October 21, 2013 03:01 PM UTC

Illinois Senate President: The Public Pension "Crisis" Has Been Manufactured to Lower Taxes.

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• by: PolDancer

To the extent that state legislatures (such as the Colorado General Assembly) can break state contracts, escape their debts, ignore state constitutions, and push the debts of all taxpayers onto a small group of pensioners . . . well, taxes can be further reduced, and votes will be won.  Politics is a ruthless, dirty business.  Politicians are not beyond using the force of government to illegally seize property to curry political favor.  Only the courts can prevent such immoral, extralegal behavior.

As we have seen, the Colorado General Assembly has skipped out on its Colorado PERA public pension bills for a decade, and now seeks to escape its accumulated pension debts through breach of Colorado PERA pension COLA contractual obligations (SB10-001.)  For several years now, Illinois' politicians have also toyed with the idea of taking contracted, accrued, earned, "automatic," public pension COLA benefits in order to escape their debts.  After all, the State of Illinois is the poster child of public pension mismanagement and underfunding among the states.  Illinois Senate President John Cullerton has been among those pondering a potential pension contract breach, a contract breach advocated by corporate interests in his home state.  Yesterday, (October 20, 2013) Senator Cullerton finally admitted what public pensioners in the United States already know.  This modern public pension "crisis" in the United States has been manufactured, and promoted by corporate interests seeking to lower their tax burdens.  In Colorado, lobbyists for the business organization, Colorado Concern, supported the bill taking contracted PERA COLA benefits in 2010, SB10-001.

In the 1950s, public pensions in the U.S. typically had funded ratios in the 50-60 percent range.  Several U.S. public pension systems currently have comparable levels of funding.  Yet, in the 1950s, no claims of a financial "crisis" among U.S. public pension systems were made by politicians overseeing these pension systems.  Why is this?  Answer: In the 1950s, a well-funded, self-interested, corporate noise machine promoting such a public pension "crisis" did not exist.

Chicago Tribune:

"Illinois Senate President John Cullerton said Sunday that the state's massive public employee pension debt is not a 'crisis,' but instead an issue being pushed by business-backed groups seeking lower income taxes at the expense of retiree benefits."

"'People really misunderstand the nature of this whole problem.  Quite frankly, I don't think you can use the word 'crisis' to describe it at the state level,' Cullerton said in an interview on WGN-AM radio."

"'It's something we have to deal with, but it's not something that we're on the verge of bankruptcy on,' Cullerton said."

(My comment: As Senator Cullerton knows, state governments cannot declare bankruptcy under federal law.)

Chicago Tribune:

"A bipartisan House-Senate panel has been meeting since June in an attempt to come up with a plan to alter retirement benefits without running afoul of a state constitutional prohibition against diminishing or impairing pensions."

"Still, Cullerton said that under a 1996 law aimed at gradually boosting the amount of money put into the state's pension funds to eventually get them funded at 90 percent of their liability, payments to the retirement systems are already near their highest level and require only small annual future increases to stay on track."

"As a percentage of state general revenues, pension payments would continue to be about one-fifth of the state's general revenues through 2044, his office said."

(My comment: Colorado's public pension obligations are a fraction of the pension obligations of the State of Illinois.  These obligations represent a few percentage points of revenue that will be received by Colorado governments over the next five decades, an insignificant portion of future Colorado state GDP.  Nevertheless, in 2010, many Colorado politicians were persuaded by lobbyists to attempt the PERA COLA contract breach, taking one-third or more of a pensioners contracted benefit.)

Chicago Tribune:

"But the Senate president also noted that the state's personal income tax rate is scheduled to fall from 5 percent to 3.75 percent, and the corporate rate is supposed to drop to 5.25 percent from 7 percent in 2015.  The loss of revenue is estimated at about $5.4 billion."

"'But the pension reform then is about tax reduction — not about the solvency of the pension fund or about diverting money to spend more money for education,' he added."

(My comment: Colorado politicians, former Governor Bill Owens in particular, have made a habit of cutting state revenues that would otherwise be available to meet Colorado state contractual obligations.  Governor Bill Owens also advocated and signed legislation that shifted labor costs from Colorado governments to the PERA pension system.  Having cut available revenues, skipped PERA pension payments, mismanaged the PERA pension system, effectively borrowed from the PERA pension trust funds, and run up the Colorado PERA debt, Colorado politicians now pursue their "solution," namely, abrogation of state contracts.)

Chicago Tribune:

"Cullerton said the conference committee's pension framework represents savings equivalent to lowering the state income tax by 0.25 percent."

"'That's really what it's about.  Now, I wouldn't call that a crisis.  I think people should put that in perspective,' he said.  'Keep in mind, it's not going bankrupt. The money that we save by lowering those benefits is going to be used to lower the tax rates.'"

"Cullerton contended top business organizations were pushing the pension changes for the benefit of lower taxes and that the public was generally supportive because many people have been moved to 401(k)-style defined-contribution plans from the defined-benefit type of plans that state retirees receive."

http://www.chicagotribune.com/news/politics/clout/chi-cullerton-pension-debt-not-a-crisis-but-about-lowering-taxes-20131020,0,4245590.story

WSILTV.com:

"The Chicago Democrat told WGN Radio that the pension shortfall is not an imminent crisis, but that finding a solution can help keep Illinois' income taxes down."

"Cullerton made the remarks as lawmakers head back to Springfield to begin their fall veto session Tuesday.  They face considerable pressure to deal with the pension problem, considered the nation's worst."

http://www.wsiltv.com/news/local/Cullerton-Illinois-Pension-Problem-Not-Crisis-228638501.html

A few interesting comments made on yesterday's Chicago Tribune article:

"If there is any crisis (in Illinois) then it was caused by lowering taxes, and by giving tax incentives to corporations, in the first place.  Let's not lose sight of the fundamental issue: the state and localities failed to pay MANDATED pension contributions ('borrowing') and now refuse to repay the money they 'borrowed'.  This is wage theft, pure and simple.  If the state refused to pay out tax refunds – claiming it was borrowing them – and then years later said 'sorry, we won't repay you the money we borrowed' it would be called a default, and the interests pushing to steal pensions now would be outraged."

"This is a zero sum game, that the 1% don't want to lose, Simple as that."

Illinois' Corporate Interests Lobbied for a Downgrade of Illinois State Debt to Support Their Manufactured Pension "Crisis."

"Not only was (Ty) Fahner (of the Civic Committee of the Commercial Club of Chicago) open about how aggressive the lobbying by the CEOs for the downgrade had been, and didn’t disagree with the questioner who called it irresponsible (as in 'we know we are doing harm to promote what is good for us'), he said they’d had to back off because they didn’t want their handiwork to be too visible, and was exhorting people in the room to take up the campaign for him."

"I asked a colleague who had worked for Moody’s in the 1990s why outside parties were allowed to influence ratings."

"When I first read about the downgrade, my reaction had been that Rahm must have pushed for it.  My colleague had a similar reading."

"Also, I’m pretty sure I read in last couple of days that Rahm himself lobbied Moody’s to downgrade his state."  ". . . I’m sure his hedge fund buddies taught him all about it."

http://www.nakedcapitalism.com/2013/07/chicago-ceo-club-with-rahm-and-pritzkers-on-board-pushed-for-chicago-bond-downgrade-whacking-local-investors-and-pension-holders.html

An Illinois pension conference committee has been appointed to consider "reform" of Illinois' pensions.  The conference committee is chaired by Senator Kwame Raoul, a very engaging politician who has been, unfortunately, sucked into the Illinois pension conspiracy.

Instead of enactment of PROSPECTIVE, LEGAL public pension reform measures, Senator Raoul recently expressed support for shifting the debts of all Illinois taxpayers onto the backs of a relatively small group of the state's elderly.  Illinois' plutocrats are smiling.

"Sen. Kwame Raoul, Chicago:

Raoul, the committee chairman, who considered a campaign for governor, says he remains optimistic a plan can be brought for a vote in the coming weeks.  Last spring he supported a Senate-backed plan that would have given retirees an option of the benefits received during retirement, saving $58 billion according to Senate estimates. He now is pushing the $138 billion savings plan.  It includes a provision that would reduce a current 3 percent annual compounded cost-of-living adjustment in retirement benefits to half the rate of inflation and a reduction in employee contributions by one percent — a concession to state employees for other sacrifices."

http://www.pjstar.com/free/x1155177197/Illinois-pension-panel-split-on-proposed-fix

Kwame Raoul on Illinois public pension retiree COLA benefits:

"It’s identical in that aspect (the plan’s primary component is changing a 3 percent compounded cost-of-living increase to a percent equal to half of the inflation rate)."

"One of the attractive aspects is the notion of inflation protection for the employees and retirees. And that’s attractive both from just a moral standpoint and from making an argument of constitutionality in terms of having something offered."

(My comment: Senator Raoul, breaking a contractual public pension COLA obligation is not at all "attractive from a moral standpoint," nor is it "constitutionally permissible."  Taking something from a person is not giving something to a person.  Illinois' public pensions have "automatic," contracted COLA benefits.  Public pension COLA benefits are deferred compensation, presently earned.  It looks like Kwame wants to see the State of Illinois "inflate away" its pension debt, by taking money from the elderly.

Note that some members of the Illinois Legislature are at least paying lip service to the constitutionality of reform proposals [proposing that something must be “offered” to Illinois pensioners to compensate for the theft of their contacted COLA benefits.]  In 2010, the Colorado state legislators who supported the breach of fully-vested Colorado PERA pension COLA contractual obligations made no pretense of "offering" anything to affected PERA pensioners.  The 2010 Colorado PERA pension COLA taking was brazen.)

http://www.chicagolawbulletin.com/Articles/2013/07/30/dispatch-7-30-2013.aspx

A pension reform bill in Illinois will not pass court muster if a "less drastic" reform is available to the Legislature.  Numerous "less drastic" public pension remedies are indeed available to the Illinois Legislature.  The Illinois Legislature could simply extend its recent income tax hike to pay down the state's pension debt.  This solution has the advantages of unquestionable morality and constitutionality.  It is perfectly legal and moral for governments in the United States to pay off their accumulated debts.

The State of Illinois could impose a financial transaction tax that would be collected by securities exchanges in the state.  Dozens of nations around the world impose such a "FTT."  A one dollar tax per transaction on Illinois exchanges (a fraction of the level of such assessments in place in other countries) would raise billions of dollars, have an inconsequential impact on the securities industry, and allow the State of Illinois to pay its accumulated debts.  The FTT would be paid by the industries that created a real financial crisis in 2008-09, driving down public pension funding ratios.  The Illinois Supreme Court should take note of the fact that the imposition of a small FTT to meet Illinois' contractual obligations is manifestly a "less drastic" option than the breach of Illinois state contracts.  IF THE STATE OF ILLINOIS BREAKS ITS PUBLIC PENSION CONTRACTS, THIS BREACH OF CONTRACT WILL HAVE BEEN A CHOICE RATHER THAN A "NECESSITY."  Illinois public employees did not cause the pension crisis, they have made uninterrupted pension contributions, unlike the State of Illinois.

The Illinois Legislature could consider reforming the state tax system, closing corporate tax loopholes that cost the state billions of dollars.  The Illinois Legislature could consider re-amortizing the state's pension debt over the life of the debt, 50-70 years.  (See Ralph Martire's public pension refinancing plan for Illinois.

http://www.sj-r.com/opinions/x1665859717/Ralph-Martire-Dont-pass-unconstitutional-pension-fix)

The Illinois Legislature might consider lowering the rate of FUTURE accrual of pension benefits in the state by reducing the public pension "multiplier" on a PROSPECTIVE basis (for pension benefits not yet accrued.)  See Professor Amy Monahan's paper: "Public Pension Reform: the Legal Landscape."  She is Professor of Law at the University of Minnesota School of Law, and the foremost expert in the U.S. on public pension contractual obligations.

But, let's be clear . . . taking "fully-vested," contracted, earned, and accrued public pension COLA benefits from current Illinois retirees is the MOST DRASTIC idea that has been put forth at the Illinois Legislature.

Senator Cullerton's legal aid Eric Madiar believes that Colorado's recent theft of fully-vested, accrued public pension COLA benefits is likely unconstitutional.  So, why would Senator Cullerton consider going down this path in Illinois?  Kick the can?

From “Public Pension Benefits Under Siege”:

“The adoption of the contractual approach by Colorado . . . however, make(s) it more likely that pension reform efforts (the COLA provisions of SB 10-001) will be found unconstitutional.”

A PDF of the Madiar paper is available on the website of the National Conference of State Legislatures at the following link:

http://www.ncsl.org/home/search-results.aspx?zoom_query=madiar%20public%20pensions

Senator Cullerton's recent statements:

"The proposal now on the table, he (Senator Cullerton) said, is "less unconstitutional than SB1."

http://www.sj-r.com/breaking/x452546738/Cullerton-backs-pension-reform-plan-to-save-138-billion

"He (Senator Cullerton) called the committee's proposal 'less unconstitutional' than the Madigan-backed plan."

http://www.chicagobusiness.com/article/20131003/NEWS02/131009900/cullerton-supports-138-billion-pension-plan

A question for Senator Cullerton: Is one pregnant woman "less pregnant" than another pregnant woman?

Another means by which Illinois' public pensions might be bolstered is elimination of the Illinois property tax breaks that have been won in the past by Illinois House Speaker Madigan's law firm and Senator Cullerton's law firm for various business interests, and use of the resulting state revenues to meet the state's contractual public pension obligations:

"Chicago Ald. Ed Burke, chairman of the City Council finance committee; Illinois House Speaker Michael Madigan; and Illinois Senate President John Cullerton.  Their firms have collectively won more than $114 million in property tax refunds for Cook County businesses since 2003, according to the Sun-Times analysis."

http://www.bettergov.org/three_top_pols_steeped_in_ethical_conflicts/

Colorado PERA active and retired members.  The campaign to break public pension contracts is nationwide and well-funded.  It is imperative that, in Colorado, we continue to do our small part to defend the contracts of vulnerable, politically weak public pensioners.  It is critical that we stand up for rights guaranteed under the U.S. Constitution.  Contribute at saveperacola.com.  Friend Save Pera Cola on Facebook!