A Hint of Fish with the New Cook County Commish

Brandon Johnson and the laundering of union campaign contributions…or at least the appearance thereof.

The primary election (which is the de-facto general election in my one-party district) for the Cook County Board Commissioner seat in the 1st District yielded a new representative as Chicago Teacher Union (CTU) lobbyist Brandon Johnson defeated incumbent Richard Boykin. Normally, an election for a board seat in a county that’s bleeding red (money, not Republicans) wouldn’t warrant much attention. But this election was basically a proxy war for Cook County Commissioner Toni Preckwinkle’s ill-advised and highly-regressive penny-per-ounce sweetened beverage tax. Boykin, who voted to repeal the soda tax, was backed by the beverage industry, who feared the tax would lead to loss of revenue and beverage-related jobs. Johnson was backed by public sector unions, who feared loss of the soda tax would lead to the loss of government union jobs (and union dues).

Johnson Summary
Orange = AFT affiliates; Green = SEIU outfits

That public sector unions came out in full force (see right) to support one of their own is not news. What caught my eye was the movement of Chicago Teachers Union money between various  political action committees that eventually made their way into Johnson’s coffers. On its face, CTU contributed $125,500 to Brandon Johnson’s campaign from 12/15/17 through 3/20/18 (see below). But drilling further into CTU contributions over that same time period reveals some suspicious transfers of funds:

Johnson Summary 3

  1. Friends of Robert Martwick, $25,000: On March 19, 2018, the CTU PAC made its largest one-time contribution ever to the 19th District State Representative Robert Martwick (D) for $25,000, eclipsing what they had previously contributed to him over a five year span from 2012-2017. Coincidentally, ten days prior to this generosity, Martwick reported an in-kind contribution of $25,000 to Johnson’s campaign. Was this a repayment of sorts? Why the sudden love from the CTU? And why in the exact same amount he just contributed to Johnson?
  2. Friends of Susan Sadlowski Garza, $40,000: 10th Ward Alderman Garza is a CTU favorite, maybe because she is also a CTU member. While Garza is the recipient of over $185,000 CTU fun dollars since 2014, she hadn’t received a five-figure contribution from them since January 2017. Then this past March, Garza received two $20,000 contributions from CTU on the same day. Just two weeks later, also on the same day, Johnson receives two $20,000 contributions from Garza, once again in the form of in-kind contributions for mailing.
  3. Greater Austin Independent Political Organization, $23,000: Not much is known about GAIPO, other than they want to institute a city income tax and what’s on their D-1 Statement of Organization. Their PAC had received a mere $814 in contributions since its inception in March 2017. Then miraculously on March 8, 2018, the CTU gods rained $25,000 onto their Austin acolytes. One would think that such a windfall into a seemingly innocuous neighborhood group would lead to some lengthy deliberation in how to best spend the money, but apparently things move quickly in Austin. A mere five days later, GAIPO sends $23,000 of that $25,000 (maybe they kept $2,000 as a finders fee) to Brandon Johnson. Three weeks later, GAIPO made another $23,000 contribution to Johnson. While I currently cannot trace the source of that contribution, I have a sneaking suspicion of where it came from, but I won’t be able to prove it until certain tax forms are filed with the federal government. Maybe all this love shouldn’t be surprising, considering GAIPO’s Social Media Manager is also Brandon Johnson’s Field Operations Manager, which also explains why Johnson’s face is plastered all over the GAIPO Facebook page: Johnson FB(UPDATE 6/4/18: Coincidentally, GAIPO was co-founded by Jason Lee, the Political Director of United Working Families, one of the numerous SEIU-related outfits that was, cumulatively, the 2nd largest donor to Johnson’s campaign.)

According to the Illinois Campaign Financing Act, contributions to a Candidate Political Committee (how the Friends of Brandon Johnson is registered) from a Political Action Committee (how the CTU PAC is registered) are limited to $55,400 in an election cycle. It looks like the CTU exceeded that limit outright. If the Chicago Teachers Union wasn’t subject to those limits, then what was the purpose of using 3rd parties to make contributions on their behalf? If Johnson needed campaign mailings, why didn’t CTU just give him the $65,000 directly instead of paying Garza and Martwick $65,000 to buy mailings for him? It certainly seems like some contribution limit was in play here, otherwise, why go to such lengths to essentially launder political contributions?

But there’s another twist: It looks like CTU formed a new PAC on 2/20/18 called the Chicago Teachers Union Local 1 PAC. This means there are now two active CTU PAC’s, one registered under CTU president Karen Lewis and the new one under CTU VP Jesse Sharkey. To date, the CTU Local 1 PAC has but one transfer out: $55,000 to Friends of Brandon Johnson, which just happens to keep this PAC under the $55,400 limit. Maybe creating a new PAC under the same corporate umbrella makes everything kosher…on paper. But it’s basically the same damn organization.

One last thing…that $10,500 contribution from CTU to Johnson on March 16 might not have gone directly to Johnson. While Johnson reported it as a CTU contribution on his D-2 Quarterly Report, neither of the CTU PACs reported this transfer to Johnson. The only evidence I could find of a similar payment was an expenditure to Charles Howleit for $10,500 on the same day (see below), but that might have been intended for someone else (Howleit seems to have an extensive enterprise going with the CTU as they spent over $93,000 on his canvassing services in just 3 weeks from February through March). Whether the error was a mistake or deliberate, it’s just the icing on the shoddy bookkeeping cake.

Johnson HowleitJohnson Howleit

So what do we take from this? Mostly that the Chicago Teachers Union is really no different than the evil corporations they deride (and expect to pay an employee head tax). They create shell companies to seemingly flout legal contributions limits. They use political allies and low income neighborhood groups as intermediaries to move their money around and obscure the extent of their involvement. So much effort to wash so much money clean, you’d think the CTU was unionizing laundromat operators. All this for a seat at the middle management table of middle management government. Considering that seat was won by only 436 votes, it looks like CTU’s shenanigans paid off. Whether or not all this is legal, I’ll leave for the political experts to decide. Legal or not, it’s sloppy and borderline unethical. I might say this is more mob behavior than corporate, but that would insult the mob. At least they have clever nicknames.

And I haven’t even gotten to the fact that our new county commissioner is eligible for a taxpayer-funded Chicago teacher pension even though he’s employed as a lobbyist in the CTU. Luckily, I’ve already covered that topic

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Illinois Working Together…And Against You

A closer look at a union front group and how dues money is spent for political gain.

Illinois has its share of political advocates on both sides of the aisle. Most focus on multiple policies or a singular subject (education) and its related aspects (funding, class size, school choice, testing, disciplinary actions, etc). But there is one group that seems to have a singular, laser-like focus not on a policy but a person: Governor Rauner. Over 6,000 tweets since this group’s Twitter account creation in 2015 devoted to nothing but commenting on Rauner’s every move, including what he wears…

Illinois Working Together certainly seems to have the governor covered, from helmet to vest to toe. But who is “Illinois Working Together” and what are they all about? Per their website:

Illinois Working Together is a coalition defending all working families from anti-worker attacks. Illinois Working Together believes that Governor Rauner’s wrong priorities seek to harm hardworking families and communities throughout Illinois while protecting the most wealthy. The Coalition’s goal is to stand up and fight back against the governor’s political attacks and threats – and protect the vital services all Illinoisans rely on.

So I guess their obsessive Twitter account makes a bit more sense now. It’s good to note we taxpayers have yet another defender of the “working family”. Unfortunately, history has shown these groups typically define “working” as those that pay union dues. The best way to determine their agenda, besides the obvious Rauner slant, is to trace their roots.

Illinois Working Together…Literally!

Illinois Working Together is located at 534 S Second Street, Suite 200, Springfield, IL. Normally, an address is no big secret, but their address does not appear on their website or Facebook pages. Rather, I found their address by tracing payments made to this organization filed in various government websites. The address is significant because various political committees shared this exact same address in the past: Committee to Reduce Income Inequality & to Support Human Rights (minimum wage increase and millionaire’s tax), Voices for Illinois Workers, We Are One opposed to the Constitutional Amendment (against pension reform). Each of these committees, while no longer active, shared platforms supported financially by union interests. This started to make more sense once I found one other organization located at 534 S Second Street, Suite 200, Springfield, IL but still active: the Illinois AFL-CIO.

While the Illinois AFL-CIO certainly looks like a traditional union, there is no record of them, their financial reports, or their employees with the US Dept. Of Labor like other unions. That’s because the Illinois AFL-CIO is one of those clandestine outfits under the union umbrella that is explicitly exempt from the definition of “labor organization.” How is that possible? The Illinois AFL-CIO is what the Dept. of Labor considers a “state or local central body” which is not subject to the same reporting obligations governing labor unions under federal law. There’s a lot of legalese around the interpretation, but all you need to know is it’s the equivalent of a corporate loophole or dark money allowing the AFL-CIO to operate outside the normal disclosure rules governing unions in general.

The president of the Illinois AFL-CIO is Michael Carrigan. Coincidentally, each one of the political committees mentioned above has Michael Carrigan registered as their Chairman. Mr. Carrigan is also a board member of the union-funded think tank Center for Tax and Budget Accountability that promotes higher taxes on working families. I’m unable to determine Michael Carrigan’s affiliation to Illinois Working Together as there is only one name associated with this organization: Jake Lewis.

Records show unions have contributed over $150,000 to Illinois Working Together since 2016 (political contributions highlighted in yellow):

ILWT Contributions 2

So here we have an organization with a union address funded by multiple unions with strong ties to union leadership. Needless to say, we’ve cracked the code: Illinois Working Together is a union-fronted organization.

Illinois Working…For Everyone?

While researching the Illinois AFL-CIO, I uncovered yet another organization registered at what seems to be the most popular address in Springfield, 534 S Second Street, Suite 200: Illinois Working For Everyone. Other than a dead blog site, this appears to be the original incarnation of Illinois Working Together. Look at their logos:

ILWT ILWFE Logos

Furthermore, records show unions have contributed over $190,000 to Illinois Working For Everyone over just a 3 month span in 2015, including a direct payment from their suite-mate, Michael Carrigan’s Illinois AFL-CIO:

ILWFE Contributions

Why Illinois Working For Everyone was re-branded as Illinois Working Together is anyone’s guess. Perhaps this reflected a shift from from private to public sector union support as the contributions seem to imply. Overall, this organization has received over $340,000 in union funding over a two year span.

Illinois Working…For What Exactly?

After reviewing all the financial activity, the one thing that stood out was how each union classified their payments differently. Some organizations pay Illinois Working Together out of their political action committee funds (PACs) or classify their payments as political activities, implying the services provided by Illinois Working Together are of a political nature and outside typical union business. Other unions consider their payments to Illinois Working Together “non-political”, such as union administration costs or contributions/gifts/grants. So what does Illinois Working Together do exactly? Other than snarky tweets and comments of a political nature, what non-political service is being provided here?

Illinois Working…Against Free Speech?

Consider AFSCME, a labor union that contributed $60,000 to Illinois Working Together back in 2016. There is a case before the Supreme Court, Janus vs AFSCME, that will determine whether public unions can require workers to pay agency fees for union representation even when they do not want representation. From Forbes: Mark Janus is a child support specialist employed by the Illinois Department of Healthcare and Family Services. He has declined membership in the union, as is his constitutional right, but under the Illinois Public Labor Relations Act he’s still is required to pay the union an “agency fee” as a condition of keeping his job. That fee is supposed to cover his share of the union’s expenses outside of politics…His argument is that all public union spending is so entwined with politics that he should not be compelled to subsidize any of it.

When AFSCME pays Illinois Working Together, where does that money come from? It wasn’t paid out of AFSCME’s separate political action committee, an account Janus and other agency fee members aren’t required to fund. It wasn’t classified as political activity either. Rather, the payments are considered contributions/gifts/grants, no different than AFSCME’s $5,000 payments that same year to the ILLINOIS LABOR HISTORY SOCIETY for an AWARDS DINNER SPONSORSHIP and FAITH COALITION FOR THE COMMON GOOD for a FALL BANQUET SPONSOR. Do these contributions/gifts/grants come from Mark Janus’ and all union members’ union dues? If so, doesn’t it stand to reason those same dues then fund Illinois Working Together? Considering the hyper-political characteristics of Illinois Working Together, is it even possible to have any interaction between AFSCME and Illinois Working Together that isn’t “so entwined with politics,” as Janus said?

Considering all the evidence, it seems like Janus has a pretty good case. I’m sure the National Right to Work Legal Defense Foundation is fully aware of this conflict, and many others, as well. If not, perhaps we should be “working together.”

Oak Park D97 Committee Shuns Local Businesses

Local pro-tax hike group goes outside Illinois to purchase cheapest and tax-free items to support said tax hike.

We know where the Committee to Support Oak Park Schools stands on education…on top of a large pile of cash. The local organization behind the successful passage of both D97 referenda that will add $74 per $1000 in property taxes (most OP homes tax between $10-15,000) to every homeowners’ property tax bill was quite adamant how we should all support our schools and art and music programs with open arms, minds, and wallets. We were thoroughly warned of plummeting property values if we didn’t vote “Yes Yes” to raise both operating expenses and issue bonds. But when it came to sourcing the very items that promoted their progressive message, did the Committee support Oak Park businesses?

According to their report filed with Illinois State Board of Elections, the response you hear echoing in the Eisenhower Canyon is a resounding NO. While the Committee spent nearly $15,000 promoting their agenda, a large portion of their “Yes Yes” swag came from out-of-state vendors:

1) $5,016 for signs from New Hampshire. Those who denounce Illinois’ flat state income tax as “regressive” might be interested to know that New Hampshire doesn’t even have a state income tax*. Furthermore, Big Daddy’s Signs doesn’t charge sales tax.

2) $1,373 for from printing services from Queens, New York. Perhaps a referral from Run DMC?

3) $1,386 for promotional items from Ohio (another purchase exempt from sales tax) and Texas (a right to work state with no state income tax).

I find it hard to believe these items could not have been sourced within Illinois. Signs Express is 3 blocks away from Irving Elementary. Logan Square’s Busy Beaver Button Company is 4 miles away from Hatch Elementary. Considering all the rhetoric the pro-referenda crowd spread how Illinois is America’s deadbeat dad of school funding, it seems a bit callous to purposely eschew the very local businesses that employ the working families that provide the tax revenues that fund our schools. How delightfully ironic that the Committee basically took the “school voucher” approach to advocate for more education funding.

When the next inevitable school funding shortfall comes up again at ReferendaFest 2021, instead of marching the kids around Scoville Park, let’s lead them towards the Harrison Arts District and local music shops. Perhaps they deserve our arts and music funding more than D97. At least we’ll be shopping local.

* New Hampshire only taxes dividend income. 

New Trier: Day of Counter-Programming

I hope you all enjoyed your indoctrina…sorry, study of civil rights and racial inequities here at New Trier High School. Now that you have been properly proselyti…sorry, enlightened of your full debt to society, we continue our series that will prepare you for life beyond these hallowed halls.

While your previous session focused on guilt, today’s seminar will hopefully elicit more useful feelings such as anger and disgust. Today’s topics offer a melange of national and local politics, government labor, and how they all act and interact in the most stupefying and hypocritical ways. For those of you bewildered how our state and local governments got into this mess and why they expect you to bail them out, we believe this session will provide some useful insights.

All sessions will be recorded for future viewing for those of you that might prefer to thrust your fist through a wall or scream into a pillow in the privacy of your own home.

Morning Sessions

  • One Insane Party: Why Chicago residents vote for the same political party over and over yet expect different results.
  • Buy Your Neighbor: How the Chicago Teachers Union pays neighborhood groups pennies on the dollar to protest on their behalf.
  • Your Union, Your Coffin: Examining the arcane process of attempting to leave your union or join a different one.
  • My Left Foot: A simulation using advanced bionics to demonstrate how the Democrats could have substituted anyone’s left foot over Hillary Clinton and won the 2016 presidential election.
  • S-E-I-U, Wouldn’t Wanna B-E-I-U: A real-world case study from Los Angeles showing how SEIU willingly bargained for lower wages for their own members in exchange for businesses hiring more dues-paying members.
  • Danny Davis, Where Art Thou? Tracing the economic stagnation of Chicago’s West Side over the past 20 years.
  • I Eat, You Pay: A beginner’s lesson on pension debt. (pre-requisite for afternoon pension-related sessions)
  • I’m Just a Bill: How Bill Clinton’s signing of the 1994 crime bill led to the mass incarceration and systemic breakdown of the urban family.
  • Final Fantasy Finance: Many public sector folks often cite Ralph Martire’s union-funded Center for Tax and Budget Accountability as the one source of truth in public sector funding and financial analysis. CTBA incessantly and unabashedly calls for higher taxes where taxpayers have no choice but to pay. In this proof-of-concept, we move CTBA economic theories out of its public sector vacuum and into the real world to see what would happen when:
    1. An employee demands a large raise in which his employer is not forced to comply.
    2. A company takes a low-selling, poor-quality product with many better and cheaper competitors and raises its price expecting to increase revenue.
  • This is Library: For all you aspiring social justice warriors, we discuss the the proper etiquette for protesting.

Lunch

Farm-to-table gruel (no refills, no substitutions)

 

Afternoon Sessions

  • He Sells Sanctuary: The examination of Rahm Emanuel’s deceitful practice of attracting illegal immigrants heavily reliant on social services to a bankrupt city that cannot afford them.
  • The 4%’ers: We reference union reports filed with the U.S. Department of Labor to examine the multiple layers of public sector union management who actively lobby for higher taxes on working families to subsidize their $200,000+ salaries.
  • VoucherPlus: We give a Chicago 3rd grader the amount CPS spends to educate him and watch his family turn it into a full-blown parochial school education with enough money leftover to pay 4 months worth of rent.
  • The COLA Wars: Uncover the many ways a bottomless government pension can increase after retirement.
  • Retirement Supe: A cooking demonstration using the proper ingredients and extreme heat required for a school district superintendent to burn through his/her fair share of retirement benefits in less than 10 years. (guest sous chef: Linda Yonke)
  • Fair Scare: How unions use agency fees to mask their monopoly on representation.
  • The Flighty Quinn: In a simulation of Illinois’ financial predicament, we provide students with a $8 invoice (Illinois had a backlog of $8 billion in unpaid bills in 2011), proceed to give them an extra $32 to pay that bill (Illinois generated $32 billion from the 2011 tax hike alone), and see if they pay off that entire bill in the time allotted (Illinois needed 4 years and could only pay down half).
  • A Pension in Contradiction:  A 45 minute round table discussion as follows:
    • First 20 minutes: A group of public sector workers and retirees explain all the inherent evils and inequities of Wall Street and corporate America.
    • Next 5 minutes: Attendees pose questions such as:
      • If Wall Street is so evil, why do you invest your entire retirement savings with them?
      • Don’t corporations lay-off and outsource employees to meet the insatiable hunger for large investment returns that your pension systems require?
      • If your pension just invested in local farms and businesses that were not as profitable but socially responsible, would you be willing to take a reduced pension?
    • Last 20 minutes: Everyone stares at each other in awkward silence.
  • Dream Weaver: A deep dive into how a former teacher from a poor south suburban Chicago district named Reggie Weaver magically transformed his meager teacher salary from 30 years ago into a $281,000 teacher pension today. (hint: it’s not magic)
  • Pension Roulette: In response to the belief there is only one outcome in the pension debate – that a pensioner paid his/her fair share and is entitled to what was promised – we use an Illinois Gaming Board sanctioned roulette wheel to demonstrate the 34 other negative outcomes on a career’s worth of compensation that would have occurred if the state had indeed fully funded their pensions all these years because there would have been little money leftover for anything else.
  • Old Fogey Paradox: The phenomenon of retired public sector workers who complain about the inequities of Illinois’ flat income tax system while their retirement income is exempt from state income tax.

Epilogue: A Letter from the Student Body

Dear Ms. Yonke,

We accept the fact that we had to sacrifice another day in your seminar for whatever it is we did wrong, but we think you’re crazy for making us feel guilty for who you think we are. You see us as you want to see us, in the simplest terms, in the most convenient definitions: a piggybank, and a pawn, and a basket of white guilt, a princess, and a white collar criminal. Does that answer your question?

Sincerely yours,

New Trier Student Body

Who controlled Will Guzzardi’s rent?

The Guzzardi family benefited from NYC’s rent control, but did they need it?

As reported by DNAinfo, it appears as though members of the so-called Progressive Caucus are trying to socio-economically engineer their Chicago neighborhoods again, this time through some ill-advised form of rent-control:

State Rep. Will Guzzardi (D-Logan Square) has introduced a bill in Springfield that would repeal a 1997 law passed under Republican Gov. Jim Edgar.

The repeal of the ’97 law would not create rent control in Chicago or other cities, but would allow the City Council to determine if wanted to put a cap on rent increases in the city or take other action to stabilize rents.

Guzzardi said…it’s time to add the possibility of rent control or stabilization to the tools available to lawmakers trying to deal with quickly rising rents in neighborhoods like Logan Square or Pilsen.

While it’s a noble, albeit foolish, idea to artificially keep rents low for those who need it, the trick is in identifying those who qualify. Is it the elderly person on a fixed income? Sure. A large immigrant family with only one working parent? Why not. How about a Vice President of a New York publishing house who owns a summer home? Abso…wait, what was that?!

Based on this profile in Chicago Mag, we learn a bit State Rep.Will Guzzardi’s path getting to Chicago:

…who grew up in Chapel Hill, North Carolina, the son of New York transplants and big names in the book publishing industry. (His father a revered editor and his mother a former publishing executive-turned-social worker).

Those “big names” would be Isabel Geffner and Peter Guzzardi. Now, it’s no secret that the Democratic Party of Illinois’ favorite carpetbagger is from North Carolina. But while living in New York City, it appears the Guzzardi family were the beneficiaries of rent control of their own.  The following is an excerpt from the LA Times back in 2004 about Will’s parents making a mid-life career change:

In 1995, Isabel Geffner and her husband, Peter Guzzardi, were entrenched in New York’s media elite. She’d been a publishing executive for 20 years; he was an editor of novels and nonfiction whose list of authors included Martin Amis, Stephen Hawking and Deepak Chopra. They lived in a rambling, high-ceilinged, rent-stabilized apartment on the Upper East Side with their two preteen sons. From Monday to Thursday, the boys sat down to dinner with the woman who looked after them while their parents were at work. The family spent time together only on weekends…

So they decided to make a change that would improve the quality of all their lives. Guzzardi accepted a job as editorial director of Duke University Press, they sublet their apartment, sold their weekend house on Shelter Island and moved to Chapel Hill, N.C.

What’s this?! A rent-stabilized apartment on the Upper East Side for our “big names in the book publishing industry”? Interesting how a seemingly well-off, two-income family entrenched with the “media elite” require any assistance with rent. Furthermore, how does one qualify for any sort of rental assistance when one also owns a weekend retreat near the Hamptons?!

Mind you, there are differences between rent controlled and rent stabilized apartments. But there is only a finite number of below market rate units in New York. According to the Furman Center, in 2011, only 31% of all NYC housing units qualified as rent-stabilized. That means for every Guzzardi abusing the system, there is some needy college grad, working family, or elderly person that goes without. While I doubt there is anything illegal here, it’s just another example of how the elite manipulate the system and free-markets for their own benefit.

I won’t even go into how economists time and time again confirm that a ceiling on rents reduces the quality and quantity of housing. I’ve found that it’s a fruitless exercise to insert logic into a Progressive’s idea when their idea is paid for with Other People’s Money. In the meantime, perhaps some of the family’s struggling with rent in Logan Square and Pilsen can live on an island on the weekends. It certainly worked for Will Guzzardi’s family.

CPS Pension Pick-Up – Was this trip really necessary?

1981_Toyota_Tacoma_For_Sale_Front_resize

Ms. Lewis, your chariot awaits…

Many important things were happening in 1981. Rick Springfield was beginning his unmitigated ascension on the pop charts that would transcend both space and time…for 3 years. The White Sox were on the verge of trading in one pair of pajamas for another. And in a smokey, dimly lit office in Chicago Public Schools headquarters, some city employee thought the pension pick-up was a good idea.

In 1981, CPS was broke and embroiled in yet another contentious contract negotiation with the Chicago Teachers Union.  Same as it ever was. It was then when someone in CPS HQ offered, “Instead of giving the teachers a raise we surely cannot afford, how about we pay 7% of their retirement for them…an amount we surely cannot afford.” And thus began the infamous “7% pension pick-up” benefit that stands to this day.

What did CPS accomplish with the pension pick-up?  Did they actually save money? Was this used as consideration in future contracts? Or did it devolve into something else? Let’s take a deeper dive and find out.

Background

CPS teachers are required to pay 9% of their gross salary towards pensions. CPS pays 7% of that 9% on behalf of the teachers – henceforth known as the “pick-up” – thereby requiring teachers only pay 2% of their gross wages towards their own retirement. CPS teachers, like all other teachers in the state, are not eligible for Social Security benefits – as they are wont to remind you, to which I calmly retort – because they do not pay into Social Security. So the pension is their retirement nest egg.

The terms of the pension pick-up are outlined in each contract under Salaries.  While the wording has changed over the years, the main takeaways are as follows:

The BOARD shall pick up for each teacher and other bargaining unit employee a sum equal to seven percent of the amount due each such employee…

This pension pick-up will not constitute a continuing element of compensation or benefit beyond fiscal year <end date of current contract>.

All terms and conditions of employment for future years, including without limitation, salaries, benefits, pension pick-up and staffing formulas, are the subject of negotiations for those years.

The pension pick-up is not a benefit in perpetuity. It is subject to negotiation each and every contract, a fact oddly absent in CTU diatribes, considering how keen they are in observing contract terms <cough, day of action, cough>. That’s important to note as CPS attempts to discontinue the benefit altogether as they are not legally bound to offer it once a contract expires. But rolling it back is not that simple, both psychologically and mathematically, as we shall see.

The Math

To understand how much the pick-up is worth, let’s go back to 1981’s 1-year contract and view the benefit as it was first offered and conceived: in lieu (instead) of a raise:

PPU1

The ‘Employer Cash Outlay’ is the out-of-pocket cost to CPS. As you can see, the cost of CPS picking up 7% of the employee (EE) pension contribution is equal to giving a 7% raise on base salary.  This is true for 1-year contracts, which were quite common back in the day: 1982, 1983, 1984, and 1989 were all 1-year contracts. This is where CTU derives their “7% pay cut” argument as CPS has threatened to end this practice in current contract negotiations.

The big takeaway from 1981 is the following concept: wage suppression. Since teachers did not receive a raise that year, their gross wages were essentially frozen for one year and, therefore, so was the salary schedule (also known as “Steps and Lanes”) that determined their wages that year and going forward. While teachers would proceed to the next “step” in that schedule, that next step’s wages remained the same as it was in 1980.

As I stated previously, the value of the pension pick-up can change based on the length of the contract. For example, here’s how the pension pick-up stacks up for a 2-year contract, which happened in 1985, 1987, and 1993:

PPU2

So if CPS froze salaries over 2 years and paid 7% of the employee pension, the cost to CPS would equate to a 4.5% yearly raise for the employee had they continued to pay their full pension contribution. Once again, in theory, wages would be suppressed over those 2 years and that the following contract’s steps would start at a lower salary. In theory…

Same rules for 3-year contracts, such as 1990 (the first 3-year contract ever for CPS…even the CTU bragged about it) and 2012:

PPU3

So as the length of the contract increases, the value of the pick-up decreases, as does the yearly raise required to cover the difference. Think of the yearly raise as a “premium”, as in the example above, if teachers instead received a 4% COLA raise every year and the pension pick-up, it would equate to a 7.3% yearly raise (4% + 3.3%). Clear as mud?

Enough theory. Let’s see how the pension pick-up played out in the field…

Remember that one time…

The only year in which CPS teachers received the pension pick-up in exchange for a raise was in 1981, the first year it was offered. Each contract after that included the pension pick-up on top of a raise (more on that later). But if wages were suppressed for only one year, could CPS still have saved money? Let’s see:

PPU 1 year over career v2

The following example is a 34 year CPS career in which wages were frozen for one year (Year 10), upon which the pension pick-up began and continued through retirement. For simplicity sake, let’s assume the same 3% raise every year and that no consideration was given to the pick-up in compensation (more on that later). In other words, the teacher received the same raise he would have received anyway, pick-up or no pick-up. As you can see, while the one-time wage freeze does indeed suppress total wages over a career, it is more than outweighed by the pension pick-up. Over the final 25 years of this career, the CPS teacher in this particular example came out $55,423 ahead than if he had paid his entire pension contribution his entire career and never received the pension pick-up.

Now, CPS might benefit since the pensionable salary at the end of a career is lower. But that pension savings is a tiny faction compared to the actual cost over a career. And this assumes wages were suppressed all along. So even in a perfect, theoretical world, CPS comes out behind in the pick-up. <I thought you said we were done with theory?>

Back to the real world…

Let’s run through an actual real-world example of a teacher – let’s call her Jenny – that begins her career in CPS in 1982. Jenny knows no world other than one in which CPS picks-up 7% of her employee pension contribution. By referencing salary schedules from each CPS contract from 1982-93, let’s track Jenny’s salary as she progresses through each salary step for the first 11 years of her career in CPS (Level 1 – BA degree):

PPU Jenny example

Some notables:

So even without including the pension pick-up, Jenny received average yearly raises of a more-than-generous 10% over the course of a decade while inflation averaged 4% annually. Perhaps double-digit raises were common across school districts in the 1980’s or among the working class in general (my bag boy wages certainly did not reflect that). But if such large raises were common practice, I doubt they included a pension pick-up as well. And if they weren’t, how were CPS teachers getting by before the pick-up?

All things considered…

With such significant raises, it makes you wonder if the pension pick-up was even considered in contract negotiations. “Consideration” is an argument often brought up by the CTU and other pick-up defenders who claim that the pick-up was earned in lieu of other intangibles such as classroom size or housekeepers for each of Karen Lewis’ three homes. But there is no way to prove that. To the contrary, I find evidence of other so-called considerations given, but by CPS, such as:

  • 1983:  CPS offered a 2.5% bonus on top of a COLA increase that was on top of a step increase. What was the point of that bonus if they were already offering a 7% bonus in the pick-up?
  • 1984: CPS wanted teachers to pay part of the premium for health benefits. CPS dropped the premium demand.
  • 1987: The year of the infamous 19 day school strike. In the end, on top of 4% yearly COLAs, CPS granted teachers more sick days and improved health coverage. In return, CPS laid off 1,700 teachers and other staffers to help pay for it all. Does that count as “consideration”?
  • 1990: One of CPS’s biggest blunders: diverting pension money towards salaries and raises. The $66M diverted from the pensions would be worth about $400M today. To add insult on injury, those raises inflated salary schedules from that point forward, thereby inflating pensions (and negating any such pick-up savings, if there were savings to begin with…and there weren’t). You could argue that CPS is still paying for that decision and that salaries have been artificially inflated since then.

The Chicago Tribune’s 1988 article Teachers Union Has Power To Run System does a pretty good job explaining a whole host of considerations, the most egregious being:

Teachers also can save up to 244 sick days, take a sick leave just before retirement and get paid the entire amount.

More than 200 teachers have retired straight out of sick leaves in the past five years. In response to complaints by board member Winnie Slusser, school officials are trying to determine the cost of this practice.

“When people retire or resign out of a sick leave, their class is covered by a sub, even if they have no intention of coming back,“ Slusser said.

The list goes on and on, but you get the point. The argument that CTU gave up something – anything – in exchange for the pension pick-up is dubious at best. Quite frankly, any outfit that would pilfer from their own retirement fund for raises today doesn’t seem to put much consideration in anything.

Conclusion

Over time, the pension pick-up devolved into an unappreciated and assumed, yet expensive, benefit. Unappreciated, that is, until it was about to be taken away.  CTU has no doubt taken it for granted over the years. Even the media hardly reported it. Take this recap in the Sun-Times of the 1993 CPS contract: “For the first time teachers began paying part of their insurance premiums…their pay was frozen for two years.” No mention that teachers still received the pension pick-up. No mention that teachers still received their automatic step increase. You would think CTU was teaching for free. You could argue the biggest faults in the pick-up are the utter lack of transparency and the illusion that salaries are held in check by a valiant school board when in actuality they are not.

But there are a few ways CPS could have made the pick-up work. A smart plan would have entailed a choice between a pension pick-up that was worth more today than the COLA raise. For example, the offer could look like this on a $50,000 base salary:

PPU bargaining

Does the teacher chose the pick-up and take an additional $2,135 in his take home pay this year or pay his full pension contribution and take the $1,500 increase is his gross salary that will factor into higher future earnings and a larger pension? Either CPS pays more today but cuts down pensionable salaries later or pays less today but keeps salary increases reasonable. This is how it should have been all along!

Or CPS could offer the pick-up as a longevity bonus. How about the 7% pick-up is activated only for 20/25/30 year anniversaries as a sort of bonus to long-term employees? I’m all for creative compensation and incentive plans. But this only works if something has perceived value. Past contracts prove otherwise.

Perhaps another lesson is when you freeze salaries that you actually freeze salaries! Because it seems that every pay freeze has been met with some sort of clawback that negates the freeze altogether. It’s only human nature to take back what you think you lost. Do you think employees cared that their employer gave them something else in exchange for a raise years ago? They only care that they didn’t get a raise and that this year’s raise has to make up for it. In the end, it’s always about the gross wages.

Lack of transparency, little or no consideration, presupposed…all prevalent characteristics of the pension pick-up. Just another bad idea from CPS in a long line of bad ideas.

But there are other members in the bad ideation syndicate. Many other school districts across the state pick up some portion of the employee pension contribution as well (Not just teachers, mind you. There are district superintendents earning $200,000 that pay nothing towards their pensions!). But the only way to truly know if salaries are kept in-check is to compare similar districts with no pick-up. Perhaps that is a case study for another time…

Until then, everyone hop on the pension pick-up. Space is limited. And it may not be around much longer…hopefully…

Illinois: Your Perpetual Host of the Hunger Games

A state income tax hike is inevitable.

There, I said it. Regardless of the outcome on the budget impasse, there is no getting around it. The state’s gun barrel is pointed squarely at the wallet in your left buttocks pocket, the state’s sadistic version of a million dollar wound where they keep the money but we get the bowl of ice cream. I’d be pleasantly surprised if we got out of this at 4.5%. The only question now is if it will be retro-active to 1/1/16. The state has plans for that extra money <insert flushing sound here> and it probably doesn’t involve you. Or your children. And speaking of the children…

About a year ago, I wrote a story demonstrating the impact of that tax hike on a middle class family as they attempted to save for their child’s future. It was a basic exercise – using the same rules and assumptions our state pension systems use – to demonstrate how a seemingly small, innocuous tax hike (well, innocuous to those levying the tax or whose salaries are derived from tax revenue) has huge ramifications for a child down the road. How extra taxes today lead to less money for college savings accounts…which leads to expensive student loans…which leads to drawn-out student loan payments that could otherwise be invested towards a retirement fund…which leads to a vulnerable retirement, a lifetime of difficult financial situations, and foregone opportunities a solid financial foundation affords oneself. In total, if that 5% tax rate were to remain in effect as I wrote, would cost that child $1,500,000 at the time of his retirement. Surely, even decades from now, $1.5 million will offer some security blanket. Or maybe it won’t be enough to cover the cost of all those low-quality cotton purple and green T-shirts for the AFSCME-SEIU company picnic in 2070. Who knows…

So I thought I’d revisit that same exercise based on the today’s tax rate of 3.75% and a predicted 4.75% for the (near) future. And while the amount of lost savings does decrease slightly, the amount of foregone savings still remains a substantial sum of money that will impact numerous decisions over the course of your child’s lifetime. And that no one really cares.

That’s an important concept to understand…no one is truly advocating for your children’s financial future. That’s not to say there are no “children advocates” in Illinois. While organizations such as Voices for Illinois Children, Illinois Action for Children, 30 Children to Mars (OK, I made that one up) advocate for more resources for disadvantaged children today, the impact of tax hikes on the college and retirement funds of tomorrow aren’t exactly part of their mission statements. I don’t fault these organizations appealing for more funds, but it doesn’t mean we should ignore some important facts. In perusing the tax forms filed by these not-for-profits, you’ll see plenty of 6-figure incomes in the speaking-and-acting-for-children industry, and one that tops $300,000. No one ever said advocacy doesn’t pay. Putting the profit back into not-for-profit, I suppose. You would think, amidst an unprecedented budget stalemate, the captains of children advocacy would offer up a cap on their own wages. You know, for the children. Because when the folks running and working for not-for-profits request higher taxes yet have earnings that eclipse the median income in the state, the taxpayers have a right to ask.

The state universities certainly don’t care about your children’s finances. Take a look at University of Illinois Champaign-Urbana’s enrollment figures. Back in 1985, only 15% of UIUC’s student population came from out-of-state. In 2015, non-resident enrollment is up to 38%! Over that 30 year time frame, Illinois gained 1.2 million residents and overall enrollment at UIUC increased 25%. Yet UIUC enrolls 3,000 less Illinois residents today than in 1985. Does this sound like an institution invested in our children’s future? Now, I’m sure the board of trustees – emerging from the dense, expensive administrative fog that enshrouds each university, donning sound-deafening headphones, lest the sound of the inevitable higher education bubble bursting catches them aflutter – will argue that an ever decreasing amount of state funding has played a part in this discrepancy. Their argument to keep tuition costs low is more revenue (taxes). But if that revenue comes at the expense of your ability to save for your child’s college savings, your kid is no better off financially. Additionally, your kid’s out-of-state options become much more expensive, making them an “indentured student” of the state university system, so to speak. And all of this just so the Fighting Illini can enroll more students from…China? Yes, the true irony here is that the state’s most prestigious public university – in a move cribbed from Wal-Mart’s playbook – not only increasingly outsources its student population, but turns to pollution-choked China to ensure its quad is packed with the most profitable students possible, taxpaying residents be damned. What would Marcus Liberty do?

Even if your child does manage to safely navigate the tempestuous waters of administratively-heavy advocacy groups and universities with a few bucks left in their pockets, what awaits them on the war-torn beach is the Panzer tank equivalent of child embezzlement – pension debt. And that beach is absolutely littered with ticking time bombs hidden in the sand below our children’s feet, such as…

The Cook County Pension Fund: $6.5 billion underwater, or a mere 5 record-setting Powerball jaCCPFckpots away from solvency.  Tucked away on page 22 is a Projected Member Count chart (see right) that shows, by the year 2025, there will be 2 inactive members (retirees) for every 1 active member (current employee). Surely, a severely under-funded pension system that is extremely reliant on incoming contributions will be fine when the number of retirees withdrawing funds is DOUBLE the amount of employees contributing, right?!  Et tu, Toni?

Tick, tick tick…

The combined debt from the 5 Illinois state pension systems is $112 billion, or a mere 0.9% of the cost of Bernie Sanders’ health care plan. Here’s an excerpt from my interview with their consolidated pension report: When will each of the 5 pension systems be fully funded? 30 years. That long, huh? OK, but it’ll be fully funded then, right? No, 90%. So we’re only paying out 90% of each pension? No, 100%. OK, but it won’t cost much, right? Only 40% of payroll each year for 30 years. Hmm, not sure I’d say “only”. But it’s all 5 pensions systems, right? No, the judges and legislators will require nearly 80% and 200% of payroll, respectively. Wow, that’s pretty steep. For 30 years?! That’s what I said. But at least you’re no longer assuming unrealistic 8% annual rates of return anymore, right? Correct. That’s good. So you’re assuming a more conservative and realistic 4-6% now? No, 7-7.5%. Oh, I see that now. And here you say that mere 0.5% rate reduction was the main cause for a $7.1 billion INCREASE in the unfunded pension liability in one year? You read that right, dear. Don’t call me dear. Isn’t $7.1 billion about the equivalent of 20% of the state’s revenue for one year? Not my department. Sorry. But considering the significant impact of such a small change, do you think your assumptions are wise over the long-term? I’m a report, not an op-ed piece. Fair enough. At least you’re not using the controversial pension smoothing method in your calculations anymore, right? Smooth as silk, baby. Can I go now?!

Tick, tick tick…

…Healthcare! Get your healthcare here! Get your state retiree healthcare here! Constitutionally-protected, must-pay-at-all-costs, yet completely unfunded state retiree healthcare here! Only $56 billion! Get your healthcare here…

Tick, tick tick…

Tier 2 pensions are projected to save the state billions in pension obligations over the next few decades. Tier 2 pension rules are part of the calculation used when determining the state’s overall pension obligations. Tier 2 pensions are also projected to run afoul of the Social Security Administration’s “Safe Harbor” rules and not meet the minimum standard for retirement income, thereby costing school districts untold millions as they will be forced to pay Social Security benefits on top of pension benefits. This risk is neither mentioned nor quantified in any pension financial report.

Tick, tick tick…

Recently, the Teachers Retirement System spun an incredibly naive yarn on the utopian society created by their teacher pension dollars and the resulting economic “stimulus” it adds to the state. For the moment, put aside the inconvenient fact that this report completely ignores the opportunity cost or economic impact of spending the money allocated to pensions on…oh, I don’t know…ANYTHING ELSE. Can’t we apply the same logic to our children’s retirement funds? Wouldn’t their 401(k)’s stimulate the economy in the same way? But if tax hikes are pilfering the early sources of that retirement fund (remember my example above), how do we expect our kids’ retirements, or lack thereof, to have the same economical impact? And if the answer is to make cuts in our family budget elsewhere, doesn’t that undermine their argument as to how consumer dollars stimulate the economy to begin with?

So our kids battle it out in a veritable financial Hunger Games as the politicos pick the haves, the have-nots, and the not-really-haves-but-you-are-now-because-we-ran-out-of-haves, ensuring all children emerge from the bloodbath traumatized in some fashion. And years down the road, as the Game’s survivors creep towards old age, a new batch of ignorant politicos will undoubtedly ask them, “Why didn’t you save enough for retirement?!”

The tax hike looms overhead, and while I cannot help you in that regard, I can warn you that this hike will not stop the charlatans from continuing to approach your front door and attempt to extract more money from your children. So here’s some advice: When the salesman ringing your doorbell attempts to sell you on pension debt re-amortization, just know all he is selling is a plan to ensure your children’s children will pay a much larger bill for services rendered long before they were born, and that the only folks that benefit from that plan are the ones paying the salesman. When the college recruiter tells you that tuition has been frozen, ask him why that doesn’t include housing and fees. And when the born-again pensionists, swaddled in their vestments woven of self-satisfaction, preach to you about ethical and moral obligations of supporting a pension system that has been manipulated 6 ways to Judea, remind them of the moral implications of paying no state income taxes on their pension income.

Because none of these folks come with children’s warning labels. Perhaps the entire state of Illinois should.