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									NEWS

August 13, 2012




   UNIONS OFFER FRAMEWORK FOR RESOLVING
               PENSION CRISIS
            Lawmakers urged to reject HB 1447


Unions representing teachers, firefighters, police officers and other
public employees are willing to help resolve the Illinois pension crisis
in exchange for a guarantee that state politicians will never again be
allowed to repeat the irresponsible acts that caused the crisis.



The We Are One Illinois (WAOI) coalition today unveiled a framework
for resolving the pension crisis. According to the unions, if legislators
agree to legislative language guaranteeing the state will, in the future,
make its required payments to the state-funded pension systems for
teachers, state employees and university employees, current
employees would be willing to increase their own contributions to
secure their pension benefits.



According to the Coalition, the framework is a much-needed, fair
alternative to current pension proposals. The Coalition today called
on lawmakers to reject all pending pension legislation, including
House Bill 1447, which could be called for a House vote on Friday.
HB 1447 would slash the cost of living adjustment, or COLA, that
protects retirees from inflation—effectively forcing them to bear the
burden of the state’s pension debt. Had the bill’s sharply diminished
COLA been in place over the past 25 years, a public employee who
retired in 1987 would have lost 20% of the value of their pension to
inflation; current law has enabled retirees to retain all but 2% of that
real-dollar value.



“The employees didn’t cause the crisis, but we’re going on record
today to say our members are willing to help fix it if the state will
guarantee that the politicians will never again divert our pension
money to other expenses,” said Coalition spokesperson Michael
Carrigan, president of the Illinois AFL-CIO.



When Gov. Quinn and top legislative leaders decided to ignore the
union suggestions on pensions, opting instead to support
unconstitutional proposals such as HB 1447, the unions, working
together, developed their framework.



According to the framework any pension proposal must include the
following:



        1. A guarantee that the state will pay its portion as required.
        That hasn't happened for decades, as legislatures have
        diverted money to other programs.



        2. A true look at revenue by closing loopholes for big
        corporations that hurt taxpayers of Illinois. Closing loopholes
        such as those giving special treatment to the offshore profits
        of oil companies and foreign dividends of large corporations
        could generate nearly $900 million a year. This annual
       amount could be dedicated to the retirement systems and
       yield more than $80 billion by 2045.



       3. No inclusion of current retirees, who are living on an
       earned and needed pension and cannot re-enter the job
       market.



The framework’s final point states:

       With a guarantee that the state would pay its portion, the
       members who are reliant on the pension systems for their
       retirement security would offer to help the state by paying
       more, even though they have contributed their portion over
       the years. (This increase may differ for the various pension
       plans.)



According to Carrigan, the unions have repeatedly been asked to
accept benefit cuts for retired employees as well as reductions in
future benefits for current employees. Those demands have been
rejected for being unreasonable, unfair and unconstitutional.
According to the Illinois constitution, membership in a state pension
system is, “…an enforceable contractual relationship, the benefits of
which shall not be diminished or impaired.”



“Around 80 percent of Illinois public employees, including all
teachers, cannot receive Social Security, so the pension represents
the entire retirement income for hundreds of thousands of our
citizens,” Carrigan said.



“The state constitution says you cannot diminish benefits. This
framework allows current employees to help fix the system the
politicians have broken, requires shared sacrifice from profitable
corporations whose special tax loopholes have forced the state to loot
the pension systems in order to fund vital public services, and
protects the modest benefits earned by active and retired public
employees. The state cannot afford tax expenditures for giant
corporations at the expense of all Illinois citizens.



Next steps



Carrigan said the unions are prepared to discuss, with Gov. Quinn
and the legislative leaders, the Coalition’s framework as well as other
constitutional ideas for solving the problems Illinois faces as a result
of decades of fiscal mismanagement.



“Remember, it took decades of bad decisions by politicians to put
Illinois in this fiscal hole,” Carrigan said.



“Rather than rush to pass a bad, unconstitutional bill that will be
thrown out of court and cost the state time and money, we’re urging
the governor and legislature to work with us to end the pension crisis
and get the state moving in the right direction again,” he added.



Background on corporate tax loopholes



Special tax loopholes for corporations squeeze the Illinois budget, forcing
irresponsible choices like habitually shorting the pension funds. Closing just
six of the most egregious loopholes (below) would yield some $900 million
dollars this year alone. If those revenues were instead earmarked each year
to pay off the state’s accrued liabilities to its 5 pension systems, and they
were invested under the systems’ current assumptions (asset allocation,
assumed investment return of 8%, and assumed inflation rate of 3%), the
net present value accumulated by these funds over the next 34 years would
be $80.7 billion.


 • CME Income Tax Reduction ($85 million) - After vigorous lobbying by
CME Group, the “sales factor” used in the formula to set its corporate
income tax rate was arbitrarily lowered (by 1/3rd for FY2013 and to just
27.5% thereafter), significantly reducing its tax liability.
 
 • Foreign
Dividends ($386 million)- Currently, foreign dividends are considered
taxable income under federal law, but are exempt from taxation in the
State of Illinois. This would allow Illinois to tax dividends that are earned by
foreign companies and are transferred to companies that have taxable
income in the State of Illinois to also be subject to the Illinois income
tax.
 
 • Domestic Production Credit ($200 million)- The Domestic
Production Credit is a tax credit that is awarded by the Federal Government
that the State of Illinois is coupled with. What this means is that companies
that have taxable income in Illinois are receiving a tax credit for activity that
is taking place outside of Illinois along with their Illinois activity. If like 22
other states, Illinois decoupled, companies in Illinois would still receive the
federal tax break. 
 
 • Newsprint and Ink Exemption ($39 million)-
  Corporations that publish newspapers and magazines are currently able to
write off the cost of their paper and ink. Closing this loophole would
increase state revenues by $39 million annually.
 
 • Offshore Oil Drilling
($75 million) - Oil production activities that take place in the outer
continental shelf are not taxed by Illinois although many other states now
tax this income that can be apportioned to their state. 
 
 • Retailer’s
Discount ($109 million)- Originally intended to compensate Illinois shop-
owners for the costs of collecting state sales taxes in the pre-computer era,
the biggest beneficiaries are now the largest out-of-state retail chains like
Wal-Mart (which receives over $8 million annually.). Unlike many other
states, Illinois does not cap the amount a retailer can receive for
transmitting sales tax funds.


Background on impact of COLA reduction
Had the sharply diminished COLA in House Bill 1447 been in place
over the past 25 years, a public employee who retired in 1987 would
today have lost 20% of the cumulative value of their pension to
inflation, and would fall further behind with each passing year.
Current law has enabled retirees to retain all but 2% of that real-dollar
value. See chart—for a 1987 retiree with a $15,000 base pension, the
purple line is inflation, green is COLA under current law, red is COLA
in 1447 and similar bills.



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