Tuesday, October 15, 2013

Governor Quinn met with labor union representatives about so-called “pension reform” last week

Governor Quinn stated: "I listened carefully to everything they had to say, and I think they would all say 'we have to do something together to try and reform the system.'" 

Did the labor unions discuss these solutions with Governor Quinn?

According to the National Association of State Retirement Administrators, policymakers must “keep in mind that state and local pensions accumulate and pay out assets over decades. They have an extended investment horizon.” Therefore, the focus should be on structural tax reform and the state’s debt, and NOT pension reform where public employees are victimized again;

To address the pension debt problem (unfunded liability) caused by policymakers' theft and irresponsibility, there needs to be a required annual payment from the state to the pension systems; the debt needs to be amortized for a longer frame of time (a flat payment) just like a home loan that is amortized; over the long term, it will become a reduced cost and a smaller percentage of the overall Illinois budget as it is paid off throughout the years;

There needs to be a modernization of state and local budgets and their revenue systems. “The structural problems that have built up over time in these systems need to be addressed” (The Center on Budget and Policy Priorities);

To address the revenue problem that policymakers have chosen to ignore: with a constitutional amendment, “given an appropriately designed graduated-rate structure, Illinois could cut the overall state income tax burden for 94 percent of all taxpayers—on average providing a tax cut to every taxpayer with less than $150,000 in base income annually, raise at least $2.4 billion more in revenue, and keep the effective individual income tax rate for millionaires well below five percent… Illinois taxpayers with the bottom 94 percent of base income collectively would receive an annual tax cut of $1.06 billion… [T]he combined effect of this policy would be a stimulus to the economy from tax cuts and additional state spending (assuming that the additional revenue is used to fund current public services that would otherwise not be funded) that would create at least 36,000 private sector jobs in communities across Illinois…” (Center for Tax and Budget Accountability);

“At the core of the budget crisis facing [Illinois] is [its] regressive state tax structure… that is, low-and-middle-income families pay a greater share of their income in taxes than the wealthy… [A regressive tax] disproportionately impacts low-income people because, unlike the wealthy, [low-income people] are forced to spend a majority of their income purchasing basic needs that are subject to sales taxes” (United for a Fair Economy);

Establish a financial transaction tax or “Robin Hood Tax”: a .50 cent tax on every $100 of transacting. “We used to have a financial transaction tax in this country from 1914 to 1966” (Bill Moyers);

Eliminate the tax loophole for “Tax Increment Financing Districts”; eliminate “Edge Tax Credits” for large corporations; eliminate “Accelerated Depreciation” or “write offs” of all assets; eliminate “Single Sales Factor” that “allows large corporations to cut their taxes 80-90%; eliminate “Vendor Discounts” that allow companies “to keep an uncapped part of their state taxes as a ‘processing’ fee” (Greg Leroy from a national policy resource center for corporate and government accountability in Washington, DC, GoodJobsFirst.org);

Increase taxation on the wealthy only: Illinois is in the top 10 of regressive state tax systems where the wealthiest taxpayers do not pay as much of their incomes in taxes as the poorest and middle-income wage earners (The Institute on Taxation and Economic Policy);

“Since the rich are able to save a much larger share of their incomes than middle-income families – and since the poor [can] rarely save at all – the taxes are inherently regressive” (The Institute on Taxation and Economic Policy, ITEP). Illinois income tax uses a single-rate structure that results in low-income wage earners paying more taxes than the wealthy. Illinois is among 10 states in the nation with the highest taxes paid by its poorest citizens at 13 percent (ITEP);

Reinstitute “fund sweeps”: surplus revenue should be added to the General Revenue Fund; add “exceeded revenue” from the Road Fund (motor vehicle and driver’s license fees) to the General Revenue Fund; reduce aggregate transfers/eliminate “some statutory transfers” from the General Revenue Fund; eliminate or cap the “retailers’ discount” that businesses keep: 1.75% of sales taxes paid for by the rest of us (IEA);

Implement a more timely system of payments (cash management practices are greatly affected by budgetary practices in relation to deferred liabilities which place additional pressures particularly in the first and second quarters of the year to pay those expenses; timing of tax payments also affects the state's cash flow and should be adjusted accordingly).

Did the labor unions have this discussion with Governor Quinn?

“No State shall…pass any…ex post facto law or Law impairing the Obligation of Contracts…” (The Constitution of the United States, Article 1—Limitations on Powers of States, Section 10).

“No ex post facto law, or law impairing the obligation of contracts…shall be passed” (The Constitution of the State of Illinois, Article I—Bill of Rights, Section 16). 

“Each prospective holder of a State office or other State position created by this Constitution, before taking office, shall take and subscribe to the following oath or affirmation: ‘I do solemnly swear (affirm) that I will support the Constitution of the United States, and the Constitution of the State of Illinois, and that I will faithfully discharge the duties of the office of…to the best of my ability’” (The Constitution of the State of Illinois, Article XIII—Oath or Affirmation of Office, Section 3). 

“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” (The Constitution of the State of Illinois, Article XIII—Pension and Retirement Rights, Section 5).

…All citizens of the State of Illinois have legal justification for their rights. As stated, the foundation of their rights is the State and U.S. Constitutions that directly support any claims against them. State contracts are protected by the federal government. Understandably, the 5th and 14th amendments of the United States Constitution protect due process of law. The legal bases for protection of past-and-future public pension rights are established in both constitutions...  (Illinois Pension Reform Is Without Legal and Moral Justification).
“…Voters ratified the [Pension] Clause based on the premise that the provision protected public pension benefit rights from reductions and that public employees were granted a constitutional right to their ‘full pension benefits…’” (Madiar (2011), Is Welching on Public Pension Promises an Option for Illinois? An Analysis of Article XIII, Section 5 of the Illinois Constitution) (Illinois Pension Clause’s Convention Debates, Text and Historical Background). 

“…The Pension Code sufficiently manifests intent to make pension payments the obligations of the State when due… [T]he Illinois Pension Code Article of each of the five state-funded pension systems contains a provision with sufficient language binding the State to pay pensions even if a system defaults. Each provision states in pertinent part that ‘[t]he payment of the required department contributions, all allowances, annuities, benefits granted under this Article, and all expenses of administration of the system are obligations of the State of Illinois to the extent specified in this Article…’” (Madiar (2011), Is Welching on Public Pension Promises an Option for Illinois? An Analysis of Article XIII, Section 5 of the Illinois Constitution) (What happens if the Illinois public pension funds are “on the verge of bankruptcy?).

“…The inclusion of the phrase ‘benefits of which shall not be diminished or impaired’ manifests… clear evidence of the framers’ intent to limit the General Assembly’s power to modify pension benefit rights even in the face of a fiscal crisis. This conclusion is supported by the common dictionary definitions of the terms ‘benefits,’ ‘diminish,’ and ‘impair.’ After all, the Clause’s prohibitory language contains no exceptions and is fashioned in absolute terms…” (Madiar (2011), Is Welching on Public Pension Promises an Option for Illinois? An Analysis of Article XIII, Section 5 of the Illinois Constitution) (A Trifecta of Political Opportunists).

“…In jurisdictions that find that a public employee’s pension contract rights arise… either when the employee first was hired or joined the pension plan, or at some point during the employee’s public service, courts have generally held that, once these rights come into effect, the employee is protected with respect to both past service and future service…” (Douglas L. Greenfield and Lahne, Susan G. (2012), How Much Can States Change Existing Retirement Policy? In Defense of State Judicial Decisions Protecting Public Employees’ Pensions) (Defending and Protecting Public Employees’ Pensions against the Legislative Siege).

…The promise to honor commitments and pay for the public employees’ pension is of “sufficient importance” to all citizens of Illinois. To pass pension reform is “an unequivocal manifestation of intention not to perform… legal duties…under a contract… When there is a duty of immediate performance of a promise, failure to perform in full is a breach…” (Professor of Law, Emeritus, Claude D. Rohwer and Professor of Law, Emeritus, Anthony M. Skrocki, Contracts in a Nutshell)  (Modification of Contract Principles (and what many petitioners want their unions to do).
“One thing we cannot do… is [to] ignore the Constitution of Illinois.... No principle of law permits us to suspend constitutional requirements for economic reasons, no matter how compelling those reasons may seem…” (
COLA: a Guarantee for Illinois Judges).

There are several antedated court cases that uphold the Constitution of the State of Illinois (Challenging Public Employees’ Earned Constitutionally-Guaranteed Benefits: Antedated Illinois Court Cases). 

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