Pensions. The state can’t call Peter Francis Geraci.

I have posted here that when it comes to current retirees in the state of Illinois, the Illinois Supreme Court made it absolutely clear that our pensions must be paid and that the pension protection clause of the state constitution means what it says. There can be no diminishment of benefits.

I have been posting over the past few days about the views of Eric Madiar, former consigliere to Senate President John Cullerton. Madiar seems to  believe that there is a legal basis for currently active employees to have their benefits bargained by their unions as long as they adhere to legal contract principles involving consideration. Consideration is an exchange of a promised benefit for something of equal or greater value.

Current employees should be concerned. In the current economic climate, and with the current union leadership, nobody should rest easy about what the state public employee unions’ leaders might bargain away.

When Glen Brown and I were delegates to the 2015 Illinois Education Association Representative Assembly, the leadership rejected our request for an iron-clad promise not to give away what the courts had guaranteed us. That promise would “tie their hands.”

Exactly!

I have more than a few readers who are currently retired teachers. In spite of my posts stating that current Illinois retired teacher pensions are secure, they worry.

“Look at Detroit,” one wrote me the other day. “I am worried about the state or city declaring bankruptcy.”

What would people do without Detroit?

While Eric Madiar suggests that the pension benefits of current employees may be bargained according to contractual principles, he also says bankruptcy is not an option.

…the General Assembly simply lacks the legal power to enact the valid state law necessary under federal law to authorize its municipalities to file for bankruptcy. As the Illinois Supreme Court recently explained, there is “no possible basis for interpreting the pension clause to mean its protections can be overridden if the General Assembly deems it appropriate.” Accordingly, the clause withdraws from the legislature, as a matter of state law, the legal power to pass any statute authorizing municipal bankruptcy as a means to unilaterally discharge public pension obligations.

In the end, while contract principles and other permissible options can help mitigate the burden of State and municipal pension obligations, the state must still restructure its revenue system so it can meet, not simply defer its fiscal obligations. As Paul Simon observed in 1971, “We mortgage the future not only when we create bonded indebtedness; we also mortgage the future when we don’t pay into the pension systems as we should.”

There is more from Eric Madiar on Glen’s blog today.

The state can’t call Peter Francis Geraci.

Bankruptcy is not an option.

 

10 thoughts on “Pensions. The state can’t call Peter Francis Geraci.

  1. Recently a person I met said “pensions of retired are safe, just not the COLA”…..I said “so you are asking teachers, if this 1 million dollar house you have was worth $60,000 when it was built…..would you now accept the 1970 value, if you were told that others spent the appreciation….?” That seemed to be an eye opener!

    • Exactly. In spite of what anyone thinks, the ISC ruled that the COLA is a pension benefit protected by the pension protection clause of the Constitution. Everyone can have an opinion, but the law is the law.

  2. We better keep Mr. Geraci’s phone number handy. Rauner has already caused thousands of workers for social service agencies and other state contractors to be unable to pay their bills. Now Rauner wants to cut out the middleman and force direct state employees, public school teachers and retirees into the same financial situation, unable to pay their bills.

  3. Well Rauner is making the lives of current emploees miserable. He cant do much to retirees…..he is trying on SURS and SERS health. But come here for the facts…techers what would you tell a stdent who said some kid told me the Earth is really flat??………..Although that said Fred made a minor boo boo….we dont have a COLA. We have a 3%AAI adjusted annual increase. That cannot be touched COLAs in other states and social security can be adjusted. I suspect current workers will have to deal with Madiers loophools at some point.

    • David is correct. It is a 3% compounded annual adjustment. It is not a Cost of Living Adjustment since it is not intended to be tied to increases in the cost of living. Mea culpa.

  4. States cannot declare bankruptcy under federal law but they can let entities under their control do so. Under federal law Illinois could let cities or school districts or the tollway call Geraci BUT not under our state constitution…on this Madiar was right. I think he is wrong on both his loopholes…just like he was when he kept calling the AAI a COLA…..so don’t feel bad Fred. I like to use AAI because the pension hater crowd tries to conflate them because they know social security has not had a 3% raise in a long time and they want to create more resentment in the masses. …..they made a run at pensions in the puerto rico bill because judges…….have been kind to pensions and even health care but failed. Puerto Rico is not like Illinois. It does have pension problems but their big problem would be more like the tollway in trouble…..it isn’t and we need to encourage it….Including making money in other states. The Ontario teachers pjcked up the skyway on the cheap……..anyway I divert but I would like to go into that one…..the only big non-state entity in trouble is you guessed it City of Chicago and that is because well….Fred has covered that vey well. Also former GOP state rep Jim Nolan has a good column out that says the pension debt figure is overstated. I think he is right for several reasons including not properly accounting for tier 2. I agree with head of TRS on that one.

    • Thanks as always David. But your typos are getting out of control. This was almost unreadable until i corrected it. I’m going to have to start charging you in the future.

  5. You are. Its my addiction to mobile. I have one…this one that is great on typos but makes up words. The other one keeps putting in the letter next to the word I am typing…..as much as I like my mobiles my wife and I are staying away from Pokeman so we don’t get run over and make the state happy. Stay healthy all and annoy Rainer.His autocorrect name fits well.

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