Posted May 11, 2015 12:08 am by Comments (10)

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By: Mark Glennon*

 

With fear palpable in Illinois since invalidation of pension reform, you’d think reporters and politicians would now be up to speed on basic facts about Illinois pensions. Nope. Most heads are still in the stand. Denial, delay, extend and pretend still rule.

 

Among the most foolish reactions:

 

Rahm kicked it off by saying that Chicago’s pending reform plan is “not affected” by the ruling.  Dan Mihapolouos from the Sun-Times backed him up on television, saying that Chicago is different in many ways. Not true. The court could not have been more clear and left no shred of an opening. Despite union agreement to Rahm’s proposal, any pensioner who chooses can challenge the plan and almost certainly will win.

 

Sen. Elaine Nekritz (D-Northbrook), a chief architect of the voided reform law, started her appearance on Chicago Tonight by saying she hadn’t had a chance to read the court’s opinion carefully. Please, Ms. Nekritz, the most important issue to come along in your career, yet you go on TV without doing your homework?  You already wasted two years on a bill that would not have accomplished much anyway. She had nothing to suggest for a new approach.

 

Ever heard of an unconstitutional constitutional amendment? It’s an oxymoron. There’s no such thing if it’s drafted right and properly adopted.  Yet, that’s what a number of reporters and politicians are saying would be the case even under Illinois law if we amended to constitution to strike the pension protection clause. Natashi Korecki at the Sun-Times and Greg Hinz at Crain’s, among others, wrote that the Illinois Supreme Court could strike down an amendment, based on the ex post facto and contract clauses in our constitution.

 

That’s crazy. A broadly drafted amendment would supersede those and any other obstacles in the state constitution. Hinz put it this way: ” I can’t see [the Illinois Supreme Court] upholding retroactive changes in employment contracts. What Hinz doesn’t understand is that the only courts that might be an obstacle are Federal courts (i.e., real courts, not political ones), because they would be interpreting those clauses under the U.S. Constitution only. Based on my admittedly quick look at Federal law on this, I don’t see our Seventh Circuit Federal courts invalidating a constitutional amendment. We’ll soon be hearing from experts on that, I would think, so let’s defer to them.

 

Amanda Vinicky from WUIS offered this wisdom as a potential solution to Springfield’s problem: A cost shift to other units of government. Aside from the obvious, which is that you would just be shuffling the liability off to different taxpayers, she should know that the state would sill be on the hook. Pension debt is not assignable.

 

Toni Preckwinke, Cook County Board President, said much the same thing as Rahm about the reform proposal she proposed last year — that it’s safe. Her’s was indeed different from SB-1, the bill recently invalidated, but the court’s ruling couldn’t be more clear — you cannot cut benefits. Cook County’s pension has been ignored lately, but its unfunded liability was almost $3 billion at last count. It doesn’t matter that there were some give-aways to pensioners in Preckwinke’s bill, which she says is the distinction. SB-1 had those, too. At least Preckwinkle admitted that the county’s unfunded liability is growing at $30 million per month. Many state politicians are still bragging that they’ve been making all necessary contributions. They’re almost all not, and their liabilities are growing fast.

 

Then there’s Senate President John Cullerton, nationally infamous for having said there is “no crisis” with Illinois pensions. He’s now crowing that we should have gone with his reform proposal instead of the invalidated one. Never mind that he, too, voted for the invalidated one. His proposal was a brazen sham. It would have let pensioners swap a reduction in benefits for a guaranty of healthcare benefits. It should be obvious that pensioners won’t swap something worth less for something worth more. Moreover, healthcare benefits are now also constitutionally guarantied, per last year’s Kanerva decision. There’s nothing to swap. That didn’t stop the Daily Herald from saying Cullerton’s proposal to swap for healthcare may “have new life.” Most journalists seem entirely unaware of the Kanerva decision.

 

Eric Madiar, Cullerton’s former legal counsel, said, “I feel fully vindicated” by the court’s decision, which he says clears the way for a modified version of Cullerton’s original approach. Count on seeing plenty in the press playing along with that, but forget it.  That approach would reduce the pension liability by nothing, which is precisely the goal Cullerton wants for the unions who own him. If pensioners are to be allowed to trade out something for reduced benefits, it will need to have equivalent value, so the state will be no better off.

 

Tony Arnold from WBEZ continued to be suckered in by a bogus way of measuring savings from pension reform proposals, as was most of the media when the reform bill was passed. He wrote that the bill would have saved the state “over a $100 billion over the next several decades.” Sounds great, except that way to measure it means little because those savings are backloaded and are not discounted for time. No reputable pension expert measures that way. Instead, the proper measure is the effect on the unfunded liability. The voided law in fact would have shaved just 12.5% off the unfunded liability, putting us in a position far worse than when the bill was drafted. That sham way to measure savings was used constantly by the bill’s supporters when it was under consideration. Nobody has learned.

 

Rich Miller of CapitalFax and syndicated columnist, arguably the most influential political journalist in the state, wrote perhaps the most singularly irresponsible thing that can be said about pensions:

 

The important issue for policy-makers and budget-drafters isn’t really the unfunded liability. It’s how much the state has to pay every year to keep up with former Gov. Jim Edgar’s pension “ramp” schedule. [His bold.]

 

That’s precisely the cause of the crisis — can-kicking into ever larger unfunded liabilities.

 

Miller has now joined up with Cullerton to hype Cullerton’s consideration-based reform ruse. Also, despite the universal reading that the court offered no “guidance” on how to reform pensions legally, Miller says they gave us a “roadmap.” It’s centerpieces are higher taxes and “reamortization,” he says. Hinz, too, is pushing the reamortization idea, so let’s look at it closely.

 

Reamortization is the work product of Ralph Martire, who heads the union-funded Center for Tax and Budget Accountability. It’s a hypocritical and deceitful. It attempts to do nothing to reform pension obligations or reduce the liability. Instead, it would have the state fund a relatively flat amount  every year, but extend out the payments through the year 2059.

 

martire

On the right is the CTBA’s own chart they used in legislative testimony a couple years ago, comparing annual Illinois pension funding under current law to the lower, strung-out contributions they proposed in red. They cut it off at 2045, though their extended contributions would last until 2060.

 

That’s right, kick it off to our grand kids. You’ve probably read dozens of times the union mantra that pension problems were caused by underfunding and can-kicking, which should be self-evident, yet their solution is funding much less than what’s required under current law, and can-kicking into more years.

 

Greg Hinz turns to Steve Shnorf to validate Martire’s numbers, who says they are “absolutely credible,” and Hinz identifies Schnorf just as a former Illinois Budget Director. Oops. He must have forgotten to mention that Schnorf was also on Martire’s board at the CTBA and receives two state pensions totaling over $86,000 per year, according to this database. Great guy, I’ve heard, but not the right person to be validating a union-backed pension idea.

 

Unions themselves stuck with their usual deceitful line that pension reform is unfair because average pensions are just $32,000. Reporters endlessly repeat that without challenge. In fact, that average includes people who worked just part of their career in any particular system who have other retirement income from their other jobs, and people like Mr. Schnorf who have their pensions split between two systems.

 

Lastly, there’s the whopping error that virtually every journalist in Illinois made time after time again this week. They understate the pension liability horribly, using an outdated, officially reported number — $111 billion for the state pensions. But since that number was reported the liability jumped by well over 50% because of that Kanerva decision in July, which added some $56 billion of healthcare cost as a constitutionally protected right for state pensioners. Plus, both the Governmental Accounting Standards Board and Moody’s got fed up with other gimmicks in official pension accounting, so they now have their own new standards. Use their methods and the unfunded state liability jumps to over $200 billion? That’s just the five state pensions. There are 671 others. $111 billion, $200 billion? Whatever. Doesn’t matter to the Illinois press.

 

“Just pay up” is the big lesson many politicians and reporters are saying we should draw from the Illinois Supreme Court decision. That won’t happen, it can’t happen and it shouldn’t happen, which deserves a separate story, to come soon.

 

*Mark Glennon is founder of WirePoints. Opinions expressed are his own.

Updated 5/13/15

 

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You might be interested to know that Steve Schnorf was also receiving a salary from the state while collecting a pension.

http://www.bettergov.org/payroll/?PensionCode=202&F_FirstName=%27s%27&F_LastName=%27Schnorf%27

James Gordon
Its clear that we all can find numerous outlier cases of public employee pensions that seem greatly excessive or awarded for dubious levels of service; both situations have appeared in the news media of late and to great public outrage, I’m sure. I don’t know if we’d agree on how many fit those two categories in total, but I’ll suppose its in the range of 3-5% unless one chooses a very liberal definition of an “outlier” pension. As maddening as it is to all of us to read of such cases we have to remember two things at the outset:… Read more »
mark glennon
Mr. Gordon, you have no empirical basis for saying that excessive pensions are outliers, do you? On the other hand, there is at least some indicating they are not, such as the numbers of pensions over $100k, average retirement ages, etc. Still, fair pension reform would first require a study, which nobody has really done, to get clear answers on that so that reform could be progressive and fair, which I wrote long ago. That is, protect the pensions that are reasonably sized and reduce those for spiders, double-dippers and gluttons. We need data on that. As for your assertion… Read more »
James Gordon
Mark, the major point I was trying to make is that people by nature can often legally wiggle their way around any given rule or law to find a way through it to their own advantage. Knowing that, laws need to be as tightly written as possible to minimize those who would take advantage of looser terms others might easily understand and follow. Clearly clever people look for advantages in life, and laws that are not carefully written and considered allow some to act in legal ways which may outrage those who thought the intent of the situation was otherwise.… Read more »

In addition, any future projections of return on assets is probably overstated, and the actual liabilities are understated given the probability of successful forecasting and the continued increase in the size of government.

Bruce
We can all hope for better days ahead but what if everything Mark says is correct. Let’s also assume that the Constitutional change doesn’t make it or faces years of litigation. What then? How do companies make a decision to add jobs here? Why would someone move here if there are limited jobs? If/when taxes go up don’t more companies leave and the jobs with them? Then what? Another 100,0000 gone? Then another 100,000? Let’s tax the rich guys. That makes little sense since it doesn’t bring enough revenue and they are the most likely to move. Retirees? See ya… Read more »
James Gordon
I think most of what you’ve said her does make sense but not perfect sense. What most seem to suggest without saying so directly is that the average of the total state and local taxes paid by individuals and the number of people who choose to leave the state for places where that average rate would be lower are perfectly related in a mathematical sense—maybe something akin to suggesting that a 15% rise in the average sum of taxes paid locally and to the state would result in an increase of 15% of those choosing to move to another state.… Read more »
James Gordon
Mark, II agree wholeheartedly with maybe 80% of your opinions here about IL politicians’ failure to hit the “reset button” on their view of how to solve the long-standing underfunding of the various IL public pension systems. Rahm, Gov. 1% and Elaine all continue almost literally unabated in spewing the nonsense that the IL Supreme Court overwhelmingly stated are unconstitutional ways to go about doing that and their continued failure to recognize that those philosophical talking points simply are a “no go” in moving forward productively. Reigniting those embers which have great public appeal will only result in more defeat… Read more »
mark glennon

What do you think happened when Congress first passed the Bankruptcy Code? Or what would happen if they amended that code to allow states to file, which they unquestionably could do? Plenty of permissible retroactive effect on contracts and debts. But, I repeat, I defer to a good lawyer who researches this closely. You and I won’t solve it.

Kathy Berg

Thanks for this summary of reactions and your analysis.
It’s been a bumpy ride since the ruling.
When the dust settles, I hope they come to a consensus on the cold hard facts. We have only the worst case scenario with which to work.

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