Pension trickery impoverishes teachers and public employees
By John Kindt
On April 30, Speaker Michael Madigan introduced his pension-reform bill, SB1, in the House of Representatives and fast-tracked the bill which passed 48 hours later on a 62-51 vote.
Influencing many legislators to vote affirmatively was the legislation's provision for "guaranteed" pension payments, but this provision only guarantees that pension payments must be made within a specified time frame, and the legislature can change requirements each year.
In other words, the legislature's leaders could require the payment of only $1 to the pension systems and that $1 would be the total of the guaranteed pension payments.
Already, during 2006 and 2007, there were two years where there were legislated "pension holidays" — which contributed to the U.S. Security and Exchange Commission (SEC) judgment issued March 11, 2013, that Illinois was guilty of "pension fraud."
Thus, the House additions to SB1 would set up Illinois for another round with the SEC and other federal authorities.
The Illinois "pension fraud" judgment by the SEC prompted the editorial board of the Wall Street Journal on March 13 to highlight that "it's now official: The Land of Lincoln has the nation's most reckless and dishonest state government when it comes to pension liabilities." Furthermore, the WSJ editorialized that the state's "accounting practices would get private market participants thrown in jail."
The 67 percent state income tax increase passed during the 2011 lame-duck session has raised an additional $8 billion for the state, but Illinois still has $9 billion in unpaid bills. Since the legislature has raided the pension funds for years to benefit the entire state, the entire state should bear any tax increases — not just the teachers and public employees who have faithfully paid into the five retirement systems.
However, taxpayers can also point to other sources of untapped tax revenues, such as Big Gambling, which technically owes Illinois $35 billion to $56 billion in taxes. By simply emulating the higher gambling taxes of other states, as experts recommended in 1995 and each subsequent year, Illinois could have already collected these billions of dollars — making Illinois solvent.
Opponents of the Madigan pension-reduction bill have indicated that they will file a case against the bill on the day it is signed into law. Opponents claim that the Madigan Bill violates Article XIII of the Illinois Constitution, which states that the earned benefits of teachers and other public employees "shall not be diminished or impaired."
To combat a court challenge, an unusual nine-page introduction to the Madigan bill was intended to bolster the legal arguments of the bill's proponents, but it also serves as a history of the legislative misdirection of state funds away from required pension contributions.
As highlighted in a May 5 Commentary by The News-Gazette reprinting the nine-page introduction, the bill's "Supporters hope it provides a bibliography of sorts to help [Illinois] Supreme Court justices see the necessity of the action."
The News-Gazette quoted Speaker Madigan who memorialized the purpose of the nine-page introduction: "It would be used in the argument to the court and as happens in all major legislation, we're concerned about legislative intent," Madigan said, "and that's part of the intent."
However, upon re-examination by the bill's proponents, the nine-page introduction contained much legislative history which served as a mea culpa outline of legislative irregularities and which also impeached claims that the state was in dire fiscal distress. Thus, extensive editing was implemented, and one-third of the introduction was cut to become a six-page introduction, amended to the bill as "House Amendment 3."
Accordingly, the bill's opponents might raise allegations that some of the bill's supporters were unduly trying to influence a decision of the Illinois Supreme Court and were suppressing legislative information which might be needed by the court. One deleted sentence is: "The depth of this financial crisis became clear in 2008." The Springfield leaders of 2008 are still the leaders today, so why was no action taken in 2008 when the unfunded liability problem was closer to $30 billion to $40 billion?
Could the deleted information add fuel to allegations that the Illinois budget crisis might not be a valid crisis? For example, the Madigan bill's introduction declares that the state's unfunded liabilities for 2013 are "approximately $100 billion." However, one year ago these unfunded liabilities were approximately $80 billion (and $30 billion to $40 billion in 2008).
Thus, by not taking remedial actions a year ago, or during the November 2012 veto session, or the January 2013 lame-duck session, the Madigan bill's proponents have been increasing the unfunded liability problem by approximately $2 billion per month.
By comparison, the Illinois state budget is approximately $30 billion.
Gov. Pat Quinn's 2009 Illinois Reform Commission enumerated six major areas for reform which were calculated to save billions of dollars, but Springfield leaders have quashed or ignored implementing these reforms.
In another example per the United States International Gaming Report, the low Illinois tax rates on gambling facilities are giving away billions of dollars in potential tax revenues per year to gambling interests — including $5 billion to $10 billion in the 2012-2013 gambling expansion proposals.
If the legislature would collect the billions of dollars it should have already collected from Big Gambling, for example, and quit funding pet projects, Illinois would be solvent.
Pursuant to the November 2012 Special Pension Briefing Report prepared by the Illinois Commission on Government Forecasting and Accountability (CGFA), the five Illinois pension systems would be 90 percent funded by 2045 if the legislature would simply stick to a reasonable CGFA payment schedule.
So does Illinois really have a bona fide pension crisis — or an artificial crisis designed to strip teachers and public employees of their earned contractual rights?
Professor John Kindt has served in various academic capacities addressing issues involving Illinois public employees and earned benefits for several years.