Saturday, November 30, 2013

If the state faces a crisis, it could simply vote to change what the required payment would be... –Representative Elaine Nekritz

 “…Nekritz said …the so-called pension payment guarantee has wiggle room. If the state fails to make a pension payment, a retirement system could file action in the Illinois Supreme Court to compel the state to make the required payment. But if the state faces a crisis, it could simply vote to change what the required payment would be, she noted, effectively working around that guarantee.

“Nekritz noted that flexibility does cause her some concern, despite her support of the [pension reform] deal. “I can argue both sides of it because what we end up doing . . . is sort of digging ourselves back into the hole we’re in now by failing to make an actuarially adequate payment,” she said. “On the other hand, what you end up doing [otherwise] is having to say, ‘Well I’m going to have to cut $2 billion . . . pick your favorite program,’ and that’s not a good policy outcome either. There’s really no perfect way to do this that provides flexibility for funding other current services and make sure that the pension payment is fully funded. There’s just no way to do that.”

from Pension deal faces pushback from unions; backers pursue votes by Francine Knowles

Commentary (redux):

Some members of the 98th Illinois General Assembly will guarantee what is in their best interests and nothing else. Legislators, like Nekritz, can never be trusted. “There isn’t a law that we can’t change,” Nekritz once told John Dillon and me.

"There’s really no perfect way to do this that provides flexibility for funding other current services and make sure that the pension payment is fully funded. There’s just no way to do that”:

Instead of so-called “pension reform” or breaking a constitutional contract with public employees, here are just a few legal and moral solutions that legislators like Nekritz have chosen to ignore:

·         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; though the initial payment will be more in the beginning, 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.
·         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 not so-called “pension reform,” where public employees are victimized again and the state’s debt is not resolved.
·         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).
·         “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 or flat 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).
·         “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).
·         To address the revenue problem that policymakers choose 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)…

Let's not forget how the economic catastrophe in Illinois was created. The state's unfunded liability has increased to $100+ billion. Nearly half of that figure was machinated by Illinois legislators. Today's fiscal predicament is not the result of a financial problem that was unforeseen at the time of the 1970 Illinois Constitutional Convention. The unfunded liability is a consequence of continual legislative negligence, dishonesty and ineptitude.

For several decades, Illinois policymakers have consistently failed to make the annual required contributions to the state's pension systems, primarily because they could pay for services and their "pet projects" without raising taxes; in 1995, policymakers created a flawed re-funding schedule, and they have refused to correctly amortize the pension systems' unfunded liabilities since then. Instead they have favored corporate interests rather than the interests of their citizenry and; thus, they have seriously sabotaged the public employees' retirement plans and the State of Illinois' future economic solvency through mismanagement and fiscal irresponsibility. Past state policymakers left us with a fiscal disaster.

Instead of protecting public pension rights and benefits, which have a legal basis under Illinois State Law; instead of restructuring the state's revenue base to pay for the state's growth in expenditures and its recklessly-accumulated debts and obligations, current policymakers have continuously chosen to diminish the public employees' constitutional rights and their benefits, even though revenue restructuring and pension debt re-amortization are the best legal and moral solutions.

Let’s not also forget “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…’

“[Furthermore,] 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).

The promise to honor commitments and pay for the public employees’ pension is of “sufficient importance” to all citizens of Illinois. To pass any so-called 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).


  1. from John Dillon:

    Well this was an unexpected moment of honesty. On the other hand, Representative Nekritz would warn us all that the General Assembly can enact one law and change (or alter) it in the next hour. This is historically how she has looked at legislation, as she has explained to me. And, honestly, her comments are not political schizophrenia, because she sees clearly that by 2015 Illinois will have $3.5 to $4 billion less in revenue than it does now – for service programs.

    Those numbers come from Martire, not the sky, and she knows they’re close to actual. She also knows because she has been looking at this mess they created for years now. So, you see, passing a promise to fund comes with the necessary political fingers crossed. In the General Assembly’s myopic state, they cannot envision anything but the way it is: a crazy pension ramp and fixed flat revenue system. Representative Nekritz knows that too. Even a Rube Goldberg of unconstitutional attachments like this latest version is easier than convincing leadership to do anything but take it out on those who paid in in the first place.

    The amortization of the unfunded liability would pretty much create the same pain they will feel with the “pension ramp,” but it is the pain they think they know. And that pain would let them “dig the hole” again, when the time comes. According to charts by the CTBA, the payment would fall quickly after a couple of years of amortized debt, but they will have none of that.

  2. 60 to 70% of public corporations may no state taxes. I'm so tired of hearing about their extortion--that if they don't get tax breaks, they'll leave the state. That's nonsense--it's more that they help to get a lot of the legislators elected with their funding and lobbyists. We've tried the Corporate Transparency bill to no avail thusfar. What's the objection to seeing what they've paid, or in most cases, not paid. They're public companies, they reveal their federal taxes. It's disgraceful that we, the retired teachers and other public employees, who've worked so hard all our lives to serve the children, are being penalized for no reason other than the desire of the plutocrats in Illinois and nationwide to rid us of excellent public schools, collective bargaining rights, and fair pensions that were guaranteed to us. I thought Democrats were supposed to be for the people. I no longer believe that. They can be bought and paid for as well as Republicans. We need a progressive tax system without loopholes.