A Response to Today's Chicago Tribune Editorial about So-called Pension Reform

A Response to Today's Chicago Tribune Editorial about So-called Pension Reform





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mso-hansi-theme-font:minor-latin;}"Illinois' four legislative leaders have been meeting
privately in an effort to carve out a pension reform deal. Only top staffers
have been allowed in the room with them. No news conferences. No comment.
Members of the General Assembly have been told to clear their calendars for
Dec. 3 and 4. That's the firmest signal yet that the four leaders — Senate
President John Cullerton, House Speaker Michael Madigan, Senate Minority Leader
Christine Radogno and House Minority Leader Jim Durkin — are getting close to a
deal. The four are scheduled to meet again this week and the day before
Thanksgiving, location top-secret."Given all the failures in the past, is there any reason
to think this time will be different? Probably not, but here's a likely reason
for the timing: By 5 p.m. Dec. 2, the members of the House and Senate will know
if they face primary opponents in the 2014 election or if they have clear
sailing. That's the deadline for candidates to file petitions to get on the
ballot…"The leaders are talking about freezing COLA increases
in certain years, increasing retirement ages and capping pensionable income.
Also on the table is a voluntary 401(k)-style plan. Public pension plans should
make the switch to fixed-contribution retirement plans, as many companies have
done. A voluntary plan at least would give public workers an opportunity to
direct their own retirement accounts…"The problem cannot be solved with a modest fix.
Consider: the largest of the state pension funds, the Teachers' Retirement System,
posted impressive investment returns of 12.8 percent for the fiscal year that
ended June 30. Even so, the unfunded liability of that system rose during the
same period by $3.6 billion. We cannot
invest our way out of this debt."The legislature during its fall veto session passed
pension changes for the Chicago Park District. That plan would require workers
to pay more toward their retirements and retire at a later age. It would limit
COLA increases, even freeze them for three years. And even at that, the Park
District would have to borrow big money — potentially up to $50 million — to
stabilize that pension system. We
cannot borrow our way out of this debt."The state's pension system faces that unfunded
liability nearing $100 billion. That has prompted 13 credit downgrades just
since 2009. That liability grows by $5 million every day. We cannot tax our way out of this
debt…" (Editorial: A December vote on pension reform?). Commentary: Solutions for Pension Ramp and State RevenueThe 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 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. So-called Pension Reform will not solve the problem.According to the
Center for Tax and Budget Accountability: “Since it passed, Illinois funded the
Pension Ramp as required every year, except FY2006 through 2007. However, the
annual increases in the required contribution under the intended Pension Ramp
vastly outpace natural growth in the state's tax revenue. This reality, coupled
with the constitutional requirement that Illinois balance the budget, meant the
state would have to cut spending significantly on services to fund the Pension
Ramp, particularly in out years. The net result, Illinois' fiscal system
simply could not accommodate the significant contribution increases
contemplated under the Pension Ramp. The first major threat to the Pension
Ramp was averted with the sale of $10 billion of pension obligation bonds.
Then, reverting to past poor fiscal practices, the state significantly
underfunded pensions in FY2006 and FY2007, to maintain, and in some cases
expand, services.“There were years
like 2006 and 2007 in which lawmakers passed legislation that lowered the
contributions for those years to an amount that was below the pension ramp
(those amounts were already less than the employers ARC). In addition to a revenue problem, the pension
ramp was designed in such a way that its unfeasible. Even if Illinois revenue
issue was addressed, the pension ramp would still likely be an issue” (The Unfunded
Pension Liability (and the “Pension Ramp”) from Center for Tax and Budget
Accountability).


Furthermore, what is needed
to solve the budget problems in Illinois is a better revenue base to pay the
statesself-induced debts. What is easier to do is to evade serious
problem solving of the budget issue and to incriminate the states public employees.


The issue at hand is the states regressive tax rate that no one wants to
confront. The public lacks awareness and understanding about the main causes of
the states budget deficits. Legislators, the Civic Committee, Chicago Tribune,
et al. have capitalized on the public's ignorance of the essential causes of
the state's financial debacle by calling for budget cuts and radical pension
reform as the solutions. They are diversionary, scapegoating tactics that will
bring intentional, financial harm to public employees and allow legislators to
escape legal and ethical responsibility.

“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).

Instead of reformingthe state'stax system, legislators (and their
wealthy subsidizers like the Civic Committee) have focused on radical
pension reform and severe budget cuts to services that the rest of us need.
What do the wealthy and their puppet legislators propose? They propose
sweeping, radical pension reform that will destroy the public employees
defined-benefit pension plans, even though they knowcurrent unfunded
liabilities will not be resolved by pension reform.

Why cant the State of Illinois provide a fair and sound tax system (Illinois
is one of seven states with a regressive flat-rate tax), one that is “efficient
with minimal impact on the economic decisions that taxpayers have to make”
(CTBA), 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 states government officials (CTBA), and one that helps
99 percent of the states population?

The answer is most legislators in the State of Illinois prefer the easy way out
of a difficult and challenging situation that they have created. Illinois
legislators will notaddress the most important causes ofthe
state'sbudget deficits: the state's pension debt and
flat-ratetaxation because of their own self-interests and the wealthy one
percent that bankrolls them (from IEA Wants
You to Sign a Petition for a Graduated Income Tax).