Thursday, July 13, 2017

Now that I have found out what the legislature did to teacher pensions by Patricia Herrmann

Dear Representative Ives, Representative Fortner, Senator Connelly:

Now that I have found out what the legislature did to teacher pensions, I want to make a few things clear from a retired teacher who began teaching in Illinois in 1968.  Things have changed since then, but it is important to understand what happened in 1970 to make the pensions the way they are: the pensions you just changed.

(1) Most teachers were women and that was so because teaching was one of a very few career choices for women.  They could be nurses, secretaries, stewardesses, and teachers. Even if they had a college education in other areas, they still were put in such professions.  If they weren't college educated, they could be telephone operators, card data punchers, and waitresses.  If they got pregnant, they were harassed into resigning even if they were married and needed to continue working. With so few choices, one would think the state wouldn't have to worry about staffing classrooms.  Actually they did.  And many teachers taught on provisional certificates and did so for years.  The important thing to keep in mind is women were captives to a system that would make them teachers and still the state couldn't staff classrooms.

(2) So even though young men were captive to the draft and would likely end up fighting in the Vietnam War, they could get a deferment IF they would agree to teach [However, teaching deferments ended on December 1, 1969 with the first draft lottery]. I remember a couple guys who fit this category clearly.  I remember one guy sitting in front of his sixth grade class playing his acoustic guitar and singing. He did a good job keeping their attention otherwise the students tend to make the teacher's life miserable because they know when someone is not prepared. One guy was a great teacher, but he took a summer job doing asphalt driveways. As soon as he no longer had a threat from the draft, he started his own company doing asphalt because the pay was better, and he could support his family.  The important thing to remember is even with the existential threat of war, some men staffed classrooms because the need for teachers was so great.

(3) The biggest problem in education for at least the last couple decades is keeping a teacher in place past the first five years, because they have choices today.  Many companies offer better pay, hours, working conditions, and often on-site child care. The problem is making the profession attractive enough to have veteran teachers because it is hard to coerce people into teaching.

Demonizing teachers has also taken a toll on the numbers of people seeking to enter the profession.  People want respect for what they do and don't want to be accused of being greedy or some of the other accusations I've painfully heard.  The pension system for TRS was put in place to attract teachers to the profession and staff classrooms with qualified people.  It wasn't the only thing that happened that was effective in keeping teachers, but it was effective.  

Now the sneaky change to TRS in the last budget (I applaud the need for the budget and applaud the revenue from taxes) will further erode teaching as a profession, and we will return to the days when administrators can't staff classrooms.  And we need to care about teacher education and qualifications.  The higher education system in Illinois that used to educate teachers has been decimated and few people have entered higher education studying to become teachers.  Teachers will have to be recruited from foreign countries.  

The Illinois legislature needs to take teacher preparation and teacher supply into account when it makes decisions, not just the banks and wealthy people who want to take over the investment of teachers' retirement contributions. When the word gets out, defined contribution systems will be seen as a hoax and a scam.

When I graduated in 1968, the NEA sent out a notice to all graduating teachers. Don't take a job in Ohio or Oklahoma and the reasons why.  Districts in those states sent out contracts to prospective teachers, sight unseen as they were so desperate for warm bodies to staff classrooms.  Make sure they don't return to taking that step for districts in Illinois.  Our future depends on qualified dedicated teachers in our classrooms.  We need to keep teachers past the first five years. Every measure on the change you voted for in the budget will work against that goal.

Yours truly,

Patricia Herrmann


  1. I got my pre-college education (K-12) in urban public schools staffed by mostly dedicated professionals who were modestly compensated with middle-class salaries, had their summers off, modest pensions (without COLA) and may or may not have had retiree health benefits. My high school had two Latin teachers; I was able to attend college, grad school and law school on scholarships and began my career as a lawyer in 1968. The same urban area today (Detroit) has -- like Chicago -- deplorable public schools, spends 25% or more of payroll on pensions and retiree health, and due to union contracts has primarily burn-outs who are demoralized and just waiting to retire. The state teachers' pension fund is going further into the red at the rate of $1 billion per year because the liabilities grow and grow, even though the schools are already putting in an ever-larger % of payroll. I can understand that racism, urban neighborhood segregation, fatherless families, and a litany of other factors beyond the control of residents and teachers alike were principal causes of the current catastrophe. I understand that good teachers are unfairly demonized but part of that results from the large number of high-seniority bad teachers who remain in the system and cannot be dislodged for incompetence or burn-out due to union rules and politics. The residual impact will be with us for as many decades as it takes to fix income inequality and our demoralized urban citizens.

    However, more money and benefits for teachers is not likely to fix the problem. It simply aggravates the taxpayers called upon to shell out for a system that is visibly broken. Maybe this problem can be solved, but the solution will take sacrifices on both sides of the table. Teachers unions must go along with changes that will help districts to eliminate the core problems and to live within budgets that taxpayers are willing to fund. Part of this will surely require reduced expectations of teachers to retire in their 50s with full pensions + COLA + lifetime health valued at millions of dollars per retired teacher. Taxpayers just resent both the salaries and the benefits being provided to teachers whether or not they are competent, dedicated or effective. What the teachers unions have created in our urban areas simply can't be sustained either economically or socially. Families who can afford it send kids to private schools, move away from the tax district, acceleration destruction of both the tax base and domestic tranquility in these cities.

    How about some voices from dedicated teachers in support of full-scale reform rather than mindless solidarity with their union leaders and demoralized colleagues.

    1. "How about some voices from dedicated teachers in support of full-scale reform rather than mindless solidarity with their union leaders and demoralized colleagues":

      Revamp the flawed Pension Ramp: “Starting in 1995, yet another funding plan was implemented by the General Assembly. This one called for the legislature to contribute sufficient funds each year to ensure that its contributions, along with the contributions by or on behalf of members and other income, would meet the cost of maintaining and administering the respective retirement systems on a 90% funded basis in accordance with actuarial recommendations by the end of the 2045 fiscal year. 40 ILCS 5/2-124, 14-131, 15-155, 16-158, 18-131 (West 2012). That plan, however, contained inherent shortcomings which were aggravated by a phased-in 'ramp period' and decisions by the legislature to lower its contributions in 2006 and 2007. As a result, the plan failed to control the State’s growing pension burden. To the contrary, the SEC recently pointed out:

      “‘The Statutory Funding Plan’s contribution schedule increased the unfunded liability, underfunded the State’s pension obligations, and deferred pension funding. The resulting underfunding of the pension systems (Structural Underfunding) enabled the State to shift the burden associated with its pension costs to the future and, as a result, created significant financial stress and risks for the State.’ SEC order, at 3. That the funding plan would operate in this way did not catch the State off guard. In entering a cease-and-desist order against the State in connection with misrepresentations made by the State with respect to bonds sold to help cover pension expenses, the SEC noted that the State understood the adverse implications of its strategy for the State-funded pension systems and for the financial health of the State. Id. at 10. According to the SEC, the amount of the increase in the State’s unfunded liability over the period between 1996 and 2010 was $57 billion. Id. at 4.5 The SEC order found that ‘[t]he State’s insufficient contributions under the Statutory Funding Plan were the primary driver of this increase, outweighing other causal factors, such as market performance and changes in benefits.’” (Emphasis added.) Id. at 4 (In re PENSION REFORM LITIGATION (Doris Heaton et al., Appellees, v. Pat Quinn, Governor, State of Illinois, et al., Appellants) Opinion filed May 8, 2015, JUSTICE KARMEIER delivered the judgment of the court, with opinion. Chief Justice Garman and Justices Freeman, Thomas, Kilbride, Burke, and Theis concurred in the judgment and opinion).

    2. Also from the Illinois Supreme Court Ruling: “Senator Hutchinson: Would another alternative be the proposal that the Center for Tax and Budget Accountability outlined before the conference committee, which would have re-amortized the current unfunded liabilities to a new gradual [level] dollar payment schedule to achieve well over eighty percent by 2059? Senator Raoul: Yes. So that—that and many other things could have been possible alternatives.”

      The current “Pension Ramp” does not work for the five public pension systems. The “Ramp” entails larger payments today as a result of the 1995 funding law – Public Act 88-0593 – to pay the pensions systems what the state owes. 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 difficult 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.

      “Decades of mismanagement and failure to match contributions are the predominant reasons that the state’s pension systems are suffering to the degree that they are today. Years of pension holidays, continually borrowing against the systems without a plan for repayment and a severe economic recession, which caused investments to plummet, further exacerbated the problem” (Senate President John Cullerton). Thus, there needs to be a required “actuarially-sound” annual payment from the state to the pension systems! Indeed, the State of Illinois has a revenue problem and its policymakers have stolen money for decades from public employees' pensions to hide this fact.

    3. The state’s regressive tax rate is what few legislators want to confront. Politicians, the Civic Committee, Civic Federation, Illinois Policy Institute, the Chicago Sun-Times, the Chicago Tribune, and the general news media have capitalized on a mostly vulnerable public by calling for radical pension reform as the solutions for the budget problems in Illinois. They were (and will continue to be) diversionary, scapegoating tactics that have allowed policymakers to escape their legal and ethical responsibilities.

      “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).

      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 (The Institute on Taxation and Economic Policy).

      Pass a graduated rate income tax like the majority of states in this country. The state needs a tax rate that is “efficient with minimal impact on the economic decisions that taxpayers have to make” (Center for Tax and Budget Accountability), one that captures increased revenues in times of economic growth, one that maintains revenue collections during poor economic times, one that is simple and not liable to inconspicuous error, one that is transparent and builds trust with the state’s government officials (Center for Tax and Budget Accountability), and one that helps 99 percent of the state’s population.

    4. Focus on why the State of Illinois cannot obtain more revenue. Besides federal sources of income, the state uses only 11 sources of revenue: personal income tax (but note Illinois was tied for the fourth lowest individual tax rate on households in the top income bracket), corporate income tax (note extortionate tax breaks given to many Illinois corporations!), sales tax (Illinois does not tax services like most other states for another significant source of revenue), corporate franchise tax and fees, public utility taxes, vehicle use tax, inheritance tax, insurance taxes and fees, cigarette taxes, liquor taxes and other miscellaneous (or rather unsubstantial) tax sources (Commission on Government Forecasting and Accountability).

      “A majority of states apply their sales tax to less than one-third of 168 potentially-taxable services… [States that do not tax services, such as Illinois], could increase [its] sales tax revenue by more than one-third if [it] taxed services purchased by households comprehensively.” Illinois is one of five states with sales taxes on fewer than 20 services (The Center on Budget and Policy Priorities).

      Expand the state’s tax base. A broader-based taxation system that would provide a decrease in taxes for low-income and many middle-income families. Taxing services alone “would generate enough revenue to stabilize the General Revenue Fund and prevent structural deficits that lead to cuts in basic needs and social service programs” (Center for Tax and Budget Accountability).

    5. Increase taxation on the wealthy: 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. “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).

      Eliminate tax loophole for “Tax Increment Financing Districts.”

      Eliminate “Edge Tax Credits” and other tax loopholes for large corporations in Illinois.

    6. What did state policymakers do instead?

      They shifted the state's normal costs to the pension systems to local school districts. They created a Tier III defined-contribution savings plan option for new teachers and Tier II teachers. They ignored the fact that current Tier II teachers are contributing too much to their pension plans (This will cause serious Social Security problems in the future for these teachers and the State of Illinois!).

      They will continue to increase the inequities that have existed in Illinois for years (budget cuts across the board for the middle class and poor and more corporate welfare for the wealthy elite). They will continue to blame public employees and retirees for the state's budget problems, as if the Illinois Supreme Court decision never happened. The immoral liars and thieves among the General Assembly still want to repeal the Pension Protection Clause as if the Illinois Supreme Court decision had never happened... In short, it is much easier for liars and thieves among the Illinois General Assembly to continue their charade of political posturing and scapegoating public employees and retirees then to address the revenue and pension debt problems they have created and ignored in Illinois.