It’s Not Pension Reform

Illinois Senate and House lawmakers will meet Tuesday Dec. 3 in Springfield for a one-day session to see if they can reach agreement on a pension reform bill some say is needed to avoid bankruptcy.

Final details are scant. But Republican candidate for Governor, Sen. Bill Brady, who must have some inside knowledge on the bill thinks that although it’s not perfect it’s significant and as good of an agreement as Illinois is going to get.

The Illinois’ public labor unions, which felt excluded from the latest negotiations over pension changes slammed the initiative even without details.

Supporters estimate that the plan would save $160 billion over 30 years.

The proposal includes increasing workers’ retirement age on a sliding scale, a funding guarantee, a 401(k)-style “option” and adjusting the employee contribution.

The plan would require the state put 10 percent of any money saved annually through benefit cuts back into the pension funds beginning in 2016. The money the state currently uses for pension bond payments will retire the debt in 2019. Those payments will then be paid into the retirement funds.

The funding guarantee allows retirement systems to sue Illinois if lawmakers don’t make the full contribution to the fund each year.

Here’s a couple of notes taken from the summary page of the bill the pension deal is based on that should scare the geebiebers out of anyone paying sales, income or property tax in Illinois:

• Home Rule Note, House Floor Amendment No. 2 (Dept. of Commerce & Economic Opportunity). SB 1 (H-AM 2) does not pre-empt home rule authority.
• Housing Affordability Impact Note, House Floor Amendment No. 2 (Housing Development Authority). This bill will have no effect on the cost of constructing, purchasing, owning, or selling a single-family residence.

How does not pre-empting Home Rule in pension reform not have a significant effect on the cost of constructing, purchasing, owning, or selling a single-family residence?

Take a look at trends in local property tax levies. See if you can find language such as this from a DeKalb city council meeting agenda:

WHEREAS, THE City Council of the City of DeKalb, Illinois, finds it necessary to levy taxes for a twelve month period beginning January 1, 2013 through December 31, 2013: and,

WHEREAS, the City of DeKalb, Illinois, is a home rule unit pursuant to the Constitution of the State of Illinois, (1970) Article 7, Section 6 (a); and,

WHEREAS, the Constitution of the State of Illinois (1970) Article 7, Section 6 (a) grants to home rule units the power to: “…exercise any power and perform any function pertaining to its government and affairs including, but not limited to, the power to regulate for the protection of the public health, safety, morals and welfare, to license; to tax; and to incur debt.”; now,

The City of DeKalb, like most Home Rule communities, such as Sycamore, levy property taxes for pensions only (in most years). Property tax is a direct and significant cost to buying and owning a home. Collective bargainers would find that Home Rule communities have competitive advantages far superior to those units without its ability for creative financing and to incur debt.

Pension reform that does not pre-empt Home Rule is not reform.

Any pension reform plan likely will face a court challenge based on claims that reducing pension benefits violates the state constitution. Missing in that 1970 Constitution is any language about closing loopholes or penalizing their exploitation.

Perhaps the many state retirees receiving a $40,000 a year or less pension would have little to worry about if exploited loopholes at the top of the public pension chain were at least closed upon the passage of a pension reform bill.

Negotiated defined benefit pensions were often based on unrealistic return on investments with taxpayers on the hook as insurance against the inevitable losses. Project 8% annual return get 3.5% and just raise the taxes to cover the difference. That’s a big part of any real reform.

Dec. 3 date just happens to be the day after the filing deadline for the March 2014 primary election. That way lawmakers will walk into the session knowing if and what competition they face in their primary race and at least some idea of who they might face in the Nov. 2014 general election.

That is a tell-tale for a likely scenario of muscle politics to get a reform bill passed at any cost. Taxpayers and job seekers should contact their legislators by email and tell them to let the public see the details and hear the arguments pro and con before any vote takes place.

The public discourse must begin immediately and the General Assembly might expect a shortened holiday break because pension reform the sooner the better is sorely needed.

Schools, hospitals and social service agencies are forced to borrow money, cut jobs and reduce services to keep operating because the state has delayed payments to them for months on end. Illinois is straddled with an unfunded pension liability that exceeds $100 billion. That number does not include debt incurred by Home Rule communities, including Chicago.