* From yesterday…
During a town hall meeting in Decatur, Illinois’ Governor repeated his call for structural reforms and a balanced budget and also laid out a few details about how he wants to reform pensions. Governor Bruce Rauner said there must be changes to the pension system and said he has a constitutional fix. His idea includes a new deal moving forward.
“People can keep their old deal if they want but then their salary increases don’t go into the pension. Or they can have their salary increases count towards their pension if they get into a new deal.”
To encourage workers to enter a potential new tier, the Governor said there would be incentives offered. If the plan is passed by the General Assembly and implemented, Rauner said there would be big savings.
“And if we do that we can save $2 billion for you as taxpayers.”
The Governor said his administration has researched the proposal and said it is constitutional.
* Our resident pension expert RNUG (who used to post under the longer name “Retired Non-Union Guy”) was dealing with some family health issues and didn’t comment until last night. Since many of you probably missed it, here, with some minor edits for things like spelling corrections, is his initial analysis…
Rich tried to get me earlier but I’ve been dealing with a medical issue with an elderly mother-in-law.
I haven’t read any comments, but I did catch the story about the remarks in Decatur either yesterday or today. I just ignored it because it sounds like yet another more or less coercive choice going forward. Given the Pension Clause and the clear SB-1 ruling, unless it contains a complete “keep what you’ve got option”, it won’t pass Contract Law logic as consideration.
Yes, you could make such an offer along the lines of what Rauner suggested and bribe some people into taking cash and moving to a new tier and have it be legal, but it probably won’t be the existing “Tier 1″ people who take the deal. They will most likely say “thanks but no thanks, we’ll keep what we have” and the courts will back them up. In the past, the courts have mostly shot down any change (age, years of service) that, when applied to the formula, would have reduced a pension.
I get where Rauner is coming from. He thinks yet to be earned benefits can be modified; the courts have disagreed. Eric Madiar, when charged with finding a loophole in the Pension Clause, could only come up with the “consideration” possibility in contract law. But anyone who spends any time researching contract modification by consideration will find it has to be totally voluntary.
And, as it stands now, the threat of not having mythical future salary increases included in the pension calculation may not be much of a threat. Rauner wants to hold the unions to no raises; a lot of the Merit Comp people haven’t have a raise in 13 years. In the case of SERS retirees, the Final Average Compensation is based on the highest consecutive 48 months in the last 120 months (10 years) of service. So if you aren’t getting raises anyway, it won’t make a bit of difference.
* He then responded to some comments by others…
== Layoff the public employees immediately ==
Aside from union contracts, there is the little thing called “Civil Service” that protects almost all State employees, both union and Merit Comp
== Are we really going to go through this process again? ==
Sounds like it. The Rauner crew may want to be careful what they wish for. The last time the IL SC stopped short of ordering specific pension fund payments …
== It is going to take major backbone to deal with our pension mess in a fair, responsible and constitutional manner. ==
Fair - keep your contracted promise
Responsible - pay what is owed
Constitutional - “Tier 2″ was the reform
The only things left to do with the pensions are to (a) restructure the debt (longer ramp or borrow the $110B in the markets at lower than the assumed rates of return), (b) probably shift the normal pension cost on the local school districts AND (c) come up with revenue to pay off the debt.
== by constitutional amendment, almost anything would be constitutional, just extremely difficult to enact. ==
Even by constitutional amendment it wouldn’t get rid of the existing “pension contract” or the $110B debt owed to the pension funds. If you can’t get rid of the $110B (or a major portion of it), there is no reason to amend the constitution or “reform” pensions.
== Would you lend your money to this state? ==
Sure; they’ve never missed a bond or pension payment in about 100 years or so.
== Eric Zorn: Rich is right that this is far from a new idea. Eric Madiar, a lawyer who is Cullerton’s pension expert and widely considered an honest broker in these matters has looked carefully at the case law and thinks it can pass constitutional muster — I did a column on it recently http://www.chicagotribune.com/news/opinion/zorn/ct-tough-choice-pension-reform-perspec-0909-20150908-column.html ==
I remember reading it and disagreeing with it.
== How about trying this: no overtime, unused sick days or vacation days gets to be applied toward retirement. ==
At best, maybe. See the various decisions that say (to paraphrase a bit) “enhancements granted by the legislature can’t be diminished once granted.”
== What Justice Burke was saying was that the state had options to meet the obligation. Taxes etc. she never suggested that there is an out or a way to legally diminish pensions. Read the opinion, it is quite clear in its inference. Raise revenue and pay the debt. ==
-Old and in the Way- is on it. The other thing in the decision was a veiled threat to revisit the “hands off on how it is funded” stance in the IFT decision.
As I said at 8:21pm, Rauner and company want to be very careful what they wish for. They could end up in a real world of hurt if the IL SC decides they’ve heard enough attempted end runs and orders actuarially based annual funding, but doesn’t (and they won’t) order a tax hike.
== Wordslinger: RNUG, they’re softening up the ground — again — to try and bank $2 billion in “savings” to the pension fund contribution. It’s just like the “savings” proposed in February. See, if you call it “savings,” that sounds so much better than the short-funding that was done in the past. The effect is the same — more unfunded liability — but you can spin it to the willfully gullible. ==
It’s a bit more than that. Aside from another attempt to bank fictitious savings, it’s also some cover to try to sneak smaller pension changes / diminishments through the GA while we are all distracted by the big attack.
We all need to keep a wary eye out for various “nose of the camel under the tent” provisions tacked onto needed bills; just another variation on the Rauner “poison pill” attempts on the union.
== Jessica: Madiar is obviously the guy to talk to about constitutionality of this, but there is case law that suggests this is constitutional. See Peters v. City of Spfld. (http://cgfa.ilga.gov/Upload/2008%20JANUARY%20Handbook%20of%20Illinois%20Pension%20Case%20Law.pdf). Court ruled that future salary increases are not constitutionally protected. The problem is it doesn’t save much and if you make the option for them to move to really unattractive, no one will take it. So it’s not an alternative to a tax increase to be able to amortize the debt. But if it’s enough face saving to let republicans vote for a tax increase, do this! ==
To split hairs (which the law does), the court ruled future increases are not protected. But my memory, without re-reading it, is that pension benefits do have to accrue for any future raises that do occur.
In other words, Rauner can not give raises, but if he does give raises, they have to be counted in the pension calculation. Rauner wants the raises to not count towards the pension unless you take a reduced pension. Not quite the same thing as Peters.
== What does Rauner do about TRS then? Since he (kind of) cannot control what a district pays teachers. ==
My assumption is he plans a “starve the beast” approach even though he is for more school spending. If the State were to transfer the “normal cost” of the pensions to the local districts at the same time the State caps property taxes, the money to pay the pensions would have to come from somewhere. At that point, the only obvious choice for the school district would be to cut out raises and lower their salary costs, either by firing some teaching staff or trying to impose salary cuts on all teaching staff. Such a move, if logically analyzed, might also drive more local school district consolidations in order to achieve an economy of scale and eliminate some duplication of management overhead … but I’m not going to hold my breath knowing the psychological investment small towns have in their schools / sports teams.
* And my favorite…
Anybody else reminded of the Verizon commercial that takes the satellite providers to task for offering the same old deal in new language?