Wednesday, November 21, 2012

The theft of the public employees’ pensions

Many Illinois citizens are aware that state legislators have not fully funded the public pension systems throughout the years; that instead of paying into the pension systems, they have used that money to pay for other services. Thus, without having to pay for services, state legislators have created an enormous pension debt (or unfunded liability) for the public pension systems in Illinois.

The “Pension Ramp” (Public Act 88-0593), or the repayment schedule of 1995, has also greatly increased the total pension debt or unfunded liability and needs to be re-amortized, though legislators continue to ignore this most significant problem.
The pension debt is exorbitant. Depending upon the discount rate and data from a given source, the debt is perhaps between $83 and $130 billion.
A decrease in the chosen discount rate increases the unfunded liability; the Teachers’ Retirement System trustees recently reduced the discount rate by ½ percent. TRS is approximately 41 percent funded (its funded ratio) using assets at Market value without asset smoothing (Commission on Government Forecasting and Accountability, November 2012).
“If retirement benefits and salary increases were the only drivers of the unfunded liability, the state retirement systems would be about 94 percent funded today [because public employees’ benefits are not overly generous]” (Ralph Martire, Center for Tax and Budget Accountability).
Approximately one-third of the total pension payment each year is for “normal costs” to the system; the other two-thirds of the payment is the interest owed on the debt the state incurred for not fully funding the pension systems.
To transfer the “normal costs” of the Teachers’ Retirement System to school districts is to eliminate the state’s role in providing income retirement security for its public employees. This possible absurdity has also been debated by some legislators despite this fact: “The State has the primary responsibility for financing the system of public education” (Article X, Section 1 of the Illinois State Constitution).
Some state legislators and their corporate benefactors are determined to break a constitutional contract with public employees; these state legislators also continue to ignore the essential fact that current revenue growth does not match the state’s need for public services and for payment of debts.
The State of Illinois uses a “flat, low-rate income tax that does not adequately capture income growth, and income tax revenues thus routinely lag behind economic growth. The state relies heavily on a state and local sales tax that is almost exclusively applied to goods and excludes almost all services…
“Because Illinois is chronically short of the revenues it needs to cover its expenses, it has engaged in a number of poor fiscal practices over the years. It has postponed payments to vendors, failed to make adequate pension contributions or borrowed money to make the contributions, securitized [sic] or sold assets, and taken other dubious actions” (the Center on Budget and Policy Priorities).
Besides the Center for Tax and Budget Accountability and the Center on Budget and Policy Priorities, Illinois revenue restructuring (or reform) is recommended by the Chicago Metropolitan Agency for Planning, the Institute on Taxation and Economic Policy, the National Council of State Legislatures, the Economic Policy Institute, the Center for Policy and Economic Research, the National Association of State Retirement Administrators, the National Institute on Retirement, and United for a Fair Economy.
Many members of the Illinois General Assembly (GA) do not listen to the aforementioned leadership of these reputable organizations; however, many members of the GA do listen to the wealthy members of the Civic Committee of the Commercial Club of Chicago ( and its Illinois Is Broke), the Civic Federation, the Illinois Policy Institute, Americans for Prosperity, and their ilk.
Cutting pension benefits for public employees, through so-called “pension reform,” will not solve the state’s budget deficits. Creating and passing any bill that diminishes “promised” benefits, such as the compounded cost-of-living adjustment that is already in place for retired and current teachers, is a breach of contract and trust.  It’s a discriminating and unjust forfeiture and theft of one particular group of people in Illinois, and it’s legally and morally wrong.
Though the State of Illinois has a serious pension debt and revenue problem that must be rectified, legal and moral sense dictates that the Illinois General Assembly must align with the U.S. and State Constitutions and sanction the vested rights of its middle-class public employees. Policymakers must also understand the economic impact on Illinois if so-called “pension reform” should pass.
It is a matter of moral and legal concern for every citizen of Illinois to pay attention to any proposed violations of rights and benefits of the state’s 693,000 public employees. It should be of vital concern for all citizens that the government of Illinois would want to prove its contracts are worthless, especially when the “most basic purposes of the impairment [of the contract] clause [Article XIII, Section 5] as well as notions of fairness that transcend the clause itself, point to a simple constitutional principle: government must keep its word” (Laurence H. Tribe, American Constitutional Law).

The state’s constitutional provision, Article XIII Section 5, protects current employees and retirees. So-called “pension reform” is an attempt to break a constitutional contract.
So-called “pension reform” is a pilfering reform. Most everyone realizes this, perhaps even some of the liars and thieves who perpetrate it.
The theft of the public employees’ pensions is coming soon, presumably in the so-called lame-duck session in early January. So what are you going to do about it? 

-Glen Brown

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