Rauner put on this earth to cut pensions.

moses

Illinois has gone without a budget longer than any state since the Great Depression.

That would be the one in 1929. Not the Bush Depression of 2008.

When corporate billionaire Bruce Rauner took office promising to shake up Springfield he presented a list of 44 demands, most aimed at working families, in exchange for his signature on a budget.

The Democrats in Springfield, most of whom owe their seats to union and working family voters, said no.

Some would like to blame both sides for the budget stand-off.

Not me. Long-time readers know that I am no fan of Michael Madigan or Springfield Democrats. In fact, when we had a Democratic Governor in the shape of Pat Quinn, everybody was a bit too cozy and collaborative, especially when it came to cutting pensions.

But this is all on Rauner.

Rauner spent $50 million on this last election trying to blame others for this budget debacle and the campaign was a massive failure.

In response there are now reports are that Governor Rauner has reduced his Turnaround  Agenda from 44 to five.

The five, Rauner says, include workman’s comp reform, cutting property taxes,  the school funding formula and – wait for it – pension reform.

He says he is willing to even give in on a few of the five. Want to bet which one he wants to keep?

Yes! Pensions.

You recall that the Illinois Supreme Court ruled in 2015 that state employee pensions were covered by the pension protection clause of the Illinois constitution. The clause states that contractual pensions may not be diminished or impaired.

For current retirees like me this is an ironclad promise and obligation, said the court.

But there is a small loop hole when it comes to current employees. Contract law allows for changes in an agreement as long as there is consideration given. If there is a change in the agreement, employees must be given something of equal or greater value in return. And it may be bargained.

Democratic Senate President John Cullerton and the Governor believe that this is the opening they need.

As my colleague Glen Brown wrote in a recent exchange between the two of us, cross posted on both of our blogs:

Nevertheless, there will be another attempt, not long after the election, for a “modification of contract principles.” Any attempt at modifications of the Pension Protection Clause by the Illinois General Assembly should be seen for what it is: another challenge by the current General Assembly and governor to steal money from the public pension systems so they can avoid addressing the real causes of the state’s budget deficits: the pension ramp, the resultant pension debt, and the state’s insufficient flow of revenue.

I have written many times: contracts supported by consideration are often one-sided, advantageous arrangements, especially a consideration from the Illinois General Assembly that would be in exchange for reductions of originally-vested benefits assured by the Illinois Constitution.

It appears that what the Governor has done is to reduce his demands from 44 to five. But there is really just one.

He can’t touch retirees.

I believe that any deal to cut the pension guarantees of current employees will face the same legal result as the last attempt.

Illinois has had nearly two years without a state budget because Rauner believes he was put on this earth to cut pensions.

Been there. Couldn’t do that.

6 thoughts on “Rauner put on this earth to cut pensions.

  1. Dear Fred,
    The biggest danger to active employee pension benefits is their own unions. These unions have the “right” to bargain for everyone. If they choose, they can grant Gov. Rauner’s greatest desire regarding benefits which is to trade something for nothing.

    There is no choice for actives. They must take back control of their unions from the present leadership and replace it with others who will promise to NEVER trade any present pension benefit or right for something else. Period. If this promise is not made and kept, active teacher pensions will likely be gutted. (Remember the Senate Bill 7 fiasco?)

    What teachers have now is better than anything they might get in a trade. (Is anyone foolish enough to believe that something of equal value will actually be given back by the state?) As far as Tier II is concerned, instead of cutting Tier I benefit levels, isn’t it time to start increasing Tier II benefit levels?

    Pensions are earned deferred compensation, not a gift. Why is our union considering what amounts to retroactive cuts in compensation? The pension benefits are already earned and owed. Demand payment, not “shared sacrifice”. (the only sacrifice going on seems to be what we give up) Instead of constantly giving in, how about fighting for the membership’s interests?

    • The statewide pensions (TRS,SURS, SERS, IMRF) are a matter of law statewide, and are the same for both union and non-union employees of any particular pension group. Other factors that affect the pensions, such as an employees rate of pay, incentives to retire, and things like that are negotiated for unionized employees who generally get better pay then non-represented employees. Single unit pension systems set up to cover one group (example, Chicago Park District) are a little less clear about changes, but are also covered by the ISC ruling against diminishment for current public employees.

      • Before any “active” employee feels safe in their expectation of protected pension benefits (because of present pension code rules or non-union membership in the pension funds) they should consider this quote from Eric Madir in the Springfield Journal Register (July 11, 2016) talking about “pension reform”:

        “Another perhaps more collaborative approach is engaging public sector labor unions and forging an agreement that reduces the pension benefits of current union employees through the collective bargaining process.”

        Under federal labor law unions have the right to negotiate for every employee when bargaining. That is what “exclusive bargaining agent” means. The courts have also stated that unions can negotiate a global agreement that includes pension modifications (using a consideration model) that would be legal under the umbrella of collective bargaining.

        Under this theory, the General Assembly could “negotiate” changes to the pension code with the respective unions, rewrite the code, vote on the changes, and be done. It could be called “collective bargaining” and be deemed legal. (It happened with Senate Bill 7) The union can negotiate pension modifications for all active workers under these conditions.

        What was held to be unconstitutional was a union being allowed to negotiate changes for all present and future pensioners in a non-collective bargaining situation. Unions can never speak for retirees in pension matters, since retirees do not belong to any group the union collectively bargaining for.

        Don’t let your guard down. It could be attempted.

      • Hugh:

        From Gino L. DiVito and John M. Fitzgerald who are partners at the Chicago law firm Tabet DiVito & Rothstein LLC. Mr. DiVito is a retired justice of the Illinois Appellate Court:

        “…[T]he Cullerton proposal would force upon pension system members a choice between two diminishments of their constitutionally protected pension rights. The fact that a ‘choice’ is offered does not matter. Either ‘choice’ would be a pension diminishment and a violation of the Pension Protection Clause of the Illinois Constitution.

        “As the Illinois Supreme Court has explained, ‘once an individual begins work and becomes a member of a public retirement system, any subsequent changes to the Pension Code that would diminish the benefits conferred by membership in the retirement system cannot be applied to that individual.’ In re Pension Reform Litigation (Heaton v. Quinn), 2015 IL 118585, ¶ 46; see also Kanerva v. Weems, 2014 IL 115811, ¶ 38; Jones v. Municipal Employees’ Annuity & Benefit Fund of Chicago, 2016 IL 119618, ¶¶ 36-47.

        “Applying this constitutional rule, our courts have repeatedly invalidated amendments to the Illinois Pension Code that would change the calculation of a pension system member’s pensionable salary so as to diminish that member’s pension benefits. In Heaton, the Illinois Supreme Court invalidated legislation which, among other things, ‘cap[ped] the maximum salary that may be considered when calculating the amount of a member’s retirement annuity.’ Heaton, 2015 IL 118585, ¶ 27 (describing P.A. 98-0599).

        “Likewise, in Felt v. Board of Trustees of Judges Retirement System, our Supreme Court invalidated legislation that changed a judge’s pensionable salary from the ‘salary of the judge on the last day of judicial service’ to ‘the average salary for the final year of service as a judge.’ See Felt, 107 Ill. 2d 158, 161-63 (1985).

        “Likewise, in Kraus v. Board of Trustees of Police Pension Fund of Village of Niles, the Illinois Appellate Court held that a police officer on disability could not constitutionally be denied his right under the Pension Code to ‘receive a pension of one half the salary attached to his rank for the year preceding his retirement on regular pension.’ While the Pension Code had been amended so as to change that formula, that Pension Code amendment could not be applied to the officer because it was enacted after he joined the pension system. See Kraus, 72 Ill. App. 3d 833, 843-51 (1979). In other words, it is clear that variables in the pension formula that are tied to a pension system member’s salary cannot be changed to that member’s detriment after he or she has joined the pension system.

        “But the Cullerton proposal would do exactly that. In Mr. Madiar’s words, pension system members who choose not to ‘agree’ to a diminishment of their COLAs (or, more accurately, statutory ‘automatic annual increases’ in the pension annuity) would be offered future salary increases only ‘on the express condition that the increases, if accepted, will not apply in the calculation of the employee’s pension at retirement.’

        “Under existing law, pension system members’ salary increases are factored into the formula that is used to calculate their pension annuities. By way of example, under section 16-121 of the Pension Code, a TRS member’s salary is defined as the ‘actual compensation received by a teacher during any school year and recognized by the system in accordance with rules of the board.’ That ‘actual compensation’ will incorporate any salary increases a teacher has earned over the course of his career, and that teacher’s ‘salary’ will be a variable in the formula used to determine his pension annuity.

        “The Cullerton proposal would change the formula to freeze a pension system member’s pensionable salary as of the date he refused to ‘agree’ to another pension diminishment. Thus, section 16-121 would presumably be amended to define a TRS member’s ‘salary’ as something less than his or her ‘actual compensation’ if that TRS member refused a COLA reduction. Under the Cullerton proposal, a TRS member’s ‘salary’ would instead be his ‘actual compensation’ as of the date he turned down the COLA-reduction option, not the ‘actual compensation’ he subsequently ‘received.’

        “Such a pensionable salary freeze does not stand on any different footing from the pensionable salary changes that were held unconstitutional in Heaton, Felt and Kraus. The principle is simple: One’s pensionable salary is a key variable in the pension formula. A pension system member currently enjoys the right to have any future salary increases factored into his or her pensionable salary. The Cullerton proposal would change that statutory formula so as to freeze pensionable salaries as of a date certain and thereby reduce pensions. That is a violation of the Pension Protection Clause of the Illinois Constitution.

        “Of course, public sector employers generally may simply decide not to give their employees a raise. But that is beside the point. The Cullerton proposal would diminish pensions by changing the way the Pension Code calculates pension annuities; specifically, by freezing one’s pensionable salary as of a date certain. That is not permitted by the Pension Protection Clause.

        “Mr. Madiar concedes that Illinois decisions have ‘invalidated legislation that unilaterally narrowed the statutory definition of pensionable salary,’ but he argues that none of those decisions ‘involved an express offering of future salary increases on a non-pensionable basis’ (emphasis in original). To us, that is a distinction without a difference. Changing the law to provide that future salary increases will not count towards one’s pensionable salary constitutes a diminishment of one’s constitutionally protected pension rights. Such a change would suffer the same fate as other changes to the Pension Code’s formulation of one’s pensionable salary.

        “Nor is the outcome different simply because a pension system member is given a ‘choice’ between two alternative pension diminishments. Mr. Madiar argues that a diminishment of pension rights may be constitutionally valid if it is part of a ‘bargained-for exchange.’ This argument may have persuasive force if a pension system member is being offered some new benefit in exchange for surrendering a pension right. In the Cullerton proposal, however, there is no new benefit. Under that proposal, at best, a pension system member is permitted to keep the current statutory treatment of his or her pensionable salary.

        “Mr. Madiar relies heavily on Carroll v. Grumet, 281 A.D. 35, 36-38 (N.Y. App. Div. 1952). But in that case, a New York City firefighter was offered a ‘cost of living bonus’ and agreed, apparently from the outset, that this new benefit would never count towards his pensionable salary. We believe Carroll is distinguishable. Unlike the plaintiff in Carroll, who apparently never had a legal right for the ‘cost of living bonus’ to be counted towards his pensionable salary, members of Illinois public sector pension systems have an existing legal right for any salary increases that they may earn between now and their retirement to be factored into their pensionable salary.

        “We should add that Kanerva counsels against over reading the holdings of New York decisions in this area. See Kanerva, 2014 IL 115811, ¶ 52 (agreeing with the Hawaiian Supreme Court’s holding that a certain New York decision interpreting the New York Constitution’s pension protection provision was ‘distinguishable and unpersuasive’). We see no reason to believe that the Illinois Supreme Court would adopt the expansive reading of Carroll suggested by Mr. Madiar.

        “Mr. Madiar also argues that the ‘choice’ imposed on pension system members by the Cullerton proposal is not tantamount to duress. Even if true, that point would be irrelevant. If both options presented by the Cullerton proposal are unconstitutional pension diminishments, then the proposal would be invalid regardless of whether it constitutes duress in the legal sense.

        “In conclusion, we applaud Mr. Madiar for his continued scholarship on this crucial legal subject. We also agree that creative ideas will be necessary to address the chronic problem of pension system underfunding in this State. We strongly believe, however, that this particular proposal is unconstitutional.”

  2. Rauner thought he was put into the job by some sort of mandate. Nope. People who realized what Quinn was up to simply didn’t vote for him. Bruce Rauner, The Default Governor. Got two years to start workin’
    on somethin else.

    • Dear Glen,
      I suspect that you and I feel the same way. I have read the opinions and briefs. I agree with Mr. DiVito and not with Mr. Madir. Unfortunately, we both know that another attempt at “pension reform” may be near.

      We also know that the General Assembly has a history of ignoring reality and passing expedient legislation. The state will fight us in very expensive litigation (on the taxpayer’s dime) to defend that legislation. If we run out of money or get an unfavorable opinion, it is over.

      We expect this type of legislation to be found unconstitutional. But you never know. Going to court always involves some risk of failure. In addition, if the past is any guide to the future, our own unions may be our biggest point of weakness. We have to face up to that fact. Perhaps it is better (and less expensive) to confront these issues now than to continue to just roll the dice over and over.

      My reply to Anon was meant to point that out. I hope the pensions of active members remain safe. But hope alone will not protect their pensions. Vigilance and collective action are called for here..

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