The need to reverse outrageous public pensions

Changes should be made to the system - that much I think all can agree upon. We have a constitution in Illinois Mr. Hanania and speakers at the constitutional convention were very clear about the intent behind the pension protection clause. If you sign on for a job and you are promised deferred compensation (pension) when you sign up, as long as you put your years of service and pay your statutory contributions, that it what you will get. Labor groups sued in the mid 90’s because they could see that the State was going on pension holidays and not contributing to a system which would become vastly underfunded even though they were aware or kicking the can down the road knowing that the day of reckoning would come. They tried to do the responsible thing and force payments to be made to save the system in the future. They lost and the legislators did nothing about it.

The members of the public, are always the first ones to scream at the police when they they take a life in the line of duty or use force to make an arrest, particularly of people of color. They are the first to scream about the constitutional rights of the criminal who wasn’t listening to the officer or wouldn’t put down his firearm or show his hands. Now we surely want our police officers to comply and enforce the constitution of the US and Illinois, but your argument says that the irresponsible leaders of Illinois who didn’t contribute what they should to the pensions of these noble public servants aren’t entitled to the same constitutional protections as the dirtbag criminals for economic promises made when they started their career. Why should they protect us if we won’t protect them?

In 1995, the Chicago Teacher Pension fund was nearly 100% funded. The City of Chicago subsequently failed to contribute to that fund for ten years (2005) while collecting over 2 Billion in pension tax monies. Why didn’t that 2 billion go into the fund where it was collected? Logically the fund dropped to only 58% funded in a short time. In 2010, the City asked for deferred payments to underfund by $400 million a year until 2013. It doesn’t take a rocket scientist or an actuary to realize those reckless actions will decimate a fund because most income in a pension fund is realized from investment gains rather than contributions. Why should the teachers be asked to take less than they were promised? They made their required contributions and kept their promise.

The system is broken and the only way to ethically, legally and constitutionally fix it, is to pay every member what they are owed. Then we need to form a new system - whether it is a 100% defined contribution system or some hybrid variant. New workers going forward will know what their system will be and they can choose to accept it or go to work in the private sector. There are already two tiers of pension systems in Illinois, we now need a third. This will stabilize the system going forward so we can focus on the existing unfunded liabilities.

The State is intending on making a “Police Powers” argument before the Illinois Supreme Court next week. It is going to fail for the simple reason that there is no true emergency. If the State was really that short on revenue, the General Assembly shouldn’t have let the State income tax rate drop from 5% to 3.75% on January 1st. They absolutely had the ability and the support of Governor Quinn to make the tax hike permanent in the veto session after the last election. They didn’t and now they can’t make the argument because they again irresponsibly kicked the can down the road again and put it squarely in the lap of Governor Rauner.

The legislative changes in the 90s said that the pension systems needed to be 90% funded by 2045. That is 30 years away and we still have time but no one likes the only true solution. A 1% income tax increase generated nearly $4 billion in revenue for the State. By earmarking a special 1% income tax solely to fund the pensions systems $110-120 billion in unfunded liabilities, this tax could generate in excess of the $120 billion needed to fund the systems over the 30 years remaining on the amortization period and bring all pensions systems to 100% funding levels well before 2045. In doing so, the new workers would likely not be receiving pensions so there would be no further funding required and we would be keeping our word to existing pensioners, current workers and the workers who have yet to enter the system. The 1% tax would still leave our income tax level at a level lower than it was on December 31, 2014 and the problem would be solved.

So why does no one discuss this simple solution to what everyone says is such a complex problem? The simple answer is that none of the legislators want to admit the sins of the past and no one has the political courage to admit the only way to uphold our constitution is to keep our word and pay what we are obligated. The truth is, the State is not going bankrupt, a state can’t go bankrupt. What we are is mismanaging to the point where the debts are going to cloud the ability of our great State to handle the business of the day without significant pain to everyone here.