Pension Ramps and Gorillas?

Missing the 200 Pound Gorilla in the Room (The ramp?...  What Ramp?... I don’t see any ramp…) 

Selective Attention: noun.  In psychology, a singular focus for information or answers at the expense of other alternatives which may be available.  In short, thinking only inside the box without other consideration; a particularly dangerous form of group-think.

In a famous study of the 1970’s, Ulrich Neisser, a professor of cognitive psychology at Harvard, tested the results of singular concentration on perception that has real implications for what we see in Springfield these days. 

First, he videotaped some students passing a basketball back and forth on an open court and differentiated them by using shirts of white or a darker color.  He asked those watching the video to count the number of passes between the players wearing white for a specified period of time.  During the video, he inserted images of a woman with an umbrella.  Later on, the vast majority of the subjects who watched the video never reported seeing any woman with an umbrella in the room. 

Lately, professors Christopher Chabris and Dan Simons decided to try it again, but this time adding a 200-pound gorilla that, in one case, remained on the court for nearly ten seconds before ambling off screen through the moving basketball passers.  Results?  Once again, half of the people watching the video never saw the gorilla.  

You can see the interview and video at BigThink (http://bigthink.com/ideas/20583 ).

The frightening implications of selective attention are everywhere –the kid texting while driving next to you or the Representative in Springfield looking at the latest bills for “pension reform.”  And, of course, you and I both know the gorilla in this case is the crazy, ascending ramp (PA 88-0593)designed to repay the money stolen from public sector pension funds over nearly a half century. 

Instead of addressing the problem of the 1995 Ramp, the legislature has decided to ignore the gorilla and construct an answer by cutting benefits. Governor Quinn is their best cheerleader. 

Proposed bill HB6258 (Rep. Nekritz, Sen. Biss) severely diminishes promised cost-of-living adjustments, increases retirement ages, escalates employee contributions to highest in the land, caps eventual pensionable salaries, and pushes new employees into a cash balance plan (instead of a pension).  Nothing about the Ramp.  Nothing about the nearly $100 billion owed.

Proposed fall-back SB1 (Sen Cullerton)  requires all active and retired members to make choices: Either accept a reduced cost of living adjustment and maintain access to the state’s health insurance program for retired teachers, or keep the current TRS COLA and lose access to state supported health insurance in retirement.  Nothing about the Ramp.  Nothing about the nearly $100 billion owed.

As Ralph Matire has been warning for years now, “Purportedly to rectify the problem, Public Act 88-0593 was passed in 1995. Known as the "Pension Ramp," it established a repayment schedule to get the pension systems 90 percent funded by 2045.

“Unfortunately the Pension Ramp was fundamentally flawed, because it continued the practice of borrowing against pension contributions to fund services for 15 more years, effectively tripling total pension debt, and was so backloaded that the installments of debt to be repaid in out years jumped at annual rates that were unrealistic and unaffordable.

“For instance last year in FY2012, the state's pension contribution was $4.1 billion, of which only $1.6 billion was the cost of funding benefits, while more than half, $2.5 billion, was repayment of debt. In FY2013 the contribution jumps by 23 percent to $5.1 billion — with all the increase being debt repayment under the goofy Pension Ramp”(http://www.dailyherald.com/article/20120703/discuss/707039979/) .

The problem is not pension benefits, no matter how many times Governor Quinn links the regular payment (which is minor) with what the state owes the pension funds.  That’s the gorilla.  That’s what they choose not to see.

HJRCA0011 - Say It Ain't So, Joe...

HJRCA0011 (Say it ain’t so, Joe…)

In the Shakespearian tragicomedy Merchant of Venice, a seminal moment arrives when the evil moneylender Shylock demands his pound of flesh to be cut off nearest the heart of loan-victim Antonio.  Defenders of the threatened plaintiff beseech the judge to reconsider the ridiculousness of the original contract, one ultimately ending in the death of another.  The judge, a brilliant and disguised heroine, warns that it cannot be done: breaking contracts would set a precedent in the state which would result in the destruction of all confidence in Venice and with its business partners beyond the sea. 

In the tragicomedy that is Representative Joe Sosnowski, his recent sponsorship of HJRCA0011 demonstrates the Rockford legislator’s complete disregard for the pension protection clause of the Illinois Constitution as also nothing more than fiction, a careless piece of writing that he can expunge without consequence.  Or can he?  HJRCA0011 proposes, “to amend the General Provisions Article of the Illinois Constitution. Repeals a provision that specifies that membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired. Effective upon being declared adopted.” 

Sadly, it appears Representative Sosnowski has not considered the results of his proposal to strike down safeguards to the pensions systems in Illinois.  Hopefully, other legislators have.  Even if it were legal, such a proposed amendment would face the challenge of the United States Constitution under the Contract Clause of Article 1.  Even if it were to come to fruition, such changes might result in an exodus of state workers from their present positions to other states or other employment.  What responsibilities might the state face immediately for federal provisions regarding social security or retirement savings?  What would the state do, still facing a nearly $100 billion debt that has to be paid?  What would happen to the contributions of those who were paying into the various funds?  What would be the legal (Representative Sosnowski cares not for moral concerns) rights of anyone now retired in an action designed specifically to deprive them of what heretofore had been a contractual promise – and we are back again to the United States Constitution.

Of course, this may be just fine with Representative Sosnowski, who one previous neighbor described as being well supported by Tea Party members in the area of Fox Ridge, where Representative Sosnowski lived before quickly escaping the nearby construction of a large asphalt production plant he had helped to arrange (http://rockrivertimes.com/2012/01/11/guest-column-change-of-address-for-joe-sosnowski/).  The neighbor complained that Representative Sosnowski and his family moved nearly five miles away from Fox Ridge after the Representative’s declaring that such an enterprise as William Charles Asphalt would provide no differences in the environmental atmosphere or land.  The concerned neighbor, Mr. J. Sammon, states,” Mr. Sosnowski…is a political opportunist.  The Republican Party obviously advised him that becoming involved in this controversy and taking a stand against the William Charles conglomerate would constitute political suicide.”  Ironically, the same resident describes Representative Sosnowski’s act of political cowardice as one more example of another legislator in Winnebago County willing to “feed at the public trough.”  And yet, that is precisely how Representative Sosnowski thinks of those of us who would work in the public sector and expect a promised pension (after being denied social security) at the end of a long and often distinguished career. 

Besides appearing at the Northern Illinois Tea Party Forums, Representative Joe Sosnowski is a full time employee of the Rockford Christian Schools, working in a promotional responsibility as Director of Institutional Advancement.  On the other hand, when it comes to public schools, Representative Sosnowski’s votes seem less than generous when it comes to tax money for education or for regional superintendents.  You can find quite a bit about Representative Sosnowski’s past voting records or his contributors (mostly realtor associations) at Project Vote Smart (http://votesmart.org/).   For Illinois pensions, the Representative conveniently and unthinkingly links the unfunded liability and the normal required payment to victimize retired pensioners.  In the Rockford Register Star voter guide, Joe’s description of Illinois is one of “past poor fiscal management,” one that requires a restructuring our retirement programs.”  When Joe comes to restructure, he employs only a wrecking ball.

Representative Sosnowski ran unopposed this last time around, but many of his previous neighbors and others had created a write-in candidate to show their distrust and dislike of Representative Sosnowski:  Mickey Mouse.  Apparently, the cartoon character was a description of the lack of significant legislation (beyond special use permits for real estate friends) that Sosnowski accomplished in Springfield. 

Maybe this is Sosnowski’s big moment?  Maybe a really big bill like a House Joint Resolution for a Constitutional Amendment will provide some gravitas that will make the next write-in candidate a bit more serious?  Maybe something like Goofy? Or maybe it will appease the Tea Partiers who are watching his every move?  On the other hand, real legislation, Rep. Sosnowski, is designed with eventual outcomes in mind – both good and bad – not just to hit a target.

Call for Madigan (with warmest regards)

Call for Madigan  (an invite with warmest regards)

Michael Madigan refuses to meet with the public union coalition We Are One, who have called a summit in Burr Ridge for February 11^th to discuss reasonable and constitutional methods of alleviating the crushing debt facing Illinois after nearly a half century of not making payments to the pension funds – a period of time for which Speaker Madigan presided for almost 40 years.

Of course, it probably won’t be productive for the Speaker to be present anyway, given his comments in the abrasive response posted to AFL-CIO President Michael Carrigan’s  We Are One offer.  In his letter, he reminds the coalition that they had their chance in 2012, but “I felt there was little willingness from representatives of labor to draft a comprehensive, common-sense solution.”

What was the common sense and comprehensive solution Madigan wanted instead?

For one, he called for an immediate benefits reduction by AFSCME to start. The Speaker was bitter about the organization’s refusal to “ratify a contract that decreases the take-home pay of its employees.” 

The Speaker also made clear the too elevated a position in the nation of our public servants, identifying “Illinois (as having) the fourth highest average state worker pay, including overtime.” 

Having the longer perspective of experience, especially when it comes to dealing with those in the private sector (Sears, CME, Caterpillar, etc.) who would treat unions much differently (Caterpillar) or decry the cost of any pensions at all (Civic Committee), Speaker Madigan suggests We Are One might want to “recognize(s) the state’s serious fiscal condition and put(s) government employees on par with those in the private sector relative to a benefits package.”

Finally, he’d rather endorse his pet project called HB6258 (put forward by Rep. Elaine Nekritz and Senator Daniel Biss), which would – after stripping benefits for current and future retirees – “put Illinois on a path to preserving the state’s pension systems.”

On the other hand, even a master of the emolument increase and other deliberately vague political manipulations should be present to hear suggestions put forth in good faith and with regard for the protections provided by the Illinois Constitution.

Remember to call or email the Speaker on Friday, February 8^th.  This week our message is plain and simple: You must talk to the unions to find real pension solutions.

Rep. Michael J. Madigan

(D-Chicago)

22nd District Office

6500 South Pulaski Road

Chicago, IL 60629

(773) 581-8000

(773) 581-9414 (fax)

Capitol Office 

300 State House

Springfield, IL 62706

(217) 782-5350

E-Mail

mmadigan@hds.ilga.gov.

Illinois Tax Loopholes - Aren't I Getting None?

Loopholes (aren’t I getting none?)

Noun:  (Dutch from liupen) Angular cuts of slits and openings in the stone walls of castles or fortifications which allowed an archer or soldier to look out and fire without being exposed directly to enemy attack.  Later uses have evolved connotations of gaps or omissions that can be manipulated or exploited.

While you and I were sleeping:

Trying to get legislators and the Governor in Illinois to recognize a structural revenue problem has not been an easy task; on the other hand, some illumination at the end of the political tunnel glimmered this week with the proposed amendment by Representative Naomi Jakobsson and Representative Linda Chapa LaVia (thank you both) for a graduated income tax (HJCR0002).  Don’t start buying party supplies yet, as one veteran Representative recently warned me;  “The specific nature of such a change in the nature of income tax – if it were to pass - is not yet anything more than nebulous.”  Foggy or not, the proposal momentarily lifted my spirits, but alas, then I forgot the nature of those who make law, at least in our State of Illinois.

Wake Up Call:

Acting with the lethality of a hit squad less than a month ago, the Revenue and Finance Committee of the House of Representatives of the General Assembly efficiently garroted SB282, a bill that might have helped correct some of the structural revenue deficit in Illinois.  SB282 was passed last November in the Senate and allowed for an actual and authentic accounting of how much Illinois receives or loses from its powerful businesses in their income taxes to our state.  It would have required companies to disclose in actual numbers (for the last two years) tax income received and taxable income that got away.  How would such disclosure help you?

The Recurrent Nightmare:

Every year, publicly traded businesses and corporations – like CME, Sears, Boeing, etc.  – arrive at the Governor’s mansion and ask for tax breaks.  When the Governor pauses, the company representatives turn less solicitous (think Jekyll and Hyde) and warn that their businesses will leave Illinois if they are not given their demands for a tax handout.  The Governor wrings his hands, and he turns to his fellow legislators in the General Assembly, and together they all perform a ritual dance not dissimilar to the Kubler-Ross stages of dying, but they later all give in.  Such is that last stage: resignation.  Later on, when they find out a company like Sears is closing its stores despite promises – or a company like Caterpillar is moving some of its operations to another state with “right to work” laws – they perform symbolic acts of hari-kari through bitter apologies and appearances of shock/dismay.  Note: all these are indeed only figurative.  No politician has ever been actually harmed by these symbolic acts of contrition.  In fact, Governor Quinn has become a stock character in this recurrent drama.

On the other hand, neither the Governor nor the General Assembly can tell truthfully whether or not a company like CME or Sears or Motorola is sincerely in need of tax relief or simply taking advantage of the money trough Illinois provides every year – a lucrative trough that is NOT open to the thousands upon thousands of mom-and-pop businesses that cannot use their size and Civic Committee influence to force a tax handout.  Without really knowing what these company ledgers look like, how much tax is collected or how much is lost, the legislature and the administration in Illinois cannot respond with any sense of true need or correctness.  Influence, weight, force, and threat become trump cards in such a climate.

By forcing publicly traded companies in Illinois to disclose their tax information (income, holdings, payroll, etc.) SB282 would have given the legislature, the Governor and the public a look at what large companies in Illinois have paid dearly to be kept secret – just how much they actually pay in income taxes and just how much they earn at the state level.  Take for example a company like Boeing.  According to the Institute on Taxation and Economic Policy, an bi-partisan group  that gleans through thousands of income and tax documents on the federal level to ascertain an estimate of what companies pay on the state level, Boeing pulled in a three-year profit of nearly $10 billion (2008-2010) but paid effectively no income taxes in at least one year; in fact, a minus 1.8% in tax rebates and income subsidies for all three years.  Like you and me, state taxes are determined by the federal form results, so Boeing in effect pays no taxes to Illinois in state tax as its mysterious collection of accountants can create ledgers that call for no taxes on the federal level ( http://www.ctj.org/corporatetaxdodgers/CorporateTaxDodgersReport.pdf ).  

Waking up:

What would be gained by having access to such information?  Simply this:  knowing what these many corporations were making and what they actually paid would make it a very different scenario when they (lobbyists) came to the Governor’s mansion to ask for and then demand tax relief.  There are many forms of loopholes, some specific to Illinois, which we can discuss later in other blogs.  But know this, without access to that information; the General Assembly is as blind as you or me in determining whether a company actually needs financial assistance in the form of a tax break. 

Conscious yet?

So why, one must ask one’s self would the House Revenue and Finance Committee kill off the proposed legislation?  Would it be because of the influence of people like the Illinois Chamber of Commerce CEO Doug Whitley, who announced, “If this becomes law, it is another outrageous example of Illinois political leaders demonstrating anti-business actions.  It is not rational to keep publicly flogging the job creators” ((http://www.chicagobusiness.com/article/20121127/BLOGS02/121129875/biz-blasts-bill-to-make-firms-open-their-books ).  

Other groups like the Taxpayers Federation in Illinois warn that this kind of inquiry can make the state “even less attractive” for job growth.  It’s a refrain, isn’t it?

If you’re wondering, like I was, what would possess the members of the House Committee on Revenue and Finance to bury the possibility of such disclosure, you might want to ask them.  I did.  So far, only Representative Barbara Flynn Currie has answered my request for information.  As she was a co-sponsor with Senator John Cullerton to pass SB282, she of course voted to move the bill to the floor.  The others have not told me why they did or did not move the bill forward.  Let me know what you find out.

Revenue and Finance Committee Members

John Bradley, Chair, 217-782-1051 / 618-997-9697

Michael J. Zalewski, Vice-Chair, 217-782-5280 / 708-442-6500
Arthur Turner, 217-782-8116 / 773-277-4700

David Harris, Republican Spokesperson, 217-782-3739 / 224-635-2010

Marcus C Evans, 217-782-8272 / 773-783-8492
Joe Sosnowski, 217-782-0548 / 815-547-3436

Barbara Flynn Currie, 217-782-8121 / 773-667-0550

Frank J. Mautino, 217-782-0140 / 815-664-2717

David McSweeney, 217-782-1517 / 847-516-0052

Ed Sullivan, 217-782-3696 / 847-566-5115

Remember, in order to correct tax loopholes, we all (legislators, too) need to know what’s going on.  Call for disclosure!  Thanks.