STUMP » Articles » Around the Pension-o-Sphere: Public Unions, Illinois, Connecticut, Kentucky, and More! » 9 March 2018, 07:07

Where Stu & MP spout off about everything.

Around the Pension-o-Sphere: Public Unions, Illinois, Connecticut, Kentucky, and More!  


9 March 2018, 07:07

This is the time in which I will hoover up all my leftover links for the week.

Let’s hit it!


Illinois has so many problems with pensions, it’s hard to see where to begin. I’ll dump all my Illinois links for the past week at the bottom of this section, but I want to address one of the ideas out there — and it’s truly bipartisan: make the local school districts, who are setting the salaries for their teachers, to pay the cost of the pensions instead of fobbing it off on the state.

Sounds crazy, right? Oh, wait, that’s what happens in most states.

Let the Wirepoints guys explain:

Most Illinoisans don’t know Dr. Ray Lechner, the retiring Superintendent of Wilmette School District 39, but they should.

After all, Illinoisans have been contributing to his upcoming $6.6 million pension for years, even though he’s an employee of the Wilmette school district, not the state.

That’s how it works for all teachers and administrators in Illinois, whether it’s a superintendent from Lake Forest or a school counselor from Mt. Vernon – school districts pay the salaries while the state funds the pensions.

It’s this kind of arrangement, where one unit of government doles out the benefits while another one pays for them, which makes Illinois so dysfunctional.

It’s a scheme that allows districts to spend more money on salaries and perks than they otherwise would.

Read the whole thing. The cost-shifting idea is not unique to Governor Rauner. It actually started with Mike Madigan, the Democrat king of the Illinois legislature.

Don’t believe me? Check this bit out from the Progressive blog from Fred Klonsky:

Rauner adopts Madigan plan for pension cost shift to local school boards.

The Chicago Tribune reports this morning:

Republican Gov. Bruce Rauner’s budget on Wednesday will propose having Chicago Public Schools, downstate and suburban school districts and state universities pay more of their teachers’ pension costs, in an attempt to save state government millions of dollars a year.

The proposal is grand larceny.

Rauner stole the idea from Democratic Party state chairman and Speaker of the Illinois House, Michael Madigan.

Rauner likes to blame every problem in Illinois on Michael Madigan.

Then he steals Madigan’s idea.

The pension cost shift is a Democratic Party idea. And a terrible one.

Currently, local school districts pay a small amount into the state’s Teacher Retirement System. Active teachers pay much more – 9% of their salary. Return on investments adds more. The state pays the rest.
When Madigan proposed moving all or part of pension payments to the local school districts as part of his pension reform plan, the Republican’s rejected it.

Now, Klonsky thinks the reason the teachers pensions are so poorly-funded is not that the benefits are too high, but that there is a flat rate corporate income tax in Illinois. Let’s check where Illinois stands re: corporate taxes.

Hmmm, not as high as Iowa. I’ll give them that. And Illinois did reduce the corporate tax rate since 2012. But it’s not like they were putting more into the Teachers pension pre-tax change.

Anyway, Klonsky (a retired public school teacher) looks at impact on the poor school districts, and one does want to know how hard it would hit them. But I don’t think they’re the ones spiking their teachers’ pensions and not paying appropriate penalties. There can be a way to allocate the disproportionate costs to the rich districts, I’m sure.

Here’s a post I did on Illinois TRS funding last year.

Why should the whole state disproportionately pay for the rich districts’ pensions?

From the Wirepoint piece:

Other Illinois pension news from the past week:

Keeping an eye on a few of these — will be interesting to see how the property tax disclosure bill will go.


I had my say on the recent draft report on the fiscal state of Connecticut.

Let’s check out what a gubernatorial candidate has to say.

Dave Walker, a candidate for the Republican gubernatorial nomination:

A way to cure Connecticut’s ‘fiscal cancer’

The Fiscal Stability and Economic Growth Commission has issued its report. It recommends proposed net tax and toll increases, tax reform, aspirational but unspecified spending cuts, and no changes to the SEBAC agreement until 2027. Now that the report has been issued, it seems appropriate to compare it to my previously submitted recommendations.

Connecticut’s problem is fairly simple. Gov. Dan Malloy and his Democratic allies have raised taxes, increased regulation, adopted such an anti-business approach, and promised such generous retirement benefits to state workers that revenues are declining, recurring deficits are normal, and economic growth is anemic as Connecticut businesses and families flee the state. Connecticut faces large and growing structural budget deficits, mounting debt, huge unfunded retirement obligations, a deteriorating infrastructure, and an education and skills gap disparity, that traditional politicians either can not or will not address.

While Connecticut faces huge problems, they can be solved by a governor who is a proven problem solver and works with a supportive legislature that is ready to truly tackle our state’s problems. During my tenure as Comptroller General of the United States and head of the General Accounting Office, I worked with Congressional leaders and GAO staff to implement major reforms that dramatically transformed the agency and saved federal taxpayers about $380 billion. I have solved complex problems before in government and I can do it again in Connecticut. What do we need to do?

Third, Connecticut has lost control of its budget and faces large and growing structural deficits due, in large part, to unreasonable, unaffordable and unsustainable pension and retiree health care obligations for government employees. Connecticut must restructure such benefits in a fair manner using the sovereign powers of the state so they are competitive, affordable, sustainable and more secure. Failure to do so will result in additional pressure for increased taxes, reductions in education funding, municipal assistance, and infrastructure investment. It can also eventually result in a shredding of the state’s social safety net for those who are truly in need over time. These are all unacceptable outcomes that must be avoided.

Obviously, I skipped over a lot. Read the whole thing.

I looked around and haven’t seen other candidates comment on this report yet, but here are two earlier candidate statements in the same venue:

I like what Thalheim says, but just gonna say: Illinois has tried out the “sovereign immunity” argument in its own cases in its own state supreme court, and lost. I’m not sanguine that argument will work much better in Connecticut. That said, Rhode Island managed to adjust current retiree benefits (aka cutting COLAs), and it’s right next door.

Obsitnik is going for the tax cleverness thing. BOOOOO. DO BETTER.


I don’t have additional CT stories right now as I used them all up earlier this week.

There will definitely be more Connecticut material from me this year.


I know way too much about actuarial lawsuits. And this one reminds me of some of the wrangling in the Detroit bankruptcy:

Bevin administration sues to block release of analysis of governor’s pension reform plan

Gov. Matt Bevin’s administration is suing to block the release of an analysis of the governor’s pension reform plan, calling an attorney general’s decision on the subject a “radical rewriting of the Open Records Act.”

The case stems from the administration’s denial of an open records request by Ellen Suetholz, the Kentucky Public Pension Coalition’s coordinator, arguing the records were preliminary so they did not need to be disclosed. But Suetholz appealed the decision to Attorney General Andy Beshear, who decided in her favor last month.

Now, she faces a lawsuit from the state’s budget director, who is requesting that Franklin Circuit Court “decide for itself” if the analysis is exempt from disclosure.

The analysis Suetholz requested was done by the consulting firm Gabriel Roeder Smith & Co. at the request of Kentucky Retirement Systems, according to Beshear’s decision. The document would give the public an idea of how much Bevin’s pension reform proposal would cost.

There should be no such thing as a secret analysis for a public plan. Bevin has been a complete ass over this. It’s not other people’s fault you didn’t do your homework before putting together your grand plan.

Here’s something related: Beshear: Latest version of pension bill still violates law 21 ways

Kentucky Attorney General Andy Beshear told lawmakers Tuesday that the Senate’s new version of a bill to reform the state’s public pension systems remains unconstitutional.

The latest version of Senate Bill 1 “fails to cure any of the 21 violations identified in SB 1, including unlawful reductions in cost of living adjustments for teachers, caps on the use of sick time and alterations to retirement allowance calculations.” Beshear wrote in a six-page letter to legislators that he posted on social media.

If passed into law, the revised version “would breach the inviolable contract, resulting in numerous lawsuits against the commonwealth — lawsuits the commonwealth will lose,” said Beshear, a Democrat.

Beshear told state lawmakers last week that the original bill violated 21 legally-binding promises the state has made public workers and retirees.

None of that was a surprise. By the way, these legally-binding promises can be unbound… via amending their state constitution. Yes, that’s tough to do. That’s the point.

If you’re going to do something that important you need to prepare for it properly and put in a lot of work.

More Kentucky stories:

I’m not too sanguine that Kentucky will get anything substantive done on pensions yet.


I have beat up on Dan Hemel in the past, with regards to the tax bill, but I think he is absolutely correct in terms of public employee unions being able to amass even more political power if the Supreme Court rules “against” public union interests.

Let me embed his tweets:

I am just fine with that, really. Everything would be more honest then, I believe. The unions already use a lot of their money for political activity — and if they go the “direct reimbursement” route — then the payoff is really obvious. No middleman in trying to make it look like representing individuals. The states just shovel money at the unions.

Remove the middlemen! Feed the piggies directly!

Hemel links to this paper he co-authored:


Roughly half of U.S. states allow labor unions and public-sector employers to establish “agency shop” arrangements that cover state and local government workplaces. These arrangements require employees to pay agency fees to cover their local union’s collective-bargaining costs, regardless of whether the employee joins the union. Agency shop supporters justify these arrangements as a means of preventing non-union members from free-riding off the union’s bargaining efforts, while opponents contend that agency shop arrangements violate the First Amendment rights of non-union members forced to pay the agency fee. Although the Supreme Court permitted agency fees over First Amendment objections in Abood v. Detroit Board of Education (1977), the Court will reconsider that ruling in Friedrichs v. California Teachers Association in early 2016. Many observers predict the Court may use Friedrichs as an opportunity to overrule Abood, with the consequence that public-sector unions will lose the ability to deter free-riding by nonmembers.

We take no position on whether Abood will, or ought to, survive. Instead, we present a novel alternative mechanism to address the free-rider problem in public-sector workplaces — a mechanism that could be utilized even if Abood is overturned. We suggest that if a public-sector employer wants to make sure that a labor union is compensated for the cost of representing nonmembers, the employer can reimburse the union for those expenses directly. To offset the cost of this direct payment, the employer can reduce each employee’s salary by the employee’s pro rata share of the union’s bargaining expenses, while also freeing employees from the obligation to pay agency fees. This “direct payment alternative” would seem to accomplish the same objective as existing agency shop arrangements: it would prevent non-union members from reaping the benefits of union representation without sharing the costs. And while the wages of public-sector employees would be reduced by their pro rata share of their union’s bargaining costs, existing agency shop arrangements already reduce wages by that amount, because employees must pay their pro rata share in the form of union dues or agency fees.

In fact, our direct payment alternative might leave public-sector employers and employees better off than existing agency shop arrangements. First, the direct payment alternative eases the First Amendment concerns raised in Friedrichs: a direct payment to the union would likely qualify as “government speech,” and would thus be subject to less stringent scrutiny under present First Amendment doctrine. Second, the direct payment alternative would bring with it favorable federal tax consequences for state and local government employees. An employee’s pro rata share of union bargaining expenses would not be included in gross pay for purposes of Social Security and Medicare taxes, and would not be included in adjusted gross income for purposes of personal federal income taxes. Most public-sector employees would fare better on an after-tax basis if their employers adopted the direct payment alternative instead of the agency shop arrangement.

I think this one really would pass IRS muster, so that is a good idea.

And, again, it will look like a direct payoff of the public unions, so there’s no way politicians can be coy about it.

Here is an optimistic take from CEI:

Could Janus Ruling Open the Door to Pension Reform?

This week, the United States Supreme Court heard oral argument in the case of Janus v. AFSCME Council 31, which could significantly impact unions representing government employees. A ruling in favor of plaintiff Mark Janus, an Illinois social service worker, would free public employees across the country from being required to pay for union representation as a condition of employment.

In states like California and Illinois that allow the collection of agency fees, public sector unions wield considerable political influence, which has enabled them to negotiate higher compensation for their members and increased public spending and more government hiring. Thus, those states’ alarming fiscal condition shouldn’t be surprising.

One major area straining state budgets is unfunded public pension obligations and retiree health care benefits. The funding problems are well known, but opposition by government employee unions has made reform extremely difficult.

“Thirteen years ago, California’s teacher union went toe-to-toe with the state’s movie star governor and crushed him at the ballot box, funding almost half of the $121 million campaign that swamped his proposals to revamp tenure and restrict government spending,” notes Adam Ashton of The Sacramento Bee.

In addition to political activism, government employee unions also have successfully opposed reform through litigation, thanks to laws in 12 states, collectively known as the “California Rule,” that treat pension obligations as ironclad contracts. In California, a case currently before the California Supreme Court could give elected officials seeking to curb pension costs greater flexibility in union negotiations.

Sigh. Okay, yes, the union dues do help the unions litigate and organize. But, again, most of the benefits and benefit boosts especially were not from explicit organization or negotiation in contracts, but via the state legislatures. To reduce the power of public employees, you need to have fewer of them. If you still have loads of public employees, even without a union, you can “buy off” with voting up benefits.

I think Hemel is correct here that the likely upshot in prop-public-union states is that the unions will get paid by the states directly. Ain’t it cozy.

Here’s another point-counterpoint, but it’s for the effect of the tax law and the SALT cap:

I am with Brookings on this one — the screwed states can’t let up on the taxes. They’re just annoyed that the SALT cap makes their taxes hurt more.

Ok, I think that’s enough. I heard we may be getting more snow on Monday, I’m tired, and this is more than enough for a post.


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