Monday, January 7, 2013

Nekritz’s pension bill is modeling Rhode Island’s pension reform and will ultimately fail because of it. Senator Cullerton knows it is unconstitutional.

SPRINGFIELD — Cost-of-living increases for state retirees and downstate and suburban teachers would freeze for six years, and no one would be eligible for that perk until turning 67 under a pension-reform package expected to surface Monday in the Illinois House. It also includes employee contribution increases of 1 percent for the next two years and a pensionable salary cap...

General Treasurer of Rhode Island, Gino Raimondo’s solutions for Rhode Island’s shortfall of $7 billion can be summed up rather simply: suspend the cost-of-living increases and offer the state’s public employees a 401 (k) savings plan (Cash-Balance Savings Plan); raise the minimum retirement age (for full benefits) to 67 years old; increase public employee contributions, and press for a cut in the assured return on pension investments (TRS recently lowered the rate).

There are at least six major differences between Illinois and Rhode Island:

1) The State of Rhode Island does not provide accrued benefits or contract rights’ protection either by constitutional provision or statute as in Illinois. Furthermore, “The Pension Clause [Article XIII, Section 5 of the Illinois Constitution] not only makes a public employee’s participation in a
pension system an enforceable contractual relationship, but also constitutionally protects the pension benefit rights contained in the Illinois Pension Code when an employee joins a pension system, including employee contribution rates. The Clause also safeguards pension benefit enhancements that are later added during employment. Further, the Clause ensures that pensions will be paid even if a pension system defaults or is on the verge of default. Finally, while the Clause bars the General Assembly from adversely changing the benefit rights of current employees via unilateral action, these rights are “contractual” in nature and may be modified through contractual principles. In sum, while welching on public pension promises is not an option for Illinois as some legal and civic commentators have suggested, legitimate contract principles provide a solution to mitigate this crisis” (Eric M. Madiar, Chief Legal Counsel to Illinois Senate President John J. Cullerton and Parliamentarian of the Illinois Senate).

2) Many Illinois citizens are aware that for decades the past state’s governors and legislators have not fully funded the public pension systems; that instead of paying into the pension systems, they have used that money to pay for other services without restructuring revenue sources. Hence, without having to pay for services, state legislators have created an enormous pension debt or unfunded liability for the public pension systems in Illinois. It is important to note that in Rhode Island, the state made all of its payments to the pension systems. Public employees in Illinois have been the victims of corruption, incompetence and irresponsibility for nearly 60 years.

3) The Illinois “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 issue. 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. Note that “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). A
pproximately 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.

4) Though state legislators appear to be quite focused like salivating pit bulls attached to the pension legs of public employees, state legislators 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. In other words, t
he State of Illinois uses aflat, 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. Rhode Island does not have an antiquated flat-rate tax system like Illinois.

“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. Unlike Rhode Island, Illinois 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 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.

The Illinois General Assembly (GA) apparently does not listen to the aforementioned reputable organizations; however, the GA listens to the Civic Committee of the Commercial Club of Chicago (Illinois Is Broke), the Civic Federation, the Chicago Tribune, the Illinois Policy Institute, Americans for Prosperity, and their breed.

5) Cutting pension benefits for public employees, through so-called “pension reform,” will not solve the state’s budget deficits in Illinois.
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 wrong.

6) 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. Public employees contribute billions of dollars to the state's economy.

Two final notes, 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.
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 (that are earned, deferred compensations) 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).

"...Rhode Island... is being closely watched as a first major test of whether, and how, financially-strained states and cities can cut the benefits of their workers and retirees. Several public employee unions have sued Governor Lincoln Chafee and other Rhode island officials, accusing them of acting illegally when they pushed through a package of money-saving pension cuts last year, including suspending annual cost-of-living increases for most retirees..." (The New York Times, "Rhode Island Judge Has Stake in Pension Case Outcome," December 2012). 

-Glen Brown

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