43 Comments - RNUG - Friday, Jun 10, 16 @ 9:21 am: Welcome back Eric. He is spot on. In approving the 1970 Constitution, whether they fully understood the consequences or not, Illinois voters chose to make pensions (and their associated rights subsequently granted by the General Assembly) a binding contract. - Huh? - Friday, Jun 10, 16 @ 9:26 am: Thank you for the insight. Unfortunately, I think that the New Jersey ruling will just give ideas to 1.4% and the GA to try a pension lawsuit. - RNUG - Friday, Jun 10, 16 @ 9:38 am: == - Unfortunately, I think that the New Jersey ruling will just give ideas to 1.4% and the GA to try a pension lawsuit. == The IL SC was pretty clear the last time. Lower courts should follow that ruling and deny such a case. And I suspect the IL SC will probably give such a case the attention it deserves … none. - Illinois Bob - Friday, Jun 10, 16 @ 9:39 am: Time to move on. The state made a series of bad deals for the people in increasing pension benefits (as far back as Thompson with his 3% annual “adjustment”) to paying for retiree health insurance. It paid off politically for pols of both parties then, but they left a ticking time bomb they knew would go off now. We HAVE to pay it, and can’t reduce benefits for current employees. Unfortunately, since this benefit IS part of compensation, much of the cost will have to be taken from any increases in other compensation such as salaries and health care contributions employees in the pension funds. Since most of state aid for schools goes to salaries and benefits, and since the state has no say in contracts negotiated by local school districts, the state will either have to cost shift to the locals or reduce state school aid wealth redistribution. While the primary beneficiaries of the pensions should do most of the heavy lifting, at least some of the burden should be put on taxpayers who elected the crooks that failed to properly fund state pension obligations. The pensions will remain intact, but it will take major pain to remedy the mess that’s been created in Springfield. The only question is the distribution of pain to meet the state’s obligation. - Poolhall Richard - Friday, Jun 10, 16 @ 9:41 am: Q: Recently, an Arizona Superior Court overruled an attempt to lower cost-of-living-adjustments for existing employees. Arizona also has a constitutional impairment clause similar to the one in Illinois. What, if anything, can we conclude from this precedent? Reynolds: Each state is the “master” of its own law. Illinois courts do not have to follow the decisions of courts in other states and the court decision in Arizona is technically irrelevant to Illinois. While courts of one state do occasionally cite decisions from another state, there are remarkably few cases in which one state court uses a different state’s court opinion as a persuasive precedent. On the other hand, state courts routinely parrot federal constitutional and statutory interpretation cases in developing their own jurisprudence, which is another reason why we would not be shocked to see Illinois following the U.S. Supreme Court’s line of analysis with regard to the contract impairment issue. https://news.illinois.edu/blog/view/6367/198513 - Illinois bob - Friday, Jun 10, 16 @ 9:41 am: just curious, Rich. When posters see parts of their posts lined out before posting, does that just mean you’re reading it, or does it mean that those sections should be removed or revises in order to get posted? - Sir Reel - Friday, Jun 10, 16 @ 9:44 am: Cue the Administration singing Happy Days in 3-2-1. - RNUG - Friday, Jun 10, 16 @ 9:57 am: - Poolhall Richard - As history has shown us, the IL SC since 1975 has consistently chosen to follow the strict literal interpretation of the pension clause language. In fact, the court rejected the fiscal emergency / police powers argument saying, in effect, the Legislatures and Governors deliberately created this mess so you can’t argue it is an emergency or was unforeseen. - Leave a Light on George - Friday, Jun 10, 16 @ 9:59 am: For gosh sakes just make the required payment to the pensions systems. Time (we’ll croak soon enough) and tier 2 will take care of it. - illinois manufacturer - Friday, Jun 10, 16 @ 10:03 am: Doest this mean along with the Il SC ruling that t o have an enforceable ckntract with the state it had better be a provision in the state constitution? I dont see anything stopping NJ from jusr cancelling all its pension bond or other contractor obligations? - atsuishin - Friday, Jun 10, 16 @ 10:06 am: Time (we’ll croak soon enough) and tier 2 will take care of it. Not before everyone else has to pay a massive income tax increase, on top of paying the second highest property taxes in this country and highest sale taxes in this country. - anon - Friday, Jun 10, 16 @ 10:19 am: atsuishin Not before everyone else has to pay a massive income tax increase.. Its called paying back the tax break we got over many years from using the pension funds from state employees pension account - RNUG - Friday, Jun 10, 16 @ 10:26 am: == I dont see anything stopping NJ from jusr cancelling all its pension bond or other contractor obligations? == You raise an interesting point, but I think it will only affect certain things in NJ, not all contracts. I’m reading it to mean that NJ requires voter approval of future / long term debt. The court, I think, is saying the COLA “contract” was not a legal contract because the GA, in this case, did not have the authority to take on long term debt. The big difference between NJ and here, as Eric noted, is our Pension Clause clearly states the pension (and it’s benefits) are a contract. The NJ court was apparently walking in the gray area of the law … and, IMO, may live to regret this ruling. - Six Degrees of Separation - Friday, Jun 10, 16 @ 10:28 am: ==Not before everyone else has to pay a massive income tax increase, on top of paying the second highest property taxes in this country and highest sale taxes in this country.=== This may be true, but so it goes as in other real life examples. I foolishly bought a timeshare once, and paid a lot more than I should have, but eventually got out of it, and learned my lesson the hard way. - DuPage Saint - Friday, Jun 10, 16 @ 10:31 am: The GA and various governors created and exacerbated this pension mess let them fix it. The Illinois Supreme Court cold not be more clear. Also the 3% is NOT a cola bu a negotiated benefit and less of an increase historically tha the cola for social security. Read the opinion - Ole' Nelson - Friday, Jun 10, 16 @ 10:32 am: ***Not before everyone else has to pay a massive income tax increase, on top of paying the second highest property taxes in this country and highest sale taxes in this country*** This is what I was referring to yesterday when I said we would eventually have to pay the piper. Our pension benefits were affordable if the State had just met it contribution responsibilities all along. While Illinois pension benefits are not spartan, the failure of the state to make actuarially required contributions is a major factor in the shortfall. We have enjoyed decades of artificially lowered taxes in this state and the pension funds have suffered. Time to pay the piper! - illinois manufacturer - Friday, Jun 10, 16 @ 10:45 am: RNUG You are as usual right. There is a NJ.COM story that reports it better. Colorado ruled in their case it’s a COLA and as such can be adjusted with inflation. I think NJ may regret this because….social security? - Now What? - Friday, Jun 10, 16 @ 11:02 am: atsuishin Pension recipients are tax payers, property owners, and purchasers as well. No social security nor medicare, but pay towards your medicare. You’re welcome. - illlinifan - Friday, Jun 10, 16 @ 11:08 am: A strong Republican principle hinges on state rights. So the fact that each state can write pension laws for their state and their courts render separate decisions should support this principle. It is time for everyone to accept the pension payments promised is the reality. What is owed has to be paid. It is time to move on and figure out a way to pay what is owed. - TinyDancer(FKA Sue) - Friday, Jun 10, 16 @ 11:12 am: I believe they arrived at the 3% figure because that is the historical average inflation rate over time. How can you pay someone in future dollars without adjusting for inflation? Would bankers go for a deal like that? Even Social Security adjusts for inflation. And don’t forget that since public workers don’t qualify for Social Security, the state didn’t have to make any payments into S.S. - RNUG - Friday, Jun 10, 16 @ 11:18 am: == And don’t forget that since public workers don’t qualify for Social Security, the state didn’t have to make any payments into S.S. == Actually, that depends on which pension system you belonged to and what job title you held. As a GENERAL rule, teachers did not pay into SS; most actual State employees did … but there are exceptions both ways. - Consideration - Friday, Jun 10, 16 @ 11:19 am: It’s not COLA and it’s not based on inflation. It’s an annuity and part of the compensation package. Stop trying to tie it to anything but that… - TinyDancer(FKA Sue) - Friday, Jun 10, 16 @ 11:25 am: Does anyone know what percent of pension payments go towards actually paying pensions and what percent goes to the banks to pay interest on the debt? Anyone? - leave a Light on George - Friday, Jun 10, 16 @ 11:25 am: Now What? +1 - Illinois Bob - Friday, Jun 10, 16 @ 11:27 am: @Tiny Dancer Most private pensions are annuity based and aren’t adjusted for inflation, Tiny. Since you can’t predict it, you don’t obligate yourself to pay it. It should have been provided at rate of inflation or 3%, WHICHEVER IS LESS. Sensible precautions for obligations created through perpetuity are what good leaders do, I guess that’s yet another reason I’m no fan of Big Jim. - Sue - Friday, Jun 10, 16 @ 11:31 am: Tiny- as usual you have no idea of what you are talking about. No portion of pension payments go to banks to pay “interest on the debt”. The unfunded liability is an accounting issue there is no third party debt other then maybe the pension bonds issued under Blago. - illinois manufacturer - Friday, Jun 10, 16 @ 11:37 am: Trump gets a nice SAG pension. I assume it is a regular annuity but even at his age it must be worth over a million. He didn’t put a value on it in his disclosure form. He puts some whopper values on his golf courses. I would like to know if he is proud of his buddy Chis cutting teacher pensions and how he would feel about his being cut. - TinyDancer(FKA Sue) - Friday, Jun 10, 16 @ 11:37 am: =Most private pensions are annuity based and aren’t adjusted for inflation= Right. They’re invested in the market and get the upside of the market instead of COLA - unless, of course, you happen to retire at a time when the market is tanking, which is why that model doesn’t work in the real world. =at rate of inflation or 3%, WHICHEVER IS LESS= So, the banks will be giving us that same deal on bonds? - RNUG - Friday, Jun 10, 16 @ 11:47 am: == Does anyone know what percent of pension payments go towards actually paying pensions and what percent goes to the banks to pay interest on the debt? == With the exception of a couple of pension bonds taken out under Blago to make the equivalent of 2 years pension payments (and then handing the bill to the pension funds who have to pay off the bonds with interest, and exactly how much is complicated), all the rest of the pension debt is just IOU’s the State owes the 5 pension funds. The “interest” associated with those IOU’s is the lost earnings from the money not being paid into the pension funds when it should have been. So it’s just money the State owes itself … The $110B of pension debt will never be borrowed from a real bank that would demand actual and regular payments, nor would it be bonded out for the same reason. It would remove the flexibility the State has to reduce or skip the pension payments when the State doesn’t have enough revenue to both pay current bills and the pension funds. Yes, that is how we got into this mess … For what it is worth, the State is paying about $1.7B - $1.9B annually for the current pension cost, plus about $5B - $6B in combined back principal and interest. Because of the back-end loaded Edgar Ramp, that principal and interest will increase (like a variable rate mortgage ballooning) for years to come unless the State were to, in effect, re-fi it by setting a new “fully funded” date and a new target percentage. If the State were to do that on actuarial principles (like a level payment mortgage), the immediate FY cost would increase by about $2B (equivalent of 0.5% of the current flat tax) but stay at that same level from here on out. It would be the smart thing to do but would require a tax hike. - Crispy Critter - Friday, Jun 10, 16 @ 11:49 am: It is amazing to me that everyone keeps saying we are going to have to have a tax increase to pay these pensions; which is probably true; when maybe everyone should be saying thanks to the pension systems’ money to fund things all these years to keep our taxes down. There are 2 sides to the coin folks. - illinois manufacturer - Friday, Jun 10, 16 @ 11:55 am: Private anuities are not tled to market fluctuations. The simple ones are you pay a lump sum and get x dollars a month for life.There are a lot of variants some will give you some market exposure.Some function like CDs and can be anuitized. Variable annuities are really more mutual fund than an annuity. I was a pat owner of an insurance agency once a long time ago. - RNUG - Friday, Jun 10, 16 @ 11:55 am: == when maybe everyone should be saying thanks to the pension systems’ money to fund things all these years to keep our taxes down. There are 2 sides to the coin folks. == That’s true, and should be made CRYSTAL CLEAR by whoever has to sell the tax increase (it should be Rauner but he doesn’t appear to be willing to stand up and say so) … but it doesn’t raise the cash needed now. - TinyDancer(FKA Sue) - Friday, Jun 10, 16 @ 12:12 pm: =Variable annuities are really more mutual fund than an annuity.= Right. Except for all the hidden fees. And most 401(k)s are in the market - not annuities. - Maximus - Friday, Jun 10, 16 @ 12:57 pm: A shame the Illinois constitution was drafted in the manner that it was. If ours was more similar to interpretation as New Jersey’s we could be following a similar method to solving the problem. New Jersey people must be quite pleased they are now working their way out of the pension problem. Illinois is still stuck in it. - illlinifan - Friday, Jun 10, 16 @ 12:59 pm: Also the 3% AAI (not a COLA) that is provided to retirees is funded in part by the employees themselves. During our working years we paid an extra .5% more into the pension over the required contribution to help cover the cost of the AAI. Honesty about this annual increase is needed. - Blue dog dem - Friday, Jun 10, 16 @ 1:50 pm: RNUG, your a genius ( seriously). Anyone who received DCEO handouts now must pay back or be taxed an equivalent amount. Put that money back into the pension systems. Finally a tax old Blue can stomach. Let’s roll. - Jen - Friday, Jun 10, 16 @ 1:58 pm: I worked for state of Illinois and contributed to my retirement every paycheck… I make a small retirement… With no hope of of ss… I need my 3 percent to live…I would give back maybe 500 a year to help and that’s generous…. I can’t even afford that… Stop blaming pensioners for being greedy…. I’m not… I did everything I was told to do… Learn to live on a budget … And go without like I did all those years … - Common Sense Republicain - Friday, Jun 10, 16 @ 3:11 pm: Maximus – 12:57 How would you like for your Retirement plan or Social Security to say, well we don’t have enough money to pay you what we promised and you planned your retirement around, so we are not going to give you any raises? This does not stop the prices you pay for everything from going up. While you may be able to pay your bills now, it is only a matter of time till you cannot. Then you have to go on some sort of costly Public Assistance in order to survive. How can anybody in their right mind be proud of that? We want people to be self-sufficient, so they are not a drain on society. The fact is we have the money!!! Some people just want all of the benefits, without paying for the bill when it comes due. I think there is a word for that. - TinyDancer(FKA Sue) - Friday, Jun 10, 16 @ 3:20 pm: ==A shame the Illinois constitution was drafted in the manner that it was.== Yes. It would be so much easier if we could just stiff all those public retirees. Who do they think they are? Bankers? I mean, public employee contracts aren’t sacrosanct like those corporate/banker contracts. - TinyDancer(FKA Sue) - Friday, Jun 10, 16 @ 3:34 pm: RNUG: Thanks. Is CPS debt similarly structured? - Andy S. - Friday, Jun 10, 16 @ 3:53 pm: The fact that employees contribute a specific, dedicated percentage of their salaries (0.5% of salary in SURS, as much as 1% in some other systems) to receive the AAI in retirement is crucial. Cutting something that someone has paid for up-front is not merely a violation of the pension protection clause, but of basic contract law in general. For example, if a corporation sells a 30-year bond with a 3% coupon rate, it cannot unilaterally cut the coupon to 2% or 1% ten years later on the grounds that interest rates have declined since the bond was issued. I am willing to bet that the New Jersey COLAS were structured very differently than the Illinois AAIs, i.e. that the former did not require an increase in employee contributions while the latter did. - Anonymous - Friday, Jun 10, 16 @ 4:21 pm: == Is CPS debt similarly structured? = - TinyDancer(FKA Sue) - I’m not up to speed on it, but I believe so. Someone else here should know better than I do. - RNUG - Friday, Jun 10, 16 @ 4:47 pm: Just realized I left RNUG off the 4:21pm post. Sorry, comments for this post are now closed.