Thursday, October 17, 2013

A response to Eden Martin’s letter in the Chicago Sun-Times

Eden Martin’s letter:

“After months of quiet negotiations and arm-wrestling, the Illinois legislative pension reform committee may be about to produce a proposal, one light on reform but heavy in financial burden to Illinois. Its main elements appear to be these:

“Change the cost-of-living adjustment (COLA) from 3 percent compounded to ½ the CPI, but with a ceiling of 4 percent and a floor of 1 percent. As state Senate President John Cullerton recently explained, this means if there is inflation, retirees could 'get more than they’re getting now.'

“Reduce employee contributions by 1 percentage point.

“Guarantee funding by the state of the pension system’s obligations. That guarantee would be constitutionally binding, giving pension funding a greater priority than anything other than state bonds.

“Cullerton says such a ‘reform’ would ‘save’ $138 billion over 30 years. Compared to what? The real projected savings would be far less in present-value terms. And if we have inflation, the savings would shrink even more — maybe even disappear. No one is talking about how much — if at all — the $100 billion of existing unfunded liability would be reduced.

“If Cullerton’s proposal were accepted, organized labor would publicly complain about how unfair and hurtful it is. But privately they would be celebrating. They could attack it in court. If they lost, their members still could retire at age 55 — far earlier than in the private sector or under Social Security. If there were serious inflation, which is a virtual certainty over the next three decades, they would get more than under present law. And their contributions would be reduced. Win — Win — Win!

“Most important, they would get that state funding guarantee. The cloud hanging over the pension funds would be lifted.

“What would the state get in return? It would be on the hook. The unfunded liabilities would continue to rise, as would annual pension costs. Pension funding would receive a contractual priority over education, health care, social services and all operating expenses. The state Legislature would be tying not only its own hands but those of future legislatures, not to mention future governors.

“The political significance could be enormous. Suppose some reformer type on the Republican side — a reformer with a meat ax — were elected governor. Someone who believes Illinois should shift, prospectively, to a defined contribution pension plan, which would be fairer to taxpayers and less burdensome to the state. The new pension reform, with the funding guarantee, would handcuff any such reforming governor.

“The Legislature would be faced with a stark choice: either severely cut basic government operations, including education, or raise taxes to fund the pensions (perhaps with higher COLAs and certainly with reduced employee contributions).

“Forget about the presently scheduled income tax reduction beginning in early 2015. How much would taxes have to be raised? And if the proposed graduated income tax were approved, how much would taxes be raised on middle and higher income taxpayers?

“How many individuals and businesses would leave Illinois? How many more would leave Chicago when similar “reforms” were enacted for the Chicago pension funds? If the proposal being floated by President Cullerton is ever enacted, Illinois’ fiscal problems will only be beginning.”

To Eden Martin of the Civic Committee of the Commercial Club of Chicago:

You once stated that this pension crisis is “Not about the law at all. It’s about politics and arm-wrestling over money.”

Your colleague, Ty Fahner, once stated: “This [public pension financial mess] was not created by the people entitled to the benefits... Well, if this happened in the private sector… if someone didn't pay in the money… there would be prosecutions going” (an interview with Phil Ponce on WTTW April 25, 2012).

We both know Illinois policymakers have consistently failed to make the annual required contributions to the state’s pension systems for several decades, primarily because they could pay for services and their “pet projects” without raising taxes (and secure financing for their re-elections).

We both know, in 1995, policymakers created a flawed re-funding schedule, and they have refused to correctly amortize the pension systems’ unfunded liabilities since then. Instead, Illinois policymakers have favored corporate interests rather than the interests of their citizenry and; thus, they have sabotaged the public employees’ retirement plans and the State of Illinois’ future economic solvency through mismanagement and fiscal irresponsibility. State policymakers left us with a fiscal disaster, and so-called “pension reform” or breaking a constitutional contract will not resolve today’s $100+ billion unfunded liability.

Furthermore, we both know besides the need to re-amortize the state’s incurred pension debt, the state “suffers from structural deficits or from failure of revenues to grow quickly as the cost of services…, [and that] structural deficits stem largely from out-of-date tax systems, coupled with costs that rise faster than the economy… Fixing these structural problems would help [Illinois] balance [its] operating budgets without resorting to [breaking a constitutional contract]” (The Center on Budget and Policy Priorities). 

Public pension systems are not the cause of the state’s budget deficits. The state’s budget deficits were triggered by past policymakers’ corruption, arrogance and irresponsibility and are currently perpetuated by some members of this General Assembly, wealthy businessmen and the corporate-owned media. The state's pension debt and revenue problems need to be addressed. Breaking a constitutionally-guaranteed contract with the state’s public servants is legally and morally wrong.

You should know, as a lawyer of Sidley Austin LLP, to possess a right to a promised deferred compensation, such as a pension, is to assert a legitimate claim with all Illinois legislators to protect that right. There are no rights without obligations. They are mutually dependent. Fulfilling a contract is a legal and moral obligation justified by trust among elected officials and their constituents. It should be about the law and the protection of rights and benefits, and not the scapegoating of public employees, retirees, and political opportunism.  

-Glen Brown

1 comment:

  1. My comment to Eden Martin

    I am a school teacher two years from retirement. I will have put in 35 years of dedicated service and have paid nearly 10% of my salary faithfully each year towards my pension. The state was responsible to contribute about 6% on my behalf but as everyone knows failed to meet that obligation and used the savings to provide other services at my expense. Thus the pension deficit. If the state paid its fair share, the public pension systems by all actuarial accounts would be fiscally sound and fully able to pay the constitutionally guaranteed benefits. In fact TRS has paid pension benefits for years despite the gross under funding by the state. The pension issue is clearly NOT a benefit problem it is a DEBT problem. Yet all the rhetoric is about cutting benefits. The under funding of the pensions by the state is nothing short of criminal and public employees are the victims. Now the state wants the public employees to pay for their transgressions. Punishing the victims of the crime for the crime itself. A cause for celebration I suppose right Mr. Martin? Quit frankly I am tired of the media talking about “pension reform”. Please start calling it what it actually is: Debt reform.

    I realize that a defined benefit pension plan is a valuable benefit. But I have virtually an equivalent of a Phd in mathematics and have accepted a substandard salary my entire career when compared to other professionals with my level of education and expertise in exchange for the promise of a defined benefit pension. I dedicated my career to teaching children and felt I provided a valuable service. But now I feel penalized. Not much cause for celebration is it?

    The average teacher pension in Illinois is about $43,000. Do you really think that we will be celebrating that our $43,000 pension will be worth less than $32,000 in 20 years if the COLA is half CPI? And this is something I should celebrate? You consider this a win?

    Finally there have already been draconian changes to new hires in education. Teachers now hired in Illinois will need to work 45 years until age 67 before they can receive a reduced pension. So no one in the future will be retiring at age 55. In fact I would of needed to start teaching at age 20 to be able to retire at 55. Yes some people were able to retire this early but not many. I will be 60.

    Mr. Martin you are obviously biased and incorrect in your understanding of the pension issue in Illinois but I’m not surprised considering your affiliation with the Civic Committee.