement – “I didn’t like the climate when it came into going in there on my own to talk to the principal who it seemed was very hostile to any kind of improvements that I wanting in my working conditions – improvements that would certainly benefit the learning conditions of my kids” (Lutton, Linda.  18 March 2011) --  not much happened, and not much is likely, at least for awhile.  Chicago Math and Science Academy hired an expensive union-busting attorney Seyfarth Shaw, an expert at fighting collective bargaining and extending these battles into long and protracted epics. 

And today?  The results are still not in, as the National Labor Relations Board wrestles with CMSA’s issues, including the stance that they are not necessarily “public” despite taking over $23 million in public funds since opening in 2004 (16 Feb 2012.  “Chicago Charter School in union battle”  www.stltoday.com). 

The school’s attorney has argued that public funding is not the only mark of a public institution, suggesting that charter schools are established by private citizens and government has little if any sway over their operations, expenses or curriculum.

In Loco Parentis

“And we know we can’t do this by ourselves.  It comes as a shock at a certain point where you realize, no matter how much you love these kids, you can’t do it by yourself.  That this job of keeping our children safe, and teaching them well, is something we can only do together, with the help of friends and neighbors, the help of a community, and the help of a nation.  And in that way, we come to realize that we bear a responsibility for every child because we’re counting on everybody else to help look after ours; that we’re all parents; that they’re all our children.” – from President Obama’s address to the people of Newtown, CT.

In loco parentis

Latin: In loco parentis literally means “in the place of the parent.”  In loco parentis is a legal concept or doctrine, which places the responsibility or duties of parenting upon an individual (the teacher in an educational setting) without the formal adoption of a child.  The assumption of such duties in education reaches back to the establishment of orphanages and vocational schools, where students not only enrolled but were also considered wards.  The Cheadle Hulme School in Britain still displays the “in loco parentis” under its formal escutcheon.  The school was originally founded in the  mid-19^th Century by a group of concerned businessmen who named it The Manchester Warehousemen and Clerks’ Orphan School.   Since then, the legal term has become a cornerstone of the legal, moral and trusting relationship between educator and student. 

Beyond the required duties found often in a District’s teacher job descriptions – “to file reports in timely manner, keep accurate attendance records, share confidential grading information with parents in judicious fashion, and adhere to all policies set forth by the state and Board of Education”– those entering the profession often find themselves something quite more. 

Any teacher might also add just a few more in this incomplete list.

Delivering the almost-perfect lesson, sharing a smile, modeling good behavior, assisting in comprehending a sticky problem, solving a sudden social stumble, in some cases providing a nutritious meal, finding a new friend, preventing bullying, notifying an unknowing parent, clarifying an earlier explanation, reprimanding blatant inappropriateness, reading a great story, teaching dynamically, wiping an occasional tear, blowing a runny nose, finding some lost assignment, preparing for a chapter test, touching up a dropped project, understanding what we’ve learned or accomplished, recording (physical, intellectual, or other) growth, laughing out loud, smiling knowingly, giving serious directives, sharing the goal to improve, inspiring  the entire group, rallying the defeated, telling a small joke, practicing empathy, communicating truth, pushing the lethargic, encouraging the industrious, assessing their understanding, emboldening the shyly curious, releasing the chaos of creativity, unveiling resourcefulness, containing a confidence carefully, illuminating the self, celebrating the small steps, awarding noteworthy accomplishment, fighting injustices, providing for absent materials, capturing potentiality, mediating a conflict, keeping those falling behind alongside, meeting after classes, meeting before classes, tutoring to give confidence, coaching a student to believe in one’s self, calling the sick at home, reacting enthusiastically, pretending enthusiasm when necessary, decorating the room, celebrating the holidays, drafting an essay, crafting a thought into a sentence, exhibiting shared trust, muddling through a theorem, applying an earlier formula,  sometimes being silly, acknowledging individuality, generating theses, sounding out a word, giving hope, and making believe. 

In honor of the 20 children, 6 educators, and 2 adults, lost on Friday, December 14, at Sandy Hook Elementary School and Newtown, Connecticut.  

Rising to the Bait - Senator Michael Noland

Rising to the Bait (Sen. Michael Nolan on HB6258)

Idiom: Rising to the bait describes the response to a temptation or enticement exactly as planned or intended.  The colloquialism is also used to describe the acceptance of an offer that proves a trick or quite the opposite of what was expected.

In a progressive talk radio program last weekend, Senator Michael Noland of Elgin talked openly about the current proposals made by Rep. Elaine Nekritz and twenty other legislators in HB6258.  You’ll remember that Sen. Noland was originally a member of Governor Quinn’s committee designated early last spring to forge a path to pension reform that would include all stakeholders.  The governor’s Director of Management and Budget Jerry Stermer also sat in on the group.  The result was proposal of choices in benefit reductions  (B1673) that was hot-potatoed between Madigan and Cross and failed to receive a vote (but remains alive).  The sticking point was the proposed cost shift to local districts.

Now, HB6258 puts forth a number of alterations to the current public teachers’ pension program, many which would be immediately challenged in court.  These include increased contributions without benefit increases, severe restriction of the COLA for future and current retirees, a cost shift to the local districts, the change to a cash balance plan, etc.  The proposal is Representative Nekritz and Representative Biss’ “new normal” for pension reform. 

Although Sen. Nolan’s interpretation of the “new normal” means “those already hired should be the least harmed,” he considered this latest and more draconian proposal put forth by the younger group of twenty-one a show of frustration as well as a “show of her (Nekrtiz) consideration of leadership.”  Indeed, while Representative Senger, Senator Brady, and Rep. Noland have seemingly stepped back, Representative Nekritz has become the prominent figure in moving her own agenda to make pension reform happen. 

Although Noland stated he needed time to  “review the (proposed) legislation before I can comment in detail,” he did express qualms about forcing change rather than offering choices in future legislation regarding pension reform.  Holding onto the original senatorial view expressed last spring by Leader Cullerton and others, Noland feels that “we cannot do this (pension reform) without their willingness to accept change.”  There are the public sector unions or their representatives.  Noland holds to the legal position that providing a choice would increase the likelihood of passing a later legal challenge.  “Stakeholders need to be willing to sacrifice so that others can have a job.”  Although heretofore neither public sector unions nor their representatives have been called to the table during the genesis of HB6258, Noland obviously feels their presence necessary.  Necessary to have them agree to concessions.

The enticement or bait this time (HB6258) is the promise to pay the annual cost of TRS pensions.  According to TRS, “If the state does not pay its annual contribution to TRS within a set period of time, TRS could go to court to force the state to pay the contribution in the same way that the Illinois Municipal Retirement Fund can force local governments to pay their contributions” (http://trs.illinois.gov/subsections/press/PensionReformProposals.htm ).

On the other hand, given the eventual if not possible inclusion of the shift of costs to local school districts integral to this and other legislation, sue whom?  The state or the local districts?  And of course, this time the state’s promise carries more validity than it did for each of the last 60 years? 

Mr. Noland’s emphasis on choices adheres to Chief Legal Counsel Eric Madiar’s position that compliance with the Illinois Constitution depends upon a selection of options, even if such seems coercive (you will remember the choice between health care and COLA’s).  One could therefore attempt to describe a selection as willing or negotiated, especially if given sanction by stakeholders at the table. 

As Ellen Schultz warns in Retirement Heist, offering options is a ploy used in the private sector quite successfully.   “To enhance their chances at success, some companies started to use a strategy…creeping take-aways.“  This involves taking small steps – increase premiums a small amount, or perhaps start charging premiums in the future.  The retirees and unions ignore them.  Then, a few years later, the company cuts benefits in a big way, saying that the retiree’s prior lack of legal action signaled tacit agreement that the company could change the plan.”

Like the creation of a committee with many axes to grind, HB6258 is a vast array of punishments for public teachers – current, retired and future.  Its design displays little regard for stakeholders or for promises.  Listening to Rep. Cassidy’s delusional explanation of how selective cutting of COLA’s will protect the truly deserving retirees was wretched.  BUT HB6258, like its predecessors and successors, does contain the bait offering a deal.  

Let’s hope that our stakeholders realize just how dangerous any inducement will be. 

Ingram, etc., etc., etc.

Quisling (Dick Ingram etc.,etc.,etc.)

Noun: The origin of the word “quisling” is derived from a Norwegian politician named Vidkun Quisling, who collaborated with the invading Nazi forces during World War II in order to secure himself a leadership position in the occupier’s government in Norway.   While Quisling’s actions may have been the result of both conscientious and delusional beliefs that he could assist in a difficult situation, his name has become synonymous with traitor, apostate, collaborator, and other unseemly characteristics.

Once again, titular head of TRS Dick Ingram has taken center stage to remind the audiences that there are solutions to the crisis faced by State of Illinois and its pension problems.  Remember please that we have been here before; in fact, just last October Mr. Ingram created a tempest by suggesting that the COLA’s were likely the most expensive and most deservedly scrutinized issue in Illinois politicians’ looking for significant areas to “diminish or impair.”   

After push back from frightened and concerned retirees that Mr. Ingram was placing himself in an uncomfortable if not unethical position as negotiator, Mr. Ingram responded that he was only identifying the obvious.  He replied that he was just pointing out what had been only a roll call vote away from being accomplished in the General Assembly.

When Ingram was later taken to task (again) by the TRS Board for making statements which might undermine the confidence or faith in the TRS to manage retirement funds – the principle job of the service – Ingram was described as having agreed no longer to offer his own personalized compromises or concessions.  His job specifically was the management of TRS funds and investments, not a vocal or public seeker of solutions to the problems caused by decades of underfunding by the State.

Of course, all of this was after an even earlier foray into the world of public negotiations in April of 2012, when Ingram reported to everyone that the pension funds were headed toward insolvency – a statement repeated by members of the General Assembly and often quoted by Ty Fahner, the head of the Civic Committee of the Commercial Club of Chicago.  Ingram tried to qualify his suggestion later by explaining that such a scenario would be certain if funding from the State were to dry up.

And now, once again, Ingram in this week's Chicago Tribune has decided to explain anew the need for everyone to partake in a “shared sacrifice,” just as the younger members of the House have generated HB6258, a proposed bill that would raise the age of retirement, increase contributions, negate the cost-of-living allowances, and force a shift in pension costs to the local districts. 

Is this the sacrifice to which Ingram alludes?  Is this just one more case of his thinking aloud?  In any case, his allusions have become more urgent: describing important kernels of truth in Squeezy the pension python’s message, reminding us once again of the potential insolvency of TRS, of not being able to keep our members’ retirement promises, that fixing the problem for the young teacher fixes it for everyone, etc. 

Exploiting pronoun ambiguity, Ingram exhorts, “ We are at our best when we think of the future instead of the present, especially when the present is challenging and difficult.  When we sacrifice for the next generation, we do great things for today.  Who among us would not strive, I lean times and good times, to make the future better for our children and grandchildren?”  Who is “WE?” Certainly it was not the General Assembly, then or now.  Certainly it was not the leadership in the Governor’s office in Illinois.  Almost as certainly, Ingram would have us ignore the legal framework upon which our benefits rest in some security in order to open the doors to concession, a door he has propped open on every occasion he can find.

Ingram is a problem.

RSVP - Get On The Bus

R.S.V.P. (You’re Invited To Springfield)

Illinois Retired Teachers Association

Illinois Education Association

Illinois Federation of Teachers

Illinois University Teachers

Etc.

Phrase: Respondez s’il vous plait  In formal French etiquette, please respond, or more literally, respond if it pleases you.

The We Are One Coalition extends this invitation to rally in Springfield on January 3 and 4 to more than just public sector education employees.  In fact, because we are all in this together, the invitation goes out to ALL members of the We Are One coalition.  ALL means nearly one million statewide members working to protect and preserve public pensions and the contractual promises made to those workers by the General Assembly, the political leadership in Illinois, and the citizenry of Illinois through the ratification of the Illinois Constitution in 1970.  Those contractual promises of the Constitution are now challenged by a series of bills, including HB6258 by Rep. Nekritz and Rep. Biss, which threatens to severely reduce COLA’s for all present and past employees, alter the defined-benefit package, force higher contributions, etc.

On Friday, December 7, IEA President Cinda Klickna affirmed the importance of all educators’ attendance at the demonstrations, noting that IEA buses are for “members and friends, family, IRTA members” – in short, anyone from your neighbor police officer to the concerned retiree next door.  Please Get on the bus!

Pointless publicity or poignant presence?  Look to the CTU for an answer.  This last summer, CTU President Karen Lewis remarked that their (the union’s) purpose in demonstration and strike was to indicate the outrage and solidarity of their “education-justice fight.”  In retrospect, the CTU’s action was hardly pointless; in fact, the Washington Times in a post-strike report described the Chicago action as responsible for a national refusal by educational unions to back down.  “Rather than the unions’Waterloo, the Chicago walkout likely was a precursor of things to come” So Get on the bus!

Poignancy in a large presence?  Remember that “Illinois voters overwhelmingly blame politicians for creating the state’s public employee pension mess, but like elected officials, they’re divided about plans to fix the problem,” according to a Chicago Tribune/WGN poll in October of 2012.  Real remedies like moving away from an antiquated flat tax, changing the budgetary process, or amortizing the ridiculous 1995 ramp-up will fall only on the Speaker-deafened ears of representatives and senators – not the public – without a wake-up notice.  Rallies educate those on the sidelines too.  Get on the bus!

Finally, like any invitation to a gathering of the brightest minds in Illinois, gain from the experience.  Meet others and network.  Seek ideas and answers.  Share strategies for educating politicians; explain this injustice to your neighbors; share the professionalism of your good work over the years.  Get on the bus!

 

Contact your local IEA Office and reserve your seat today!

Click on the city nearest you and call that office.

 

Cash Balance Plans

"The real reason that we can't have the Ten Commandments in a courthouse: You cannot post 'Thou shalt not steal,' 'Thou shalt not commit adultery,' and 'Thou shalt not lie' in a building full of lawyers, judges, and politicians. It creates a hostile work environment." – George Carlin

"A cash balance plan splits the difference in that it provides a guaranteed minimum benefit for every employee but has predictable and manageable cost and is not susceptible to abuse." - According to Rep. Dan Biss of Skokie, whose fingerprints are all over the proposed change.

Cash Balance Plan (…like a pension only really different)

Noun:  A Cash Balance Plan is just one of the many proposed moving parts put forth by Rep. Elaine Nekritz of Northbrook and Rep. Dan Biss of Skokie in another immoral attempt to stop Illinois' fiscal bleeding by bleeding the minority the General Assembly and the various Governors cheated to begin with.  Don't be fooled by the saccharine description that will by provided by legislators like Biss.  While they will promise you that a cash balance plan is a better compromise between the mismanagement of pensions and the risky self-management of 401(k)'s, it was never intended to provide for a stable retirement.   

A Cash Balance Plan is another variation on retirement savings plans developed in the 1980’s that is both deceptively simple yet devilishly complicated.  In its design, a Cash Balance Plan falls into the federally recognized arena of defined benefits (like a pension) as opposed to defined contributions (like a 401K).  There is no simple definition, so you’ll need to read on.

In essence, the employer credits a worker, like a teacher, each working year a percentage (usually 4 – 5%) of her salary, which becomes a “hypothetical” account balance that grows over the years.  For example, let’s say that Jane the reading teacher earns $30,000 in a year one of her work at the school.  Her “hypothetical” account would be 4% of $30,000.  That would equal $1,200.  Next year, Jane earns $32,000.  Add another 4% ($1,280), and Jane’s “hypothetical” account has now grown to $2,480.  Are you with me so far? 

Now let’s add another aspect to Jane’s  “hypothetical” account.  The employer will also provide an annual percentage rate as if the money accumulating in Jane’s hypothetical account were invested in something like an index or long-term Treasury bond.  Right now, T-Bonds are a little under 3%, but the employer will have to maintain that number and accept the risk throughout Jane’s tenure at the school.  In year one, Jane has no interest as her “hypothetical” account starts.  But in year two, she can figure an additional $34.80 in interest added to her “hypothetical” account.

By the way, hypothetical means just that.  There is no real money in any account, but the employer is responsible for actuarially maintaining that record for later dispersing of funds “hypothetically” earned.  

This alternative defined benefit plan has become the darling of Representative Biss’ approach to solving the “pension crisis.” In fact, Representative Biss (Skokie), whose proposal for a cash balance plan in HB1673 was deleted only after Speaker Madigan handed the dying bill to Rep. Cross last spring, still strongly considers this concept a positive alternative for both Tiers of public employees.  The plan in HB1673 was a replica of his initial proposal in his own HB6149.  Now we see its re-appearance in a proposed new bill HB6258 -  being launched in the Veto Session.  According to the legislator Biss, in the spring he wanted to make improvements to "the inadequate benefit offered Tier II employees and preserve the existing defined benefit… for Tier I employees" (Representative Biss in a May 2012 email communication).   Last spring Biss offered choices for cash balance plans.  His new proposal, on the oher hand, will place all new hires since 2011 in a Cash Balance Plan.   And, because of Representative Biss' connections to the pension committee, which will once again hammer out the details of the next proposals sure to come at us in November through January, we should all be aware of his involvement and strong advocacy for this kind of retirement plan.

Second, let me try and make this simple.  The main differences between reading teacher Jane’s defined benefit pension and a Cash Balance Plan(CBP) are these (to name a few):

A CBP is a slowly building “hypothetical account” which takes into account all of your years of service, and it is not calculated at all like our current pensions.  Many years from now, instead of calculating Jane’s retirement by averaging the last four years of her earnings and a percentage based upon the number of years of service, it will include all the early years for which Jane made very little compensation.  This is especially impactful for teachers who have received pay increases over the years as well as later increased compensation for educational advancements and degrees.

A CBP is a completely portable account; consequently, it is very alluring to those who move from one job to another (unlike most educators) and likewise serviceable to employers.  After two years of service, the State of Illinois  (or local school district – but that’s another earlier vocab) can cut a check for Jane for $2,480 and send her on her way.  Oops, she’ll also get that nearly 3% per year in hypothetical interest too.  Or $34.80.

Let’s talk about that interest, too.  What if returns on investments increase?  What if the Great Recession ends in the next ten or thirty years? What if the market returns on investments become much more than just under 3%.  Does Jane get that too?  Sorry, no.  The employer reaps any extras off of Jane’s hypothetical accounts.  Of course, the employer will argue that it took on the risk to begin with. 

Starting to see how this works?  Cash Balance Plans were first developed in the 1980’s by Kwasha-Lipton, a New Jersey investment firm,  as a means to capture surplus dollars from employee pension plans without running afoul of the IRS for not paying the federal taxes on money taken out of employee pension plans (Schulz, Ellen.  Retirement Heist). Regular pensions produce rapid growth in value at the end of a career, but by creating an instrument that grows slowly at a flat rate, money can be saved (or diverted) from pension responsibilities.  Multiple those by a hundred thousand or more, and you’ve made some seriously big money.  According to Schulz, Kwasha-Lipton partners determined savings of 25 – 40% in pension costs by converting to this “new, complicated” product.  To see just how smugly they celebrated their manipulation of middle class pension savings, take a look at some of their end-of-year parties.  One of the first companies to employ this new concept in order to re-direct funds destined for workers pensions was Bank of America.  I’m shocked?      

It gets worse.  When companies or the State of Illinois convert to a Cash Balance Plan, they freeze the old pension, ending its growth.  On occasion, the “old” pension is converted to a lump sum which becomes the new “hypothetical account balance.”  The balance now grows by a flat rate of 4%, killing any leveraged growth.  The older a worker, or the more time vested in the regular pension plan, the greater the suffering.  For example, a teacher like Kenneth, who has over 30 years in the system, my have an opening account balance of nearly $200,000 to start.  But remember that at 9.4% per year, Kenneth has already contributed well over that amount – more like $300,000.  It will take Ken many more years to build back that contribution amount.  When Cash Balance Plans emerged in the business world, age discrimination suits became a new growth industry.  Later legal federal adjustments were made to provide some protections for the elderly and vested employee.  On the other hand, these instruments and their half-sister, the 401 (k), were developed to provide portability to a more mobile work force and savings for employers who faced promises of pensions to an aging work force. 

Finally, Cash Balance Plans are required by law to fulfill at least one aspect of a defined benefit: they must provide an annuity payment for the balance of a retiree’s life (or offer a lump sum pay out).  Most workers wanting to manage their own end of life savings/retirement choose the latter, but others will accept the annual guaranteed pension benefit.  How much per month?  Unlike a pension, you’d better look at it from an annual perspective.  According to a recent CBS analysis of Cash Balance Plans vs. Insurance Annuities (2012), the average annual pay out for those who desire the CBP annuity for life is about $8,000 per year for every $100,000 saved in their eventual "hypothetical account." See cash balance retirement plans: annuity options.

At those rates, young Jane better have well over a million in her hypothetical account when its time to leave.  At those rates, the State of Illinois will be able to begin having public employees pay down the debt created by years of underfunding.  Indeed, the unfunded liability is expected to be completely taken care of in a mere thirty years if Rep. Nekritz and Rep. Biss can get HB6258 or another yet unnumbered bill passed.  

Stop the bleeding?  Remember, my fellow public employee, the target has always been you and me.

Fiscal Cliffs and Pensions in Illinois

Fiscal Cliffs & Pensions (the Nightmare After Christmas)

Fiscal Cliff (idiom):  A metaphorical euphemism to describe the pre-arranged and self-inflicted punishment that the United States of America will have to undergo at the end of the current year when the requirements of the 2012 Budget Control Act take effect; that is, if there is no compromise.  Chances are currently unlikely.

The nation’s lurid phantasmagoria coined the “fiscal cliff” has had little or no connection in the press to the egregious effects it will have on the economies of our many states.  Sadly, states like Illinois, which already hold an indisputably uncomfortable fiscal position may be exponentially affected by the federal government’s inability to find resolution on the national level.  In essence, what is a currently contrived pension “crisis” in Illinois could become the necessary scapegoat for a deadbeat state treading water to one facing another national fiscal tsunami. Given the ethos of our current General Assembly, this may be an unfortunately forgone conclusion.

States with monetary houses out of order or that are greatly dependent on federal dollars will be severely impacted by the fiscal cliff, decline, rut, etc.  It makes sense.  For example, states that have become very dependent on excessive or large contracts for national defense spending will find themselves losing access to vast sums of what had been a normal part of their yearly GDP (Gross Domestic Product).  While Illinois is not a state so dependent on national defense spending, other states like Hawaii with a great dependency on such expenditures are looking at a fiscal chasm if there is no resolution.

The impact of the last Great Recession in Illinois has left our budgetary house in complete disorder, special thanks to those in the Illinois state government who earlier avoided making the necessary and responsible payments to over a million public sector workers while using their industry as a credit card to seek popular acclaim. 

A “fiscal cliff” in 2012-13 can only augment the fiscal nightmare Illinois now faces.

Because federal and state finances are often interconnected, the failure to come to some consensus and instead hold to partisan lines drawn in Washington will result in significant increases in federal taxes and federal spending cuts to the states; hence, money lost to the state budgets for services.

Under the Budget Control Act of 2011, when the “super” committee was unable to find resolution in spending cuts, across the board spending will take effect on January 2, 2013 – probably one day before a special session in the General Assembly where pension reform will be a major topic.  Under the Budget Control Act, everyone from a major company, middle-class family, and a small retail shop will be affected harshly. 

The list is not endless, but the pain will be.  First, federal grants will become subject to immediate across-the-board cuts.  Note: This will include funding for education programs, assistance for low-income families (women and children), public housing, etc. 

Even without another almost guaranteed tumble into recession, the percentages of lost revenues to Illinois are shocking: Federal Grants at 8.5% of GDP, Federal Defense Grants at 1.5% of GDP, Federal non-Defense Salaries at 1%, Federal Spending on Salaries, Wages, Procurements at 2.5% of GDP. 

Illinois' total GDP for 2011 was $671 billion.  With these numbers provided by Pew Research Institute, Illinois could face a loss of 13.5% of GDP or $87 billion. 

We have a stake at the national level too, my friends.