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* Remember this post about the French riots?…
[Under French President Emmanuel Macron] pensions themselves have ceased to be indexed to inflation (and thus to retirees’ ability to buy consumer goods) […]
The tax will increase the price of fuel by about 30 cents per gallon and will continue to rise over the next few years, the French government says
* And then yesterday, Chicago Mayor Rahm Emanuel (one “m”) proposed doing away with the 3 percent automatic annual increase for pensions and proposed raising gas taxes by 30 cents a gallon, among other things.
Here’s how the mayor justified doing away with the pension AAI…
What kind of progressive, sustainable system guarantees retirees 3 percent annual compounded pay increases when inflation has been at basically zero
And here’s his reasoning for raising the gas tax…
Illinois last raised the gas tax from 16 cents per gallon to 19 cents in 1990. Emanuel said raising the tax by 20 cents would be about the equivalent to inflation over the past 28 years. He said the group of mayors settled on a range of 20 cents to 30 cents to serve as a guideline for state lawmakers when they take up debate on the issue next year.
So, inflation “has been at basically zero” to justify reducing future pension payments, but he uses more than 100 percent inflation to justify a gas tax increase.
*** UPDATE 1 *** Illinois AFL-CIO President Michael Carrigan and Chicago Federation of Labor President Bob Reiter…
“Too many politicians, including Mayor Rahm Emanuel himself, have wasted years pushing extreme, immoral and illegal schemes to slash pension benefits instead of working together to craft fair, sustainable and constitutional funding solutions.
“In Chicago and throughout Illinois, teachers, fire fighters, nurses, caregivers and other public service workers earn a modest pension and pay toward it from every check. Their pension is their life savings, and since most public employees aren’t eligible for Social Security, it is their main source of income in retirement. Reducing that already modest benefit—now just about $35,000 a year on average—is both unfair and unconstitutional.
“Those pushing to repeal the Illinois Constitution’s pension clause ignore the real problem, which is not the cost of benefits but the decades-long habitual failure of politicians to pay the employer’s share.
“They also ignore the clear, strong rulings of the Illinois Supreme Court, which have reinforced both the plain language of the pension clause and the sanctity of the contracts clause, which protect these obligations. Their unanimous decisions have forcefully made clear that any attempt to slash the modest benefits promised to employees already in a pension system would violate both Illinois and federal law.
“Real solutions are achievable, and we remain committed to working together with anyone of good faith to identify and implement them.”
*** UPDATE 2 *** Press release…
Following is a statement from Ald. Scott Waguespack (32), Chair of the City Council Progressive Reform Caucus, in response to Mayor Emanuel’s proposed constitutional amendment on pensions:
“Our caucus opposes Mayor Emanuel’s proposed constitutional amendment to eliminate pension protections.
“These workers have held up their end of their agreement. They served our communities honorably throughout their careers with the assurance that their retirement would be secure. Now, Mayor Emanuel is proposing going back on that promise, and making even more vulnerable the retirement security of tens of thousands of workers who cannot rely on Social Security.
“Mayor Emanuel has missed many opportunities over the last eight years to fight for progressive revenue options to fund our pensions. We urge the next mayor to work with Springfield to achieve a progressive income tax that asks the very wealthy and big corporations to pay their fair share, and the legalization and taxation of recreational marijuana to help fund our pensions.”
posted by Rich Miller
Wednesday, Dec 12, 18 @ 9:57 am
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Free from electoral political considerations, Emanuel is now free to be the true, anti-progressive, reactionary, Republican-lite guy he really is.
Comment by Precinct Captain Wednesday, Dec 12, 18 @ 10:01 am
Pay no attention to what I said yesterday.
Said President Emmanual of local 666 Balonely Slicer’s Ammalgamated.
Comment by Al Wednesday, Dec 12, 18 @ 10:05 am
He came up with this after drinking wine in Montana with his private equity buddies.
Comment by northshore cynic Wednesday, Dec 12, 18 @ 10:07 am
Here is another reason (if you need anymore) why the pension amendment is not happening. Two years ago the GA increased the COLA for certain Chicago police and fire pensioners from 1.5% simple to 3% compounded (as they do every five years or so, P.A. 99-905). Governor AVed it and the GA overrode the AV. 81 yes votes in the House and 31 no votes. Basically half of the yes votes need to flip to get to 71 to approve the amendment. Similar math in the Senate. And both chambers increased the number of democrats. Good luck.
Comment by My Button is Broke... Wednesday, Dec 12, 18 @ 10:10 am
The citizens of Illinois got a low, flat 3% income tax for decades, but wanted to spend much more than that tax generated - so they were fine with underfunding (or not funding at all) the various pension plans. Pensions are a promise (guaranteed by the Illinois constitution) - time to pay up.
Comment by Me Again Wednesday, Dec 12, 18 @ 10:12 am
With Democrats like Rahm, who needs Republicans?
Comment by Anonymous Wednesday, Dec 12, 18 @ 10:14 am
=The citizens of Illinois got a low, flat 3% income tax for decades, but wanted to spend much more than that tax generated=
Ironically the citizens that got that low, flat 3% tax “for decades” are now retired and pay no income tax on their retirement income.
It’s the generation that didn’t get that benefit that is paying more. And those members of that generation who are taking government jobs, aren’t getting the same pension benefits either.
Comment by AndyIllini Wednesday, Dec 12, 18 @ 10:17 am
At least one source tells us that construction inflation (which would affect the things a capital plan would build) is running 2x to 3x the increase in CPI, so there’s that…but again, CPI is not “basically zero”.
https://edzarenski.com/2018/02/15/inflation-in-construction-2018-what-should-you-carry/
Comment by Six Degrees of Separation Wednesday, Dec 12, 18 @ 10:19 am
A quick google search shows that 19 bucks in 1990 would be about 36 now, so 20 cents is probably about right, if you ignore the better gas mileage and electric cars. But even looking at just the 10 years since the 08 meltdown, inflation has averaged 1.77%. It’s below 3, so pensioners are beating inflation, but if/when inflation goes above 3% they’ll start losing ground again. Having a 3% guarantee is very nice, but saying it’s absurdly generous is just not true.
If you want to match it to CPI exactly, or CPI +/- 0.1% or something unnecessarily complicated like that, that by itself wouldn’t be a bad deal (ignoring the bait and switch aspect). At that point it would be an actual COLA instead of an AAI.
Comment by Perrid Wednesday, Dec 12, 18 @ 10:25 am
CTU educators have only paid 2% towards the cost of their pensions that have a 3% compounded cola. Yet somehow CTU constantly threatens a strike whenever negotiation take place even though the pensions are only 26% funded.
The Government picked up 7 of the 9 percent employee pick up.
Doesn’t sound progressive to me, sounds like Chicago machine politics where votes are traded for campaign work and contributions
Comment by Lucky Pierre Wednesday, Dec 12, 18 @ 10:27 am
What Precinct Captain said.
I wonder if we’ll get another lecture on the “values” of the families of murder victims before he’s gone.
Emanuel’s legacy is his taxpayer-funded, multi-million-dollar attempted cover-up of the McDonald murder that got him re-elected.
I’m sure Emanuel will be happy back at the trough, once again trading on his “public service” and pulling lucrative sleazy deals like the one with Rauner and Bill Daley on SBC.
Comment by wordslinger Wednesday, Dec 12, 18 @ 10:28 am
You know, I can’t wait for the day when Rahm Emanuel and Bruce Rauner can split a bottle of wine that cost more than the Illinois median household income and talk about how each of them is soooooooooooooooooooo much smarter than everyone else and the ungrateful people of Illinois and Chicago never showed their appreciation and never knew how lucky they were to have them.
Thankfully that day is coming soon.
But then I think of the poor young man or woman in Italy, working in the service industry, who took classes to learn English in order to get a job at a swankier resort, who, thanks to wonderful American democracy and the will of Illinois voters, now gets the thankless task of having to wait on the Rahm-Bruce table and listen to them hour after hour.
To the Italians, I offer my apologies and sympathies in advance. May they tip better than the rate of inflation.
Comment by Kohn Jass Wednesday, Dec 12, 18 @ 10:37 am
==It’s the generation that didn’t get that benefit that is paying more. And those members of that generation who are taking government jobs, aren’t getting the same pension benefits either.==
Someone finally noticed.
Comment by City Zen Wednesday, Dec 12, 18 @ 10:40 am
A little history lesson for the folks. When the AAI was enacted, inflation was a bigger concern. The idea of indexing based upon inflation (CPI) was nixed because it would be harder to plan the budget. Thus, instead of using the CPI they chose to use 3%. If the CPI went above the AAI, it would have been the retirees loss. Obviously, the retirees have gained with the low interest rates.
A lot of us wouldn’t mind the annual increase be changed to one adjusted to CPI like Social Security, however, the problem is the money changers who want to get as much blood as they can out of retirees. In other words, it doesn’t pay to be reasonable and agree to a change when the precedent will lead to continuing calls for more blood.
Comment by Norseman Wednesday, Dec 12, 18 @ 10:47 am
What’s Rahm’s stance on Chicago’s $.05 per gallon vehicle fuel tax? When’s the last time that was raised?
https://ward43.org/wp-content/uploads/2015/09/Vehicle-Fuel-Tax-vF1.pdf
Comment by City Zen Wednesday, Dec 12, 18 @ 10:49 am
Sorry in advance if this has been mentioned before in comments but I see a big flaw in this latest discussion on reducing the 3% AAI. Currently the state is offering a buyout of certain eligible employees future AAI. Basically, if you meet eligibility requirements, you can voluntarily choose to give up the 3% AAI for a straight 1.5% non-compounded AAI beginning at 67. In consideration you would receive 70% of the current value of the future AAI you give up. This goes into a deferred comp or other retirement account. Go to the SERS employee website to read the whole thing. I know people who have signed up for this and are set to receive up to 300k. Kind of totally diminishes any arguments that the state believes AAI can be dimished without consideration and acceptance.
Comment by Cocoa Dave Wednesday, Dec 12, 18 @ 10:51 am
I understand your point, and Emanuel’s use of “basically zero” is a little disingenuous but 3% compounded annually over 28 years is a 129% increase, which is higher than the 20 cent increase.
Comment by AiH Wednesday, Dec 12, 18 @ 10:51 am
This is a bit disingenuous, Rich.
At 3% rate, a pension would grow 122% over 28 years.
His gas tax proposal ($0.20 increase to $0.39) would be 105% growth over 28 years.
If the pension rate was 2.75% it would be 108% growth (a little more than Rahm’s gas tax inflation). At 2.5% it would be 95% growth over 28 years.
You are acting like he suggested a 0% COLA rate.
Comment by supplied_demand Wednesday, Dec 12, 18 @ 10:53 am
well now i’m hearing that Amy Grant song Emmanuel ironically.
Comment by Amalia Wednesday, Dec 12, 18 @ 10:54 am
= even though the pensions are only 26% funded =
Once again Lucky Pierre puts out wildly incorrect information - the Chicago Teachers’ Pension Fund is reporting a funded ratio of about 48% as of the end of fiscal year 2018.
Comment by cover Wednesday, Dec 12, 18 @ 11:10 am
Here’s a Millennial perspective.
A lot of us are doing well. I have a solid middle class job in the Chicago private sector and I have no plans to leave the state. I can’t say the same for my friends though; the plural of anecdote isn’t data, but most of my friends left the state for college and never returned. The few who stayed are leaving the state as they reach the age of starting families, or planning eventual moves to states like Ohio or Texas.
How is it fair that an entire generation of voters — and for the public sector workers, their elected union officials — lived off a 3% flat tax while making promises to themselves they never funded, and now my generation has to pay for it? I get that this applies to the federal government as well but here’s it’s an outlier of galling. We already spend 25% of our state budget on pensions; if we fully funded, the number would hit 50%.(http://www.wirepoints.com/jp-morgan-expert-true-debt-pension-healthcMillare-payments-would-consume-half-of-illinois-revenue-bankruptcy-option-needed/)
Worse, so many retirees are moving to Arizona, Texas, and Florida. The future of this blue state will be to send checks to retirees in red state. Yep, that’s totally progressive.
Worse, my friends that join unions are shocked to learn that their benefits are far less generous than the older members, and whenever the union has the opportunity to ’spread the cuts’, they always stiff the newer entrants (see the last CTU contract). It’s like a union really represents the leadership and older members of the union instead of workers writ large.
If you wanted your 3% COLA, you should have asked your representatives — union and public — to raise your taxes in the 70s instead of now. But even now they’re not honest about the taxes because any middle class taxpayer should be paying tax rates that rival millionaires in California if we really want to pay off our backlog of bills, fully fund the pensions, put more money into education, and pass an infrastructure bill.
Comment by Cassandra Wednesday, Dec 12, 18 @ 11:15 am
I still dont know what ‘progressive’ means. Now I gotta figure out what the heck is ‘anti-progressive’.
Comment by Blue Dog Dem Wednesday, Dec 12, 18 @ 11:17 am
RNUG. What is the expected rate of return our pension funds use to calculate benefits? Couldnt it be argued that this rate takes the place of an inflation addition?
Comment by Blue Dog Dem Wednesday, Dec 12, 18 @ 11:28 am
Italian servers get paid well enough they don’t rely on tips to make ends meet. Sometimes there’s a service charge, say for a party of more than 6, but that’s added into the bill.
Comment by Cheryl44 Wednesday, Dec 12, 18 @ 11:31 am
I understand folks like drama, but is this really so hard?
– adjust pensions to the Illinois cost of living
– adjust gas tax to the cost of construction materials
I’d exempt pensions above 75k (sorry to many friends and family) from the COLA.
Comment by Contract disputin' Wednesday, Dec 12, 18 @ 11:48 am
Rahman gonna Rahm, I guess.
Comment by Fixer Wednesday, Dec 12, 18 @ 11:48 am
Arguing about 3% COLA is a waste of time (a constitutional amendment isn’t happening).
How about a discussion on why late bills in Illinois have a 12% interest rate after 90 days? A fair way (to everyone involved) would be to change the law so that it is 3% higher than the highest yielding IL debt. That would be punitive enough that late paying doesn’t become a habit, but not as arbitrary as 12%.
Comment by Chicagonk Wednesday, Dec 12, 18 @ 11:50 am
Remember, not a COLA, it is an AAI as mentioned befor. SURS member pay .5% of pay for it
Comment by illdoc Wednesday, Dec 12, 18 @ 11:51 am
==SURS member pay .5% of pay for it==
For 1.5% simple interest. That’s the original deal.
Comment by City Zen Wednesday, Dec 12, 18 @ 12:14 pm
The worst part about these people is that they don’t actually want to solve the problem. Cullerton’s and Manar’s consideration theory would work as long as the bargained for exchange included a benefit not currently protected by the pension clause. But the amendment people don’t like consideration because it would not whack public employees hard enough. They don’t want to solve any budget or Squeezy problem. They want to whack public employees who they hate for whatever stupid reason.
Comment by Three Dimensional Checkers Wednesday, Dec 12, 18 @ 12:27 pm
==What is the expected rate of return our pension funds use to calculate benefits? Couldn’t it be argued that this rate takes the place of an inflation addition==
The pension funds use separate assumed rates for inflation and expected rate of return.
Comment by City Zen Wednesday, Dec 12, 18 @ 12:37 pm
The “deal” when I joined was 3% for my .5% of salary. ISC has ruled cannot be diminished from date of hire.
Comment by illdoc Wednesday, Dec 12, 18 @ 12:45 pm
And someday when inflation is higher the deal will not look as good as it has the last few years
Comment by illdoc Wednesday, Dec 12, 18 @ 12:48 pm
===Real solutions are achievable, and we remain committed to working together with anyone of good faith to identify and implement them.===
However, we will not name any specific solutions and will only criticize those that offer them.
Comment by Anon Wednesday, Dec 12, 18 @ 12:49 pm
City Zen. I recall having to start paying .5% more in my contributions when the 3% AAI provision went into effect, not before.
Comment by Angry Retiree Wednesday, Dec 12, 18 @ 12:59 pm
== RNUG. What is the expected rate of return our pension funds use to calculate benefits? ==
I need to check the revised assumptions listed in their annual statements. It used to be 8% but I believe most the plans now use either 7% or 7.5%.
Comment by RNUG Wednesday, Dec 12, 18 @ 12:59 pm
“the legalization and taxation of recreational marijuana to help fund our pensions.”
Just like gambling went to the schools..
Comment by Fav Human Wednesday, Dec 12, 18 @ 1:18 pm
Rather than amend the constitution to allow retroactive pension changes, why not amend it to prevent abuses so that no retroactive changes are needed.
For example, only allow it for bona fide state employees (i.e., those that qualify under an IRS definition or something similar).
Also, any enhancements must pass on a separate bill with a 4/5 majority.
Finally, no person can receive in any given year more than 33% of what was contributed (adjusted for inflation) by the individual over their career. For example, a participant who paid $130k into SURS over a 30 year career ($170k after inflation) with a final salary of $71k could collect $56k/year.
Comment by thechampaignlife Wednesday, Dec 12, 18 @ 1:29 pm
== RNUG. What is the expected rate of return our pension funds use to calculate benefits? ==
I went and checked the FY17 annual reports. Here are the assumptions by system:
SURS 7.25%
TRS 7.00%
SERS 7.00%
JRS 6.75%
GARS 6.75%
The actual rate of return on all invested pension assets for FY17 was 12.4%
Comment by RNUG Wednesday, Dec 12, 18 @ 2:04 pm
RNUG thanks.
From the period of 1950 to 2009, the S&P averaged with inflation and dividends, exactly a 7% rate of return. Is it crazy to think that pension benefits sort of have inflation built into them, thereby negating the rationale of an AAI?
Comment by Blue Dog Dem Wednesday, Dec 12, 18 @ 2:13 pm
People in Illinois want the best pension money can buy, they just don’t want to have to pay for it.
Comment by Anonymous Wednesday, Dec 12, 18 @ 2:15 pm
== Is it crazy to think that pension benefits sort of have inflation built into them, thereby negating the rationale of an AAI? ==
Yes. The rate of return only applies to the invested assets (the pile of money available to pay pensions). It has no relationship to the amount of a pension paid each year. If the State beats the assumed annual rate of return, that just means either (a) the unfunded percentage of the pension liability is slightly decreased or (b) next year’s annual pension fund contribution from GRF could be slightly decreased.
Note: regardless of actual returns, employees make a fixed percentage contribution (varies by system from 4% to over 9%) so it is the State that benefits from above average returns … and suffers from below average returns.
Without the AAI, the pension benefit would be static, ie, fixed at the amount calculated at time of retirement … and would be eroded by inflation. The AAI is the only adjustment made to the pension once the payout begins.
The AAI is a substitute for a COLA. The State choose to go with a fixed rate AAI for a couple of reasons: (1) much easier to plan for than an unknown variable that changes each year and (2) at the time, inflation was heating up and the State thought they might get the better end of the deal by making the AAI only 3%.
I will also note the 3% AAI generally mimics long term inflation, although the actual effect can deviate from the average based on the timing of economic upturns and downturns. Looked at in retrospect, it was probably a good decision for the State … but that is just my opinion.
Comment by RNUG Wednesday, Dec 12, 18 @ 2:57 pm
That is a typical media mogul twisting the numbers to make a splash headline.
An employee with a 3% COLA retiring with 80% salary will have a pension equal to his/her ending salary in roughly 8 years (and take away over a million dollars from the system even though the taxpayers only paid in about $400K for the average “public servant”).
Since 1990, union labor has increased 300%, lumber 200%, concrete 200%, stone 300%, asphalt 300%. Except for the labor costs (bad negotiating), raw materials are no one’s fault in this state.
COLA’s are what they are, but postponing “public servant” retirements until a minimum of 65 will ease pressure on the pension system enormously, but no one will listen to this “actuarial adjustment” which is not constitutionally protected if correctly interpreted.
Comment by Taxedoutwest Wednesday, Dec 12, 18 @ 4:02 pm
== postponing “public servant” retirements until a minimum of 65 will ease pressure on the pension system enormously, but no one will listen to this “actuarial adjustment” which is not constitutionally protected if correctly interpreted. ==
There have been a number of cases about altering components of the various pension formulas. In about 75% of the cases, the courts have ruled against any changes. Not good odds at getting such a change accepted.
Comment by RNUG Wednesday, Dec 12, 18 @ 4:44 pm
+++ - Taxedoutwest - Wednesday, Dec 12, 18 @ 4:02 pm: … postponing “public servant” retirements until a minimum of 65 will ease pressure on the pension system enormously, but no one will listen to this “actuarial adjustment” which is not constitutionally protected if correctly interpreted. ”
1. It is probably a bad idea to have many of these people on the job until 65 (i.e. police and firemen).
2. It is not constitutional under any twist of prior case law on the topic.
Comment by titan Wednesday, Dec 12, 18 @ 5:25 pm
Who cares what he thinks?
Comment by m4a Wednesday, Dec 12, 18 @ 7:02 pm
RNUG. I know my teacher daughter, tier 1, also contibutes to a 403B. Do all state employees have this opportunity?
Comment by Blue Dog Dem Wednesday, Dec 12, 18 @ 7:53 pm
Blue Dog: No, only education employees can use a 403b. State employees do have access to a 457, however, which is very similar.
Comment by thechampaignlife Wednesday, Dec 12, 18 @ 9:30 pm
Thanks. I know teachers dont pay into ss, but what about your typical state employee.
Comment by Blue Dog Dem Wednesday, Dec 12, 18 @ 9:33 pm
- Blue Dog -
-thechampaignlife- is correct.
457 has an interesting twist to it. Once you leave government employment, you can pull the money out at any age without penalty. Of course, you do have to pay taxes on any withdrawal.
Comment by RNUG Wednesday, Dec 12, 18 @ 9:37 pm
Did my other comment disappear?
Blue Dog, it varies but a lot of State employees (SERS) do pay into SS.
Comment by RNUG Thursday, Dec 13, 18 @ 8:25 am