I will protect your pensions. Nothing about your pension is going to change when I am governor. - Chris Christie, "An Open Letter to the Teachers of NJ" October, 2009

Sunday, January 6, 2013

Pension "Reform" = Legalized Welching

Meanwhile, in Illinois, the government is forced to confront a pension mess of their own making:
The prospects for solving Illinois' worst-in-the-nation pension crisis may have grown brighter Friday when powerful House Speaker Michael Madigan said he was open to deferring a contentious teacher retirement issue that has deadlocked lawmakers for almost a year.
Madigan's shift was announced by Gov. Pat Quinn, who is pushing to solve the $96 billion pension problem during a lame-duck legislative session that ends next week. The governor characterized the news as a breakthrough.
But many other pension issues remain unsettled. And whether Madigan's decision, which was confirmed by his spokesman, will lead to a true path through the impasse was far from certain.
Quinn said he would meet with legislative leaders Saturday in an effort to fashion a deal to be voted on in the General Assembly next week. He set a Jan. 9 deadline, the same day the current legislature ends and a new one is sworn in.
The Democratic governor said the talks will now exclude discussion about forcing local school districts to pay a portion of their employees' costs. That is a traditional state expense that Madigan, also a Democrat, and others had proposed shifting back to the districts – but Republicans balked, fearing it would force communities outside Chicago to raise taxes or drastically cut programs. [emphasis mine]
Yeah, I have a question. I know I'm just a music teacher and all and I know next to nothing about high finance...

But how would shifting the costs to localities do anything to help bring in more revenue?

The pensions in Illinois, like just about every other place in America, have been underfunded for years. There are only two solutions to this: decrease the amounts paid out, or increase the revenue going in. Shifting costs does nothing to address the fundamental problem.

Now, here in Jersey, we've "increased" revenues through two means. First, we forced public employees to pay more into the pensions; next, we came up with a ridiculously high projection of 8.25% for the return on the funds' investments. We then decreased the amount paid out by stopping all cost of living allowances (COLAs) on current and future employees. And, even with all that self-deception and promise breaking, you know what?

It still wasn't enough to make the pensions sustainable! Because the state doesn't have to make a full payment into the pension for seven years, and there's no plan to make up for the twenty years of neglect before that happens anyway.

Meanwhile, public employees are trapped in the pension against their wills, because the system would fall apart if current employees had the option of keeping their payments for themselves; the state needs that money to meet its current obligations to current retirees. Notice how the idea of letting employees opt-out in Illinois isn't even being floated:
Various plans floated in the last year have included bumped-up contributions and less-generous returns for current employees, which raised Cullerton's constitutionality questions. His spokeswoman said Cullerton is willing to negotiate a separate deal addressing the local-government share of pension costs.
The House convenes Sunday with plans to work until Wednesday morning. The Senate adjourned abruptly Thursday night but Cullerton cautioned senators to be ready for a call to return Tuesday if action is needed on any legislation.
Screwing over public employees is the only thing they've got - and it's not going to be enough. At some point, you need to come up with more money to fund the pensions.

I know some of you out there just want to close the entire thing down. You've convinced yourselves that greedy unions are shafting the taxpayer with their wild demands. What you forget is that pensions are deferred compensation. You owe that money to public employees the same way you owe money to your plumber when he sends you a bill for installing a new toilet. You can't just walk away from your debts - especially when that deferred compensation saved you money in the first place.

At some point, someone is going to have to stand up and propose a way to bring a substantial amount of revenue into the states to deal with this mess. One of the best ideas I've heard is a financial transactions tax (as long as it's progressive). But maybe there are other ways.

In any case, it has to happen. The only other alternative is to so degrade the pensions that their "reform" becomes nothing more than legalized welching. A state can't do that; walking away from these debts would put the entire notion of government credit in doubt, which would be far more catastrophic than any tax increase levied.

Governor Quinn, Speaker Madigan, and the Illinois legislature have a golden opportunity here to step up and show some real courage. They can propose a new revenue stream dedicated solely toward paying off the debts the state has already incurred.

Will they take it?


Anonymous said...

Hmm, apparently some contracts are more "sacred" than others.

Would any of this cost shifting and deferred payments be considered if it was bondholders, rather than working people, who were owed the money?

We all know the answer tonthatbone.

gbrown said...

Rights of individuals are bound up with the theory and precepts of social and political justice we adopt (John Stuart Mill, On Liberty). When legislators swear an oath to uphold the state and federal constitutions, then citizens of Illinois and the United States have also acquired the right to expect that they will uphold that pledge. This is also a matter of important moral concern for all citizens of Illinois, for all legal claims will be validated by a moral framework since the concept of justice is grounded in ethics. If citizens’ legal rights are abused, then their dignity and humanity will also be violated.

Rights and obligations are logically correlative. In other words, a citizen’s rights imply or complement the legislators’ obligation to guarantee them. The keeping of promises is the General Assembly’s legal duty. It is something the U.S. Constitution requires them to do whether they want to or not. Unfortunately, many legislators will act without moral principles, even though “claims of rights [are] prima facie or presumptively valid-standing claims” (Tom Beauchamp, Philosophical Ethics).

If policymakers do not take individual rights seriously but prefer to challenge them in a court of law, then we can assume they will not take any of their other laws seriously either. All citizens of the State of Illinois have legal justification for their rights and benefits. The foundation of their rights and benefits is the state and U.S. constitutions that directly support any claims against them.

“Each person possesses an inviolability founded on justice that even the welfare of society as a whole cannot override… It does not allow that the sacrifices imposed on a few are outweighed by the larger sum of advantages enjoyed by the many. Therefore, in a just society the liberties of equal citizenship are taken as settled; the rights secured by justice are not subject to political bargaining or to the calculus of social interests” (John Rawls, A Theory of Justice).

To possess a right to a promised benefit, such as a pension, is to assert a legitimate claim on all Illinois legislators to protect that right. There are no rights without obligations. They are mutually dependent. We know state contracts are also protected by the federal government as well (Article 1, Section 10 of the United States Constitution).

The significant issue of today and tomorrow is the relationship between a teacher’s right to an earned, constitutionally-guaranteed defined-benefit pension and the legislators’ obligation to safeguard that promise. An unconscionable constitutional challenge of teachers’ rights and benefits will generate a serious threat to their secure sense of worth as citizens and create the unfair possibility for an economic disadvantage for one particular group of people and their families. This cannot be morally or legally justified.

For an in-depth discussion about constitutionality, please read “Illinois Pension Reform… Is Without Legal and Moral Justification”: http://teacherpoetmusicianglenbrown.blogspot.com/2012/05/sb-1673-is-without-legal-and-moral.html

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