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ProPublica is an independent, non-profit newsroom that produces investigative journalism in the public interest. Our work focuses exclusively on truly important stories, stories with “moral force.” We do this by producing journalism that shines a light on exploitation of the weak by the strong and on the failures of those with power to vindicate the trust placed in them.
I get pretty geeked out about going to vote.
I like chatting with the neighbors in line at my polling place, which is a hallway in the middle school both my sons attended. I’m excited to pick up my ballot from the same eye-patched man who has been handing it to me ever since I moved to Oak Park almost 20 years ago. And I never walk out without picking up an “I Voted” sticker and proudly affixing it to my jacket.
Voting gives me a voice in the community I deeply care about, occasionally even allowing me to help elect people I know, a local camping-group mom or hockey-team dad running for office. Also, as a naturalized citizen, this small, fundamental act has come to embody for me the privilege and responsibility of living in our democracy.
Even so, I never anticipated I’d be so astounded by the primary results in a race for Cook County assessor that I wouldn’t be able to sleep. But that’s what happened Tuesday, and here’s why.
For two years, our reporter Jason Grotto has been investigating the Cook County assessor’s office. As a reporter at the Chicago Tribune, he published a three-part series last summer that examined the residential property tax system and found that it benefited wealthy homeowners at the expense of those who lived in poor, mostly minority neighborhoods — and that the county’s appeals process actually exacerbated the inequity.
They conducted three separate analyses on commercial and industrial property assessments in Chicago and found that the values for more than two-thirds of the city’s properties went unchanged for so long that experts said they almost certainly couldn’t have been assessed. They learned that small-business owners were paying too much on their properties while owners of big buildings, especially downtown, paid too little. And that politically powerful property tax lawyers were making millions off an appeals process that seemed designed to line their pockets — and those of the assessor, who received more than half his campaign funding from those attorneys.
The nepotism, patronage and political machinations embedded in Assessor Joseph Berrios’ office were no secret. Journalists, reformers and other politicians had been railing about it for years, all to little effect. But no one had ever done the kind of complex analysis and deep reporting that documented how, exactly, the system was broken.
In nine months on our staff — starting even before we launched our website in October — Jason, often working in partnership with former Tribune colleagues, wrote more than a dozen stories pursuing the issue. As the conversation grew louder, other news organizations joined in, adding important, independent reporting and editorials. And on Tuesday, Berrios was voted out of office in a Democratic primary result so unexpected that one article described it as sending “political shock waves across the state.”
Of course, other factors likely came into play in his defeat. The Chicago Machine isn’t what it once was and the primary’s winner, Fritz Kaegi, a mutual fund asset manager, threw a lot of his own money into the race. But journalism made a difference and it made a difference in the most profound way.
Journalism inspired citizens to walk into the voting booth, one by one, exercising that fundamental act of democracy, to make their voices heard.
There is no more powerful impact than that.
P.S. We’re not done. Read about what systemic change needs to occur at the assessor’s office here and stay tuned for more.
Warren Buffett, the most successful investor of our time, is a huge fan of low-cost index funds — funds that replicate a market index rather than try to outperform it — as the way for the average investor to succeed in the stock market. “By periodically investing in an index fund … the know-nothing investor can actually outperform most investment professionals,” he wrote in his 1993 letter to shareholders of his Berkshire Hathaway conglomerate. “Paradoxically, when ‘dumb’ money acknowledges its limitations, it ceases to be dumb.”
He returned to the subject in this 2016 letter, writing, “Both large and small investors should stick with low-cost index funds.” And in his newest shareholder letter, Buffett said that one reason he made a widely publicized bet (which he has now won) that a low-cost Vanguard index fund would outperform a group of hedge funds over a 10-year period was “to publicize my conviction that my pick — a virtually cost-free investment in an unmanaged S&P 500 index fund — would, over time, deliver better results than those achieved by most investment professionals, however well regarded and incentivized those ‘helpers’ may be.”
Given Buffett’s praise of index funds — specifically, those with low fees — you’d think that all the employees at Berkshire Hathaway companies would get to practice what the boss preaches by being able to invest their 401(k) money in such funds.
But you’d be wrong.
It turns out that employees of many Berkshire subsidiaries have the same problem — and it’s one that, as we’ll see, also affects millions of Americans outside of Buffett’s companies. To wit, your employer, not you, chooses your 401(k) investment options and your choices may be less than optimal either because your employer doesn’t know any better or because your employer’s interests are different from yours.
You wouldn’t expect to see this problem at a company run by a brilliant investor like Buffett, but it’s there. I’ve looked at the retirement plans of each Berkshire subsidiary whose investment options I could find on file at the Labor Department, which turned out to be about 50 of the 63 subsidiaries listed on Berkshire’s website.
Each offers its own investment options rather than having Buffett or someone else at headquarters pick a package of suitable company-wide investments. That’s not surprising in one sense: Buffett is famously hands-off in how he oversees the companies owned by Berkshire.
But the result is that many of the subsidiaries offer little or nothing in the way of index funds. And even when they do offer such funds, different Berkshire employees can end up paying wildly divergent fees for the same investment, depending on which operation they work for. Those differences can cost — or save — them tens of thousands of dollars over the course of decades.
Consider two examples that I got from a list assembled by Eli Fried, an investment consultant who advises pension and endowment funds and is the person who brought the Berkshire disparities to my attention. Fried told me he was looking at 401(k) investment options offered by the top companies on Fortune’s list of most admired companies and was surprised by what he found at Berkshire.
On the index fund front, there’s a big difference between the S&P 500 index funds that employees of Berkshire-owned NetJets, General Re, GEICO, FlightSafety, Clayton Homes and H.H. Brown Shoe Group can buy, and the one that BoatU.S. employees can buy. BoatU.S. employees pay a fee of 0.62 percent, or $62 a year for a $10,000 investment. That’s more than 15 times the 0.04 percent — $4 a year per $10,000 — that employees of the six other Berkshire companies pay.
There are also some big differences in fees among the actively managed funds that Berkshire companies make available. Employees of Business Wire pay a 0.5 percent ($50 per $10,000 invested) for shares in American Funds’ EuroPacific Growth Fund, while employees of Applied Underwriters, Jordan’s Furniture and MiTek pay 1.14 percent ($114 per $10,000).
As a longtime Berkshire shareholder, a contrarian from birth and someone who’s watched Buffett for more than 40 years, I was intrigued when Fried approached me. And I was shocked at the huge differences among the plans that emerged when I did my own digging.
For example, as of year-end 2016 — the most recent information the Labor Department has on file — Borsheim’s Fine Jewelry offered employees 71 investment options, virtually all of which (other than 10 Vanguard target date retirement funds) consisted of actively managed funds, while Precision Steel Warehouse and Nebraska Furniture Mart offered a relative handful of options, most of which were low-cost index funds. Precision and Nebraska Furniture also offered Berkshire common stock as an investment option, which only a handful of the plans did.
There are plenty of other examples of disparities among the plans, but by now, I think, you get the point. The most successful investor of our age, who advises average investors to buy low-cost index funds (which have become wildly popular at least in part because of his longtime advocacy of them) presides over a company where many employees don’t have a chance to invest as he suggests.
I would love to give you Buffett’s explanation for this — Berkshire is highly decentralized, as I told you, and it’s possible that until recently he might not have known about the big differences among the plans that its subsidiaries offer — but I can’t.
He wouldn’t respond to my detailed request for comment. Nor would Marc Hamburg, Berkshire’s chief financial officer.
The four Berkshire subsidiaries I asked to discuss their 401(k) choices wouldn’t respond, either. The four are BoatU.S., Borsheim’s, See’s Candy and Applied Underwriters.
Why am I taking you through all of this? Three reasons.
First, because when a plainspoken, widely admired investment god like Buffett proves to have feet of clay, I think people should know about it.
Second, because the investment choices offered in 401(k) plans are a big deal. Along with Social Security, they are almost certain to be the major retirement vehicles of the future, given the vast shrinkage of traditional pensions. About 63 million people have access to 401(k) plans. Some 87 percent of the retirement plans that serve them now offer at least one index fund, according to the Plan Sponsor Council of America. But the biggest portion of employees’ retirement investments still consists of actively managed domestic stock funds, according to the PSCA.
Third, because the Berkshire situation typifies the fact that when it comes to 401(k) plans, your employer’s interests may be different from yours.
Take target date funds, the big trend in retirement plans these days. You pick a year in which you’ll be old enough to retire — say 2035 — and buy into a fund that gradually changes over to a more conservative investment mix as the target date nears.
However, not all target date funds are the same. Vanguard’s consist entirely of low-cost index funds, as do Fidelity’s Freedom Index funds (though not its other target date funds). Their average management fee was 0.13 and 0.12 of one percent, respectively, as of year-end 2016, according to Morningstar. But most other target date funds are actively managed, with fees four or five times as high.
I think that a major reason for these differences and for the differences among Berkshire funds is that the more fees an employee pays for her 401(k) funds, the lower the recordkeeping, administrative, custodial and other costs her employer has to pay. In essence, some employers save money by having their employees pick up more of the tab.
I stumbled on this back in the day, when I was trying to figure out why an index fund that I owned in my personal Vanguard account carried a lower management fee than in my Washington Post Co. 401(k) account. Someone who shall remain nameless explained to me that this was the way of the world — if I paid less, my employer would pay more.
I suspect that if I could get someone at Berkshire or its subsidiaries to talk candidly with me, they’d say this phenomenon explains many if not most of the disparities among the Berkshire plans.
In order to get perspective on all this, I discussed the Berkshire situation with two experts — Ric Edelman of the Edelman Financial Services financial planning firm, and Teresa Ghilarducci, a retirement maven who teaches economics at the New School for Social Research in New York. Neither of them knew about the Berkshire situation until I told them about it. “In today’s marketplace, there’s no longer any excuse for saddling employees with high-cost retirement plans. Employers can offer low-cost investments while keeping their own costs very low,” Edelman told me.
“The practice of pushing the costs onto employees and offering dozens of funds doesn’t meet today’s standards,” Ghilarducci said.
So there you have it. Berkshire’s annual shareholder meeting is on May 5. With luck, someone will ask Buffett the questions about Berkshire’s 401(k) plans that he wouldn’t answer when I posed them. It would sure be interesting to hear what he says.
At the age of 50, the federal law that seeks to protect older American workers from age bias has been enfeebled by court decisions that have widened loopholes for employers and narrowed the ways employees can seek redress.
When Congress enacted the Age Discrimination in Employment Act (ADEA) in 1967, the law was treated as something of an addendum to the Civil Rights Act, which had been passed three years earlier and banned bias on the basis of race, gender, religion and, later on, sexual orientation, among other categories. The 1967 law effectively added age to the list. Courts and lawyers assumed that key provisions of each act applied to the other.
In years to come, lawmakers would strengthen some elements of the measure, for example largely banning mandatory retirement and requiring employers to provide more disclosures about the size of their layoffs and ages of those being let go.
The original act did provide for some exceptions. Employers could favor younger workers if they could show that “reasonable factors other than age” were involved in their choice for a position. Congress allowed that, if a job required certain abilities such as quick reflexes as a “bona fide occupational qualification,” older workers could legally be passed over for jobs such as jet pilots or police officers.
Even with such exceptions, however, the authors of the ADEA and the first generation of judges and policymakers to administer the act warned against letting the measure’s purpose be undercut. Chief among their concerns were that employers might use the exceptions as loopholes to justify firing older workers because, for example, they have higher salaries than younger ones. To this day, federal regulations governing employers’ use of the exceptions say it is unlawful to treat older workers less favorably “based on the average cost of employing older employees.”
But in the past few decades, the warnings and cautions of the first generation have been brushed aside in a number of important court cases.
One came in 1993, when the Supreme Court expanded an employer’s ability to outflank the age law by ruling that a company hadn’t discriminated on the basis of age in firing a 62-year-old man weeks before he’d have been eligible for his pension. The justices reasoned that since the pension was based on length of service, not specifically age, the man couldn’t sue.
In a 5-4 decision in 2009, the high court raised the burden of proof for age bias well beyond what’s required for other kinds of discrimination. It ruled that a 54-year-old financial manager who alleged that he’d been wrongly demoted had to demonstrate the nearly impossible — that effectively there was no factor other than age involved in his demotion.
Employers’ core arguments for treating later-career employees less favorably are that older workers cost more in wages and benefits and produce less because of purported cognitive decline. With growing frequency, federal judges have accepted these claims about cost and cognition without requiring companies to provide any evidence to support them.
Lawyers for corporations have argued that the text of the law requires a much narrower reading of it than was given in its early years. And, in an increasingly competitive economy, the idea of replacing older workers with lower-cost younger or foreign ones has come to seem almost self-evident to Wall Street and, with mounting frequency, public policymakers.
IBM is one company that in recent years has replaced a substantial share of its U.S. workforce with younger, less-experienced and lower-paid workers and sent many positions overseas. A ProPublica investigation found that in making the cuts, IBM has flouted or outflanked U.S. laws and regulations intended to protect later-career workers from age discrimination.
Besides the weakening of the age act, two other recent trends in employment law may also have a dampening effect on older workers’ ability to fight discrimination.
The first involves arbitration. The Supreme Court, responding to business and conservative warnings about an overburdened judiciary, has dramatically expanded the reach of a 1925 law that enabled some business disputes to be taken to a private third party, rather than to the civil justice system. In recent decades, the high court has extended the law’s reach into virtually every legal link between individuals and companies.
Arbitration more often favors employers than employees, studies have shown. But most people don’t have the power to negotiate — or even the time or training to recognize — clauses in their employment contracts that require them to go to a private arbiter instead of a judge with their complaints.
“That’s what really surprises people,” said Alexander Colvin, a Cornell University law and labor relations professor, who estimates that more than half of private-sector non-union employees are no longer able to take their age bias claims to court. “Most people think ‘Sure, my employer can make me sign something to get a job. But that can’t possibly mean I can’t go to court to protect my civil rights.”
The second legal trend involves employers who impose so-called class-action waivers on their workers, banning them from joining together to bring legal claims against firms in court or arbitration.
One of the first big firms to impose such a waiver was D.R. Horton, the nation’s largest homebuilder. (IBM followed suit.) The National Labor Relations Board ruled in 2014 that Horton’s move violated longstanding legal guarantees that employees can “engage in …concerted activities for … mutual aid or protection.” In short order, three federal appeals courts rejected the NLRB’s decision while two others affirmed it, dumping the issue in the Supreme Court’s lap.
The Justice Department originally argued for the NLRB but, under the Trump administration, has switched sides. During oral arguments at the high court last October, Justice Stephen Breyer noted that extinguishing the rights of workers to band together as a legal class could unbalance U.S. employer-employee relations that have stood since the Roosevelt era, and cut out “the entire heart of the New Deal.”
The Supreme Court’s decision could come as early as this month. Even without that ruling, experts said, it’s clear that the other recent changes in labor laws are making it more difficult for people in the later stages of their careers to prove bias.
“Older workers could once expect fairness and equality because of our age law. But courts have stripped the law of its protections,” said Cathy Ventrell-Monsees, senior attorney advisor with the Equal Employment Opportunity Commission and the former director of age litigation for the senior lobbying giant AARP.
“Older Americans,” she said, “deserve basic civil rights, not second-class status.”
Today, we are reporting that over the past five years IBM has been removing older U.S. employees from their jobs, replacing some with younger, less experienced, lower-paid American workers and moving many other jobs overseas.
We’ve got documentation and details — most of which are the direct result of a questionnaire filled out by over 1,100 former IBMers.
We’ve gone to the company with our findings. IBM did not answer the specific questions we sent. Spokesman Edward Barbini said: “We are proud of our company and our employees’ ability to reinvent themselves era after era, while always complying with the law. Our ability to do this is why we are the only tech company that has not only survived but thrived for more than 100 years.”
We don’t know the exact size of the problem. Our questionnaire isn’t a scientific sample, nor did all the participants tell us they experienced age discrimination. But the hundreds of similar stories show a pattern of older employees being pushed out even when the company itself says they were doing a good job.
This project wasn’t inspired by a high-level leak or an errant line in secret documents. It came to us through reader engagement. Our investigation took us beyond some of our usual reporting techniques. We’d like to elaborate on this because:
- We know readers will wonder how we sourced some pretty serious claims.
- Many ex-employees trusted us with their stories and spent many hours in conversation with us. We think it’s good practice to let them know how we’ve used their information.
- This is the probably the first time we’ve been pointed to a big project by a community of people we found through digital outreach. We hope that by sharing our experiences, we can help others build on our work.
IBMers found us …
This project started as a conversation between the two of us, both reporters at ProPublica. Peter had taken on the age discrimination beat for reasons both personal and professional. Ariana was newly minted into a job called “engagement reporter.”
Ariana suggested that Peter write up a short essay on his own experiences of being laid off at 63 and searching for a job in the aftermath. We attached a short questionnaire to the bottom and headlined it: “Over 50 and looking for a job? We’d like to hear from you.”
Dozens of people responded within the first couple of weeks. As we looked through this first round of questionnaires, we noticed a theme: a whole lot of information and technology workers told us they were struggling to stay employed. And those who had lost their jobs? They were having a really hard time finding new work.
Of those IT workers, several mentioned IBM right off the bat. One woman wrote that she and her coworkers were working together to find new jobs in order to “ward off the dreaded old person layoff from IBM.”
Another wrote: “I can probably help you get a lot more stories, contact me if you want to discuss this possibility.”
Another wrote: “Part of the separation agreement was that I not seek collective action against IBM for age discrimination. I was not going to sign as a law firm was planning to file a grievance. However they needed 10 people to agree and they could not get the numbers.”
… and then they connected us with more IBMers
We started making some calls. One of the first people we talked to was Brian Paulson, a 57-year-old senior manager with 18 years at IBM, who was fired for “performance reasons” that the company refused to explain. He was still job-hunting two years later.
Another ex-IBM employee told us that she had seen examples of older workers laid off from many parts of the company on a public Facebook page called WatchingIBM. Ariana spent a day looking through the posts, which were, as promised, crawling with stories, questions, and calls for support from workers of all kinds, as shown in the accompanying screenshot.
We decided to reach out to the page’s administrator, who was a longtime IBM workplace activist, Lee Conrad. He shared our age discrimination questionnaire in the group and more responses poured in.
With dozens of interviews already on the books, we decided to launch a second, more specific questionnaire — this time about IBM
We realized that we had been pointed toward an angry, sad and motivated group. The older ex-IBM workers we called were trying to figure out whether their own layoffs were unique or part of a larger trend. And if they were part of a larger trend … how many people were affected?
A major frustration we saw in comment after comment: These workers couldn’t get information on how many others had been forced out with them.
This was an information gap that immediately struck Peter, because that information is exactly what the law requires employers to disclose at the time of a layoff.
On top of that, many of these sources mentioned having been forced to sign agreements that kept them from going to court or even talking about what had happened to them. They were scared to do anything in violation of those agreements, a fear that kept them from finding out the answers to some big open questions: Why would IBM have stopped releasing the ages and positions of those let go, as they had done before 2014 to comply with federal law? How many workers out there believed they had been “retired” against their will? What did managers really tell their subordinates when the time came to let them go? Who was left to do all of their work?
So we wrote up another questionnaire asking those specific questions.
We learned from the responses, and also the response rate
We contacted people on listservs, found them on open petitions, joined closed LinkedIn networks, and followed each posting on ex-IBM groups. We tweeted the questionnaire out on days that IBM reported its earnings, including the company’s ticker symbol. We talked to trade magazines and IBM historians and organizers who still work at IBM. We bought ads on Facebook and aimed them toward cities and towns where we knew IBM had been cutting its workforce.
As the responses came in, we tried to figure out where most of them were coming from. To identify any meaningful trends, we needed to know who was answering, what was working, and why. We also realized that we needed to introduce ourselves in order to persuade anyone it was worth participating.
When something worked, we’d double down:
We know what worked the best: When people filled out the questionnaire they’d also share their contact information with us. So we asked them to forward the questionnaire around within their own networks:
And we got more leads
We read through all of the responses and identified themes: 183 respondents said the company recorded them as having retired by choice even though they had no desire to retire or flat-out objected to the idea. Forty-five people were told they’d have to uproot their lives and move sometimes thousands of miles from the communities where they had worked for years, or else resign. Fifty-three said their jobs had been moved overseas. Some were happy they’d left. Some were company luminaries, given top ratings throughout their career. Some were still fighting over benefits and health care. Some were worried about finding work ever again.
Inevitably, this categorization process led to us to identify new patterns as we went along, and as new responses accumulated. For each new pattern, we would go back and see how many people fit.
One of the first and most interesting such categories were the people who had received emails congratulating them on their retirement at the same time as they were informed of their layoff. We realized there would be power in numbers there, so we set up a SecureDrop for people who were willing to send us their paperwork.
Eventually, we also created a category called “legal action.” We’d stumbled upon support groups of ex-IBM employees who had filed formal complaints with the Equal Employment Opportunity Commission. Some sent us the company’s responses to their individual complaints, giving us insight into the way the company responded to allegations of discrimination. These seemed, of course, very useful.
In other words: we sent some rather complicated mass emails and were surprised over and over again by the specificity of the responses:
IBM undoubtedly has information that would shed light on the documents, its layoff practices or the overall extent and nature of its job cuts. The company chose not to respond to our questions about those issues.
So we tried to answer ex-IBMers’ questions ourselves, including one of the most basic: How many employees ages 40 and over were let go or left in recent years?
IBM won’t say. In fact, over the years, the company has stopped releasing almost all information about its U.S. workforce. In 2009, it stopped publishing its American employment total. In 2014, it stopped disclosing the numbers and ages of older employees it was laying off, a requirement of the nation’s basic anti-age bias law, the Age Discrimination in Employment Act (ADEA).
So we’ve sought to estimate the number, relying on one of the few remaining bits of company-provided information — a technique developed by a veteran financial analyst who follows IBM for investors — as well as patterns we spotted in internal company documents.
We began with a line in the company’s quarterly and annual filings with the U.S. Securities and Exchange Commission for “workforce rebalancing,” a company term for layoffs, firings and other non-retirement departures. It’s a gauge of what IBM spends to let people go. In the past five years, workforce rebalancing charges have totaled $4.3 billion.
The technique was used by veteran IBM analyst Toni Sacconaghi of Bernstein Research. Sacconaghi is a respected Wall Street analyst who has been named to Institutional Investor’s All-America Research Team every year since 2001. His technique and layoff estimates have been widely cited by news organizations including The Wall Street Journal and Fortune.
Some years ago, Sacconaghi estimated that IBM’s average per-employee cost for laying off a worker was $70,000.
Dividing $4.3 billion by $70,000 suggests that during the past five years IBM’s worldwide job cuts totaled about 62,000. If anything, that number is low, given IBM executives’ comments at a recent investor conference. Internal company documents we reviewed suggest that 50 to 60 percent of cuts were made in the U.S., with older workers representing roughly 60 percent of those. That translates to about 20,000 older American workers let go.
Our analysis suggests the total of U.S. layoffs is almost certainly higher.
First, as Sacconaghi said in a recent interview, IBM’s per-employee rebalancing costs are likely much lower now because, starting in 2016, the company reduced severance payments to departing employees from six months to just 30 days. That means IBM can lay off or fire more people for the same or lower overall costs.
Second, because, as those ex-IBMers told us, the company often converts their layoffs into retirements, the workplace rebalancing numbers don’t tell the whole story.
Right below the line for “workforce rebalancing” in its SEC filings, IBM adds another line for “retirement-related costs,” which reflects how much the company spends each year retiring people out. Some — perhaps a substantial amount of that — went to retirements that were less than fully voluntary. This could add up to thousands more people.
By coming up with answers and investigating in the open, we’ve gotten more sources
Many of the conversations we’ve had during our reporting didn’t make it into the final story. People allowed us to review internal company documents. They let us see long email exchanges with their managers. They dug back through closets and garages to find memos they had saved out of frustration or fatigue or just plain anger.
We can’t go into detail about all of the ways the community helped us report out this story, because we also promised many of our sources that we would protect their confidentiality. The beauty is that they talked to us anyway. They knew where to find us, because our contact information had been spread far and wide.
<p>For nearly a half century, IBM came as close as any company to bearing the torch for the American Dream.</p> <p>As the world’s dominant technology firm, payrolls at International Business Machines Corp. swelled to nearly a quarter-million U.S. white-collar workers in the 1980s. Its profits helped underwrite a broad agenda of racial equality, equal pay for women and an unbeatable offer of great wages and something close to lifetime employment, all in return for unswerving loyalty.</p> <p>But when high tech suddenly started shifting and companies went global, IBM faced the changing landscape with a distinction most of its fiercest competitors didn’t have: a large number of experienced and aging U.S. employees.</p> <p>The company reacted with a strategy that, in the words of one confidential planning document, would “correct seniority mix.” It slashed IBM’s U.S. workforce by as much as three-quarters from its 1980s peak, replacing a substantial share with younger, less-experienced and lower-paid workers and sending many positions overseas. ProPublica estimates that in the past five years alone, IBM has eliminated more than 20,000 American employees ages 40 and over, about 60 percent of its estimated total U.S. job cuts during those years.</p> <p>In making these cuts, IBM has flouted or outflanked U.S. laws and regulations intended to protect later-career workers from age discrimination, according to a ProPublica review of internal company documents, legal filings and public records, as well as information provided via interviews and questionnaires filled out by more than 1,000 former IBM employees.</p> <p>Among ProPublica’s findings, IBM:</p> <ul> <li>Denied older workers information the law says they need in order to decide whether they’ve been victims of age bias, and required them to sign away the right to go to court or join with others to seek redress.</li> <li>Targeted people for layoffs and firings with techniques that tilted against older workers, even when the company rated them high performers. In some instances, the money saved from the departures went toward hiring young replacements.</li> <li>Converted job cuts into retirements and took steps to boost resignations and firings. The moves reduced the number of employees counted as layoffs, where high numbers can trigger public disclosure requirements.</li> <li>Encouraged employees targeted for layoff to apply for other IBM positions, while quietly advising managers not to hire them and requiring many of the workers to train their replacements.</li> <li>Told some older employees being laid off that their skills were out of date, but then brought them back as contract workers, often for the same work at lower pay and fewer benefits.</li> </ul> <p>IBM declined requests for the numbers or age breakdown of its job cuts. ProPublica provided the company with a 10-page summary of its findings and the evidence on which they were based. IBM spokesman Edward Barbini said that to respond the company needed to see copies of all documents cited in the story, a request ProPublica could not fulfill without breaking faith with its sources. Instead, ProPublica provided IBM with detailed descriptions of the paperwork. Barbini declined to address the documents or answer specific questions about the firm’s policies and practices, and instead issued the following statement:</p> <p>“We are proud of our company and our employees’ ability to reinvent themselves era after era, while always complying with the law. Our ability to do this is why we are the only tech company that has not only survived but thrived for more than 100 years.”</p> <p>With nearly 400,000 people worldwide, and tens of thousands still in the U.S., IBM remains a corporate giant. How it handles the shift from its veteran baby-boom workforce to younger generations will likely influence what other employers do. And the way it treats its experienced workers will eventually affect younger IBM employees as they too age.</p> <p>Fifty years ago, Congress made it illegal with the <a href="https://www.eeoc.gov/laws/statutes/adea.cfm">Age Discrimination in Employment Act</a>, or ADEA, to treat older workers differently than younger ones with only a few exceptions, such as jobs that require special physical qualifications. And for years, judges and policymakers treated the law as essentially on a par with prohibitions against discrimination on the basis of race, gender, sexual orientation and other categories.</p> <p>In recent decades, however, the courts have responded to corporate pleas for greater leeway to meet global competition and satisfy investor demands for rising profits by expanding the exceptions and <a href="https://www.propublica.org/article/americans-age-discrimination-eroding-protection-under-the-law">shrinking the protections against age bias</a>.</p> <p>“Age discrimination is an open secret like sexual harassment was until recently,” said Victoria Lipnic, the acting chair of the Equal Employment Opportunity Commission, or EEOC, the independent federal agency that administers the nation’s workplace anti-discrimination laws.</p> <p>“Everybody knows it’s happening, but often these cases are difficult to prove” because courts have weakened the law, Lipnic said. “The fact remains it’s an unfair and illegal way to treat people that can be economically devastating.”</p> <p>Many companies have sought to take advantage of the court rulings. But the story of IBM’s downsizing provides an unusually detailed portrait of how a major American corporation systematically identified employees to coax or force out of work in their 40s, 50s and 60s, a time when many are still productive and need a paycheck, but face huge hurdles finding anything like comparable jobs.</p> <p>The dislocation caused by IBM’s cuts has been especially great because until recently the company encouraged its employees to think of themselves as “IBMers” and many operated under the assumption that they had career-long employment.</p> <p>When the ax suddenly fell, IBM provided almost no information about why an employee was cut or who else was departing, leaving people to piece together what had happened through websites, listservs and Facebook groups such as “Watching IBM” or “Geographically Undesirable IBM Marketers,” as well as informal support groups.</p> <p>Marjorie Madfis, at the time 57, was a New York-based digital marketing strategist and 17-year IBM employee when she and six other members of her nine-person team — all women in their 40s and 50s — were laid off in July 2013. The two who remained were younger men.</p> <p>Since her specialty was one that IBM had said it was expanding, she asked for a written explanation of why she was let go. The company declined to provide it.</p> <p> <figure> <img src="https://features.propublica.org/ibm/assets/images/generated/portrait-madfis-02-1800*1200-f3f0df.jpg" alt="" /> <figcaption>Marjorie Madfis was among seven women in their 40s and 50s laid off from their IBM marketing team in White Plains, New York, in 2013. The two members who remained were younger men. “The only explanation is our age,” says Madfis. <span class="credit">(Demetrius Freeman for ProPublica)</span></figcaption> </figure> </p> <p>“They got rid of a group of highly skilled, highly effective, highly respected women, including me, for a reason nobody knows,” Madfis said in an interview. “The only explanation is our age.”</p> <p>Brian Paulson, also 57, a senior manager with 18 years at IBM, had been on the road for more than a year overseeing hundreds of workers across two continents as well as hitting his sales targets for new services, when he got a phone call in October 2015 telling him he was out. He said the caller, an executive who was not among his immediate managers, cited “performance” as the reason, but refused to explain what specific aspects of his work might have fallen short.</p> <p>It took Paulson two years to land another job, even though he was equipped with an advanced degree, continuously employed at high-level technical jobs for more than three decades and ready to move anywhere from his Fairview, Texas, home.</p> <p>“It’s tough when you’ve worked your whole life,” he said. “The company doesn’t tell you anything. And once you get to a certain age, you don’t hear a word from the places you apply.”</p> <p>Paul Henry, a 61-year-old IBM sales and technical specialist who loved being on the road, had just returned to his Columbus home from a business trip in August 2016 when he learned he’d been let go. When he asked why, he said an executive told him to “keep your mouth shut and go quietly.”</p> <p>Henry was jobless more than a year, ran through much of his savings to cover the mortgage and health insurance and applied for more than 150 jobs before he found a temporary slot.</p> <p>“If you’re over 55, forget about preparing for retirement,” he said in an interview. “You have to prepare for losing your job and burning through every cent you’ve saved just to get to retirement.”</p> <p>IBM’s latest actions aren’t anything like what most ex-employees with whom ProPublica talked expected from their years of service, or what today’s young workers think awaits them — or are prepared to deal with — later in their careers.</p> <p>“In a fast-moving economy, employers are always going to be tempted to replace older workers with younger ones, more expensive workers with cheaper ones, those who’ve performed steadily with ones who seem to be up on the latest thing,” said Joseph Seiner, an employment law professor at the University of South Carolina and former appellate attorney for the EEOC.</p> <p>“But it’s not good for society,” he added. “We have rules to try to maintain some fairness in our lives, our age-discrimination laws among them. You can’t just disregard them.”</p> <hr /> <h2>‘Old Heads’ Needn’t Apply</h2> <p><span class="lead-in"><span class="dropcap">F</span>or much of its history,</span> IBM viewed its fate and that of its predominantly U.S. workforce as inseparable. By the late 1960s, the company’s grip on the mainframe computer business had grown so great the Justice Department sued it for monopolizing the industry, a case that dragged on for years before being dropped as “without merit.” Such dominance convinced executives they could deliver extraordinary workplace stability in return for loyal service.</p> <p>“When recessions occur or there is a major product shift, some companies handle the resulting workforce imbalances by letting people go,” explained an <a href="https://www.documentcloud.org/documents/4415012-IBM-About-Your-Company-1984-Excerpt.html">employee handbook</a> of the 1980s. By contrast, IBM “retrains, reassigns and even relocates employees.”</p> <p>For their part, continued the handbook, employees must be “flexible, willing to change, work overtime, and adapt to new situations quickly.” The logic behind the bargain was that “people are a treasured resource.” At IBM, “they are treated like one.”</p> <p>But within a decade, IBM had stumbled not once but three times, in ways that would come to cost both the company and its workers. First, it failed to appreciate the “major product shift” behind a new chip technology that first entered people’s lives as the guts of pocket calculators and cheap digital watches and was making possible increasingly powerful and networked personal computers that undercut the company’s mainframe business. Second, it misjudged its employees’ reaction to switching to a kind of pension that no longer rewarded older, long-service workers. IBM workers responded with a lawsuit that forced the company to settle by paying more than $300 million and reinstating expensive traditional pensions for more than 100,000 of them.</p> <p>And by the early years of the new century, IBM was falling behind again by failing to quickly devise innovative uses for the internet like its new rivals, Google, Facebook and Amazon. As it slipped, the company began having second thoughts about the price of unbending loyalty to its long-serving workforce.</p> <p> <figure> <img src="https://features.propublica.org/ibm/assets/images/generated/document-gray-hairs-490*350-c196e0.gif" alt="" /> <figcaption>This excerpt from a 2006 IBM Business Consulting Services paper titled “The Maturing Workforce” refers to baby-boomer employees as “gray hairs” and “old heads.” <a href="https://www.documentcloud.org/documents/4414883-Maturing-Workforce-feus01291-1.html">Read the full report.</a></figcaption> </figure> </p> <p>In a little-noticed paper issued in 2006 by the London office of one of the company’s consulting arms, executives praised boomers’ experience, but described them as <a href="https://www.documentcloud.org/documents/4414883-Maturing-Workforce-feus01291-1.html">“gray hairs” and “old heads.”</a> While recognizing that older workers were important to high-tech employers such as IBM, it concluded that “successor generations … are generally much more innovative and receptive to technology than baby boomers.”</p> <p>The paper was subsequently cited in an age discrimination lawsuit in U.S. District Court in Pennsylvania. Before the complaint was settled last year, the plaintiffs alleged in a filing: “IBM’s Boomer employees — being labeled by IBM’s own research as uncollaborative, skeptical of leadership, technologically unsophisticated, less innovative and generally out of touch with IBM’s brand, customers and objectives — were shown the door in droves.”</p> <p>By the time IBM’s current CEO, Virginia “Ginni” Rometty, took over in 2012, the company had shifted its personnel focus to millennials.</p> <p>Rometty launched a major overhaul that aimed to make IBM a major player in the emerging technologies of cloud services, big data analytics, mobile, security and social media, or what came to be known inside as CAMS.</p> <p>At the same time, she sought to sharply increase hiring of people born after 1980.</p> <p>“CAMS are driven by Millennial Traits,” declared a slide presentation for an invitation-only IBM event in New York in December 2014. Not only were millennials in sync with the new technologies, but they were also attuned to the collaborative, consensus-driven modes of work these technologies demanded, company researchers said they’d discovered. Millennials “are not likely to make decisions in isolation,” the presentation said, but instead “depend on analytic technologies to help them.”</p> <p>By contrast, people 50 or over are “more dubious” of analytics, “place less stock in the advantages data offers,” and are less “motivated to consult their colleagues or get their buy in … It’s Baby Boomers who are the outliers.”</p> <p>The message was clear. To succeed at the new technologies, the company must, in the words of the presentation, “become one with the Millennial mindset.” <a href="https://www.documentcloud.org/documents/4415015-Executive-Summary-Myths-Exaggerations-and.html">Similar language</a> found its way into a variety of <a href="https://www.documentcloud.org/documents/4414982-Tsounos-Discovery-Demand-6-30-17.html">IBM presentations</a> in <a href="https://www.documentcloud.org/documents/4414981-Transforming-to-Next-Gen.html">subsequent years</a>.</p> <p>Even before the New York conference, IBM had begun a major effort to recruit millennial employees. It launched a blog, “<a href="https://web.archive.org/web/20150214235249/http://themillennialexperience.weebly.com:80/about.html">The Millennial Experience</a>,” and a hashtag on Twitter, #IBMillennial.” It began an online and print advertising campaign primarily featuring young people. It established a “Millennial Corps,” a network of more than 5,000 young IBMers whom Rometty and other top executives said they’d <a href="https://www.fastcompany.com/3059849/these-millennials-have-become-the-top-decision-makers-at-ibm">regularly consult</a> before making business decisions. And it sharply improved benefits, like parental leave, especially important to younger employees.</p> <p>Its initiatives won IBM <a href="https://www.ibm.com/ibm/responsibility/2014/ibmer/employee-inclusion.html">plaudits</a> from women’s groups; lesbian, gay, bisexual and transgender organizations; human rights and disability associations; indeed advocates for just about every class of people protected under U.S. equal employment opportunity laws.</p> <p>And the entire effort was guided by something that then-IBM brand strategist Bill Grady told the 2014 conference: “What’s good for Millennials is good for everyone.”</p> <hr /> <h2>Exit Strategy</h2> <p><span class="lead-in">As IBM trained its sights</span> on younger workers, it also took steps to change the way it dealt with those who’d spent many years on the job. It embraced a legal strategy that made it much easier for the company to dismiss older workers, and to do so in ways that minimized legal consequences and largely avoided public attention.</p> <p>Until 2014, IBM had provided <a href="https://www.documentcloud.org/documents/4417473-2013-IBM-Layoff-Disclosure.html">two lists</a> to workers getting laid off. One showed the positions and ages, but not the names, of all the people laid off from their business units at the same time. The other showed the positions and ages of all those staying on. For example, Madfis, the digital marketing strategist, got a list when she was let go in July 2013.</p> <p>Such lists are common in corporate layoffs, thanks to a disclosure requirement added to the ADEA in 1990. The reason for the new rule was that virtually all employers had begun making severance pay and other parting benefits contingent on a laid-off worker signing away the right to sue the company. Congress wanted to make sure that before employees signed such waivers they understood enough to make “knowing and voluntary” decisions about whether they might have been targeted because of their age.</p> <p>IBM complied with the disclosure requirement for more than two decades. As a result, even when the company stopped disclosing its U.S. employment totals — and thus its job cuts — the numbers still became known as employees collected and tallied the number of layoffs from lists provided to workers by various company units.</p> <p>So after it ran into political flak for its workforce reductions, IBM decided to stop giving out the lists. When Diane Moos, 62, of Long Beach, California, lost her job as a systems security specialist in May 2016, she had no way of knowing how many people had been laid off with her, or their ages.</p> <p>IBM spokesman Doug Shelton <a href="http://www.insurancejournal.com/news/national/2014/05/13/328904.htm">said at the time</a> the company was acting out of concern for its workers who had complained the disclosures “infringed on employee privacy” — even though the lists contained no names.</p> <p>How did IBM get around the legal requirement for the disclosures? With a move that even critics acknowledge is ingenious.</p> <p>The company’s pre–2014 <a href="https://www.documentcloud.org/documents/4417466-2013-IBM-Layoff-Separation-Agreement.html">layoff documents</a> required employees receiving severance to waive all bias claims based on “race, national origin, ancestry, color, creed, religion, sex, sexual orientation, pregnancy, marital status, age … disability, medical condition, or veteran status.” The <a href="https://www.documentcloud.org/documents/4417464-2016-IBM-Layoff-Separation-Agreement.html">new documents</a> deleted “age” from the waiver list. In fact, they specifically said employees were <em>not</em> waiving their right when it came to age and <em>could</em> pursue age discrimination cases against the company.</p> <p>But, the new documents added, employees had to waive the right to take their age cases to court. Instead, they had to pursue them through private arbitration. What’s more, they had to keep them confidential and pursue them alone. They couldn’t join with other workers to make a case.</p> <p>With the new documents in place, IBM was no longer asking laid-off workers to sign away their right to complain about age bias so, the company’s lawyers told the EEOC, the disclosure requirement in the 1990 amendments to the age act no longer applied.</p> <p>Critics say the company’s argument is hard to square with the statute’s clear requirements.</p> <p>“You have a law that says older workers being laid off need this information and employers are obligated to provide it. You have a company that’s not providing it,” said David Lopez, the former general counsel for the EEOC. “How can this not be undercutting the intent of the law?”</p> <p>In their relationships with both workers and customers, American corporations are making increasingly heavy use of arbitration, contending the process is fair and saves all parties time and legal costs. The Supreme Court has repeatedly expanded the right of companies to require that disputes be settled by arbitrators rather than judges.</p> <p>When it comes to employment claims, studies have found that arbitrators overwhelmingly favor employers. <a href="https://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1586&context=articles#page=39">Research</a> by Cornell University law and labor relations specialist Alexander Colvin found that workers <a href="https://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=2018&context=articles">win only 19 percent of the time</a> when their cases are arbitrated. By contrast, <a href="https://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?referer=https://www.google.com/&httpsredir=1&article=1586&context=articles">they win 36 percent of the time</a> when they go to federal court, and 57 percent in state courts. Average payouts when an employee wins follow a similar pattern.</p> <p>Given those odds, and having signed away their rights to go to court, some laid-off IBM workers have chosen the one independent forum companies can’t deny them: the U.S. Equal Employment Opportunity Commission. That’s where Moos, the Long Beach systems security specialist, and several of her colleagues, turned for help when they were laid off. In their complaints to the agency, they said they’d suffered age discrimination because of the company’s effort to “drastically change the IBM employee age mix … to be seen as a startup.”</p> <p>In its formal reply to the EEOC, IBM said that age couldn’t have been a factor in their dismissals. Among the reasons it cited: The managers who decided on the layoffs were in their 40s and therefore older too.</p> <hr /> <h2>Tilting the Table</h2> <p><span class="lead-in"><span class="dropcap wide">W</span>hether IBM is staying within</span> U.S. age laws as it cuts from and adds to its workforce turns largely on how and why the company chooses individuals to be eliminated. While executives say they never target older workers, internal company documents and interviews suggest otherwise.</p> <p>Consider, for example, a planning presentation that former IBM executives said was drafted by heads of a business unit carved out of IBM’s once-giant software group and charged with pursuing the “C,” or cloud, portion of the company’s CAMS strategy.</p> <p>The presentation laid out plans for substantially altering the unit’s workforce. It was shown to company leaders including Diane Gherson, the senior vice president for human resources, and James Kavanaugh, recently elevated to chief financial officer. Its language was couched in the argot of “resources,” IBM’s term for employees, and “EP’s,” its shorthand for early professionals or recent college graduates.</p> <p>Among the goals: “Shift headcount mix towards greater % of Early Professional hires.”</p> <p>Among the means: “[D]rive a more aggressive performance management approach to enable us to hire and replace where needed, and fund an influx of EPs to correct seniority mix.”</p> <p>Among the expected results: “[A] significant reduction in our workforce of 2,500 resources.”</p> <p>A slide from a similar presentation prepared last spring for the same leaders called for “re-profiling current talent” to “create room for new talent.” Presentations for 2015 and 2016 for the 50,000-employee software group also included plans for “aggressive performance management” and emphasized the need to “maintain steady attrition to offset hiring.”</p> <p>IBM declined to answer questions about whether either presentation was turned into company policy. The description of the planned moves matches what hundreds of older ex-employees told ProPublica they believe happened to them: They were ousted because of their age. The company used their exits to hire replacements, many of them young; to ship their work overseas; or to cut its overall headcount.</p> <p>Ed Alpern, now 65, of Austin, started his 39-year run with IBM as a Selectric typewriter repairman. He ended as a project manager in October of 2016 when, he said, his manager told him he could either leave with severance and other parting benefits or be given a bad job review — something he said he’d never previously received — and risk being fired without them.</p> <p>Albert Poggi, now 70, was a three-decade IBM veteran and ran the company’s Palisades, New York, technical center where clients can test new products. When notified in November of 2016 he was losing his job to layoff, he asked his bosses why, given what he said was a history of high job ratings. “They told me,” he said, “they needed to fill it with someone newer.”</p> <p>The presentations from the software group, as well as the stories of ex-employees like Alpern and Poggi, square with internal documents from two other major IBM business units. The documents for all three cover some or all of the years from 2013 through the beginning of 2018 and deal with job assessments, hiring, firing and layoffs.</p> <p>The documents detail practices that appear at odds with how IBM says it treats its employees. In many instances, the practices in effect, if not intent, tilt against the company’s older U.S. workers.</p> <p>For example, IBM spokespeople and lawyers have said the company never considers a worker’s age in making decisions about layoffs or firings.</p> <p>But one 2014 document reviewed by ProPublica includes dates of birth. An ex-IBM employee familiar with the process said executives from one business unit used it to decide about layoffs or other job changes for nearly a thousand workers, almost two-thirds of them over 50.</p> <p>Documents from subsequent years show that young workers are protected from cuts for at least a limited period of time. A 2016 slide presentation prepared by the company’s global technology services unit, titled “U.S. Resource Action Process” and used to guide managers in layoff procedures, includes bullets for categories considered “ineligible” for layoff. Among them: “early professional hires,” meaning recent college graduates.</p> <p> <figure> <img src="https://features.propublica.org/ibm/assets/images/generated/document-cams-slide-1380*1002-4878aa.gif" alt="" /> <figcaption>This slide, from an invitation-only IBM conference in New York in December 2014, suggests that the company’s future success in marketing emerging technologies depended on how well it understood and embraced the generation born after 1980. </figcaption> </figure> </p> <p>In responding to age-discrimination complaints that ex-employees file with the EEOC, lawyers for IBM say that front-line managers make all decisions about who gets laid off, and that their decisions are based strictly on skills and job performance, not age.</p> <p>But ProPublica reviewed spreadsheets that indicate front-line managers hardly acted alone in making layoff calls. Former IBM managers said the spreadsheets were prepared for upper-level executives and kept continuously updated. They list hundreds of employees together with codes like “lift and shift,” indicating that their jobs were to be lifted from them and shifted overseas, and details such as whether IBM’s clients had approved the change.</p> <p>An examination of several of the spreadsheets suggests that, whatever the criteria for assembling them, the resulting list of those marked for layoff was skewed toward older workers. A 2016 spreadsheet listed more than 400 full-time U.S. employees under the heading “REBAL,” which refers to “rebalancing,” the process that can lead to laying off workers and either replacing them or shifting the jobs overseas. Using the job search site LinkedIn, ProPublica was able to locate about 100 of these employees and then obtain their ages through public records. Ninety percent of those found were 40 or older. Seventy percent were over 50.</p> <p>IBM frequently cites its history of encouraging diversity in its responses to EEOC complaints about age discrimination. “IBM has been a leader in taking positive actions to ensure its business opportunities are made available to individuals without regard to age, race, color, gender, sexual orientation and other categories,” a lawyer for the company wrote in a May 2017 letter. “This policy of non-discrimination is reflected in all IBM business activities.”</p> <p>But ProPublica found at least one company business unit using a point system that disadvantaged older workers. The system awarded points for attributes valued by the company. The more points a person garnered, according to the former employee, the more protected she or he was from layoff or other negative job change; the fewer points, the more vulnerable.</p> <p>The arrangement appears on its face to favor younger newcomers over older veterans. Employees were awarded points for being relatively new at a job level or in a particular role. Those who worked for IBM for fewer years got more points than those who’d been there a long time.</p> <p>The ex-employee familiar with the process said a 2014 spreadsheet from that business unit, labeled “IBM Confidential,” was assembled to assess the job prospects of more than 600 high-level employees, two-thirds of them from the U.S. It included employees’ years of service with IBM, which the former employee said was used internally as a proxy for age. Also listed was an assessment by their bosses of their career trajectories as measured by the highest job level they were likely to attain if they remained at the company, as well as their point scores.</p> <p>The tilt against older workers is evident when employees’ years of service are compared with their point scores. Those with no points and therefore most vulnerable to layoff had worked at IBM an average of more than 30 years; those with a high number of points averaged half that.</p> <p>Perhaps even more striking is the comparison between employees’ service years and point scores on the one hand and their superiors’ assessments of their career trajectories on the other.</p> <p>Along with many American employers, IBM has argued it needs to shed older workers because they’re no longer at the top of their games or lack “contemporary” skills.</p> <p>But among those sized up in the confidential spreadsheet, fully 80 percent of older employees — those with the most years of service but no points and therefore most vulnerable to layoff — were rated by superiors as good enough to stay at their current job levels or be promoted. By contrast, only a small percentage of younger employees with a high number of points were similarly rated.</p> <p>“No major company would use tools to conduct a layoff where a disproportionate share of those let go were African Americans or women,” said Cathy Ventrell-Monsees, senior attorney adviser with the EEOC and former director of age litigation for the senior lobbying giant AARP. “There’s no difference if the tools result in a disproportionate share being older workers.”</p> <p>In addition to the point system that disadvantaged older workers in layoffs, other documents suggest that IBM has made increasingly aggressive use of its job-rating machinery to pave the way for straight-out firings, or what the company calls “management-initiated separations.” Internal documents suggest that older workers were especially targets.</p> <p>Like in many companies, IBM employees sit down with their managers at the start of each year and set goals for themselves. IBM graded on a scale of 1 to 4, with 1 being top-ranked.</p> <p>Those rated as 3 or 4 were given formal short-term goals known as personal improvement plans, or PIPs. Historically many managers were lenient, especially toward those with 3s whose ratings had dropped because of forces beyond their control, such as a weakness in the overall economy, ex-employees said.</p> <p>But within the past couple of years, IBM appears to have decided the time for leniency was over. For example, a software group planning document for 2015 said that, over and above layoffs, the unit should seek to fire about 3,000 of the unit’s 50,000-plus workers.</p> <p>To make such deep cuts, the document said, executives should strike an “aggressive performance management posture.” They needed to double the share of employees given low 3 and 4 ratings to at least 6.6 percent of the division’s workforce. And because layoffs cost the company more than outright dismissals or resignations, the document said, executives should make sure that more than 80 percent of those with low ratings get fired or forced to quit.</p> <p>Finally, the 2015 document said the division should work “to attract the best and brightest early professionals” to replace up to two-thirds of those sent packing. A more recent planning document — the presentation to top executives Gherson and Kavanaugh for a business unit carved out of the software group — recommended using similar techniques to free up money by cutting current employees to fund an “influx” of young workers.</p> <p>In a recent interview, Poggi said he was resigned to being laid off. “Everybody at IBM has a bullet with their name on it,” he said. Alpern wasn’t nearly as accepting of being threatened with a poor job rating and then fired.</p> <p>Alpern had a particular reason for wanting to stay on at IBM, at least until the end of last year. His younger son, Justin, then a high school senior, had been named a National Merit semifinalist. Alpern wanted him to be able to apply for one of the company’s Watson scholarships. But IBM had recently narrowed eligibility so only the children of current employees could apply, not also retirees as it was until 2014.</p> <p>Alpern had to make it through December for his son to be eligible.</p> <p>But in August, he said, his manager ordered him to retire. He sought to buy time by appealing to superiors. But he said the manager’s response was to threaten him with a bad job review that, he was told, would land him on a PIP, where his work would be scrutinized weekly. If he failed to hit his targets — and his managers would be the judges of that — he’d be fired and lose his benefits.</p> <p>Alpern couldn’t risk it; he retired on Oct. 31. His son, now a freshman on the dean’s list at Texas A&M University, didn’t get to apply.</p> <p>“I can think of only a couple regrets or disappointments over my 39 years at IBM,”“ he said, ”and that’s one of them."</p> <hr /> <h2>’Congratulations on Your Retirement!’</h2> <p><span class="lead-in">Like any company in the U.S.,</span> IBM faces few legal constraints to reducing the size of its workforce. And with its no-disclosure strategy, it eliminated one of the last regular sources of information about its employment practices and the changing size of its American workforce.</p> <p>But there remained the question of whether recent cutbacks were big enough to trigger state and federal requirements for disclosure of layoffs. And internal documents, such as a slide in a 2016 presentation titled “Transforming to Next Generation Digital Talent,” suggest executives worried that “winning the talent war” for new young workers required IBM to improve the “attractiveness of (its) culture and work environment,” a tall order in the face of layoffs and firings.</p> <p>So the company apparently has sought to put a softer face on its cutbacks by recasting many as voluntary rather than the result of decisions by the firm. One way it has done this is by converting many layoffs to retirements.</p> <p>Some ex-employees told ProPublica that, faced with a layoff notice, they were just as happy to retire. Others said they felt forced to accept a retirement package and leave. Several actively objected to the company treating their ouster as a retirement. The company nevertheless processed their exits as such.</p> <p>Project manager Ed Alpern’s departure was treated in company paperwork as a voluntary retirement. He didn’t see it that way, because the alternative he said he was offered was being fired outright.</p> <p>Lorilynn King, a 55-year-old IT specialist who worked from her home in Loveland, Colorado, had been with IBM almost as long as Alpern by May 2016 when her manager called to tell her the company was conducting a layoff and her name was on the list.</p> <p>King said the manager told her to report to a meeting in Building 1 on IBM’s Boulder campus the following day. There, she said, she found herself in a group of other older employees being told by an IBM human resources representative that they’d all be retiring. “I have NO intention of retiring,” she remembers responding. “I’m being laid off.”</p> <p>ProPublica has collected documents from 15 ex-IBM employees who got layoff notices followed by a retirement package and has talked with many others who said they received similar paperwork. Critics say the sequence doesn’t square well with the law.</p> <p>“This country has banned mandatory retirement,” said Seiner, the University of South Carolina law professor and former EEOC appellate lawyer. “The law says taking a retirement package has to be voluntary. If you tell somebody ‘Retire or we’ll lay you off or fire you,’ that’s not voluntary.”</p> <p>Until recently, the company’s retirement paperwork included a letter from Rometty, the CEO, that read, in part, “I wanted to take this opportunity to wish you well on your retirement … While you may be retiring to embark on the next phase of your personal journey, you will always remain a valued and appreciated member of the IBM family.” Ex-employees said IBM stopped sending the letter last year.</p> <p>IBM has also embraced another practice that leads workers, especially older ones, to quit on what appears to be a voluntary basis. It substantially reversed its pioneering support for telecommuting, telling people who’ve been working from home for years to begin reporting to certain, often distant, offices. Their other choice: Resign.</p> <p>David Harlan had worked as an IBM marketing strategist from his home in Moscow, Idaho, for 15 years when a manager told him last year of orders to reduce the performance ratings of everybody at his pay grade. Then in February last year, when he was 50, came an internal video from IBM’s new senior vice president, Michelle Peluso, which announced plans to improve the work of marketing employees by ordering them to work “shoulder to shoulder.” Those who wanted to stay on would need to “co-locate” to offices in one of six cities.</p> <p>Early last year, Harlan received an email congratulating him on “the opportunity to join your team in Raleigh, North Carolina.” He had 30 days to decide on the 2,600-mile move. He resigned in June.</p> <p> <figure> <img src="https://features.propublica.org/ibm/assets/images/generated/portrait-harlan-06-1800*2184-2bfb10.jpg" alt="" /> <figcaption>David Harlan worked for IBM for 15 years from his home in Moscow, Idaho, where he also runs a drama company. Early last year, IBM offered him a choice: Move 2,600 miles to Raleigh-Durham to begin working at an office, or resign. He left in June. <span class="credit">(Rajah Bose for ProPublica)</span></figcaption> </figure> </p> <p>After the Peluso video was leaked to the press, an IBM spokeswoman told the Wall Street Journal that the “<a href="https://www.wsj.com/articles/ibm-a-pioneer-of-remote-work-calls-workers-back-to-the-office-1495108802">vast majority</a>” of people ordered to change locations and begin reporting to offices did so. IBM Vice President Ed Barbini said in an initial email exchange with ProPublica in July that the new policy affected only about 2,000 U.S. employees and that “most” of those had agreed to move.</p> <p>But employees across a wide range of company operations, from the systems and technology group to analytics, told ProPublica they’ve also been ordered to co-locate in recent years. Many IBMers with long service said that they quit rather than sell their homes, pull children from school and desert aging parents. IBM declined to say how many older employees were swept up in the co-location initiative.</p> <p>“They basically knew older employees weren’t going to do it,” said Eileen Maroney, a 63-year-old IBM product manager from Aegean, South Carolina, who, like Harlan, was ordered to move to Raleigh or resign. “Older people aren’t going to move. It just doesn’t make any sense.” Like Harlan, Maroney left IBM last June.</p> <p>Having people quit rather than being laid off may help IBM avoid disclosing how much it is shrinking its U.S. workforce and where the reductions are occurring.</p> <p>Under the <a href="https://www.doleta.gov/programs/factsht/warn.htm">federal WARN Act</a>, adopted in the wake of huge job cuts and factory shutdowns during the 1980s, companies laying off 50 or more employees who constitute at least one-third of an employer’s workforce at a site have to give advance notice of layoffs to the workers, public agencies and local elected officials.</p> <p>Similar laws in some states where IBM has a substantial presence are even stricter. California, for example, requires advanced notice for layoffs of 50 or more employees, no matter what the share of the workforce. New York requires notice for 25 employees who make up a third.</p> <p>Because the laws were drafted to deal with abrupt job cuts at individual plants, they can miss reductions that occur over long periods among a workforce like IBM’s that was, at least until recently, widely dispersed because of the company’s work-from-home policy.</p> <p>IBM’s training sessions to prepare managers for layoffs suggest the company was aware of WARN thresholds, especially in states with strict notification laws such as California. A 2016 document entitled “Employee Separation Processing” and labeled “IBM Confidential” cautions managers about the “unique steps that must be taken when processing separations for California employees.”</p> <p>A ProPublica review of five years of WARN disclosures for a dozen states where the company had large facilities that shed workers found no disclosures in nine. In the other three, the company alerted authorities of just under 1,000 job cuts — 380 in California, 369 in New York and 200 in Minnesota. IBM’s reported figures are well below the actual number of jobs the company eliminated in these states, where in recent years it has shuttered, sold off or leveled plants that once employed vast numbers.</p> <p>By contrast, other employers in the same 12 states reported layoffs last year alone totaling 215,000 people. They ranged from giant Walmart to Ostrom’s Mushroom Farms in Washington state.</p> <p>Whether IBM operated within the rules of the WARN act, which are notoriously fungible, could not be determined because the company declined to provide ProPublica with details on its layoffs.</p> <h2>A Second Act, But Poorer</h2> <p><span class="lead-in"><span class="dropcap wide">W</span>ith 35 years at IBM</span> under his belt, Ed Miyoshi had plenty of experience being pushed to take buyouts, or early retirement packages, and refusing them. But he hadn’t expected to be pushed last fall.</p> <p>Miyoshi, of Hopewell Junction, New York, had some years earlier launched a pilot program to improve IBM’s technical troubleshooting. With the blessing of an IBM vice president, he was busily interviewing applicants in India and Brazil to staff teams to roll the program out to clients worldwide.</p> <p>The interviews may have been why IBM mistakenly assumed Miyoshi was a manager, and so emailed him to eliminate the one U.S.-based employee still left in his group.</p> <p>“That was me,” Miyoshi realized.</p> <p>In his sign-off email to colleagues shortly before Christmas 2016, Miyoshi, then 57, wrote: “I am too young and too poor to stop working yet, so while this is good-bye to my IBM career, I fully expect to cross paths with some of you very near in the future.”</p> <p>He did, and perhaps sooner than his colleagues had expected; he started as a subcontractor to IBM about two weeks later, on Jan. 3.</p> <p>Miyoshi is an example of older workers who’ve lost their regular IBM jobs and been brought back as contractors. Some of them — not Miyoshi — became contract workers after IBM told them their skills were out of date and no longer needed.</p> <p>Employment law experts said that hiring ex-employees as contractors can be legally dicey. It raises the possibility that the layoff of the employee was not for the stated reason but perhaps because they were targeted for their age, race or gender.</p> <p>IBM appears to recognize the problem. Ex-employees say the company has repeatedly told managers — most recently earlier this year — not to contract with former employees or sign on with third-party contracting firms staffed by ex-IBMers. But ProPublica turned up dozens of instances where the company did just that.</p> <p> <figure> <img src="https://features.propublica.org/ibm/assets/images/generated/portrait-miyoshi-05-1800*1200-b4d861.jpg" alt="" /> <figcaption>Only two weeks after IBM laid him off in December 2016, Ed Miyoshi of Hopewell Junction, New York, started work as a subcontractor to the company. But he took a $20,000-a-year pay cut. “I’m not a millionaire, so that’s a lot of money to me,” he says. <span class="credit">(Demetrius Freeman for ProPublica)</span></figcaption> </figure> </p> <p>Responding to a question in a confidential questionnaire from ProPublica, one 35-year company veteran from New York said he knew exactly what happened to the job he left behind when he was laid off. “I’M STILL DOING IT. I got a new gig eight days after departure, working for a third-party company under contract to IBM doing the exact same thing.”</p> <p>In many cases, of course, ex-employees are happy to have another job, even if it is connected with the company that laid them off.</p> <p>Henry, the Columbus-based sales and technical specialist who’d been with IBM’s “resiliency services” unit, discovered that he’d lost his regular IBM job because the company had purchased an Indian firm that provided the same services. But after a year out of work, he wasn’t going to turn down the offer of a temporary position as a subcontractor for IBM, relocating data centers. It got money flowing back into his household and got him back where he liked to be, on the road traveling for business.</p> <p>The compensation most ex-IBM employees make as contractors isn’t comparable. While Henry said he collected the same dollar amount, it didn’t include health insurance, which cost him $1,325 a month. Miyoshi said his paycheck is 20 percent less than what he made as an IBM regular.</p> <p>“I took an over $20,000 hit by becoming a contractor. I’m not a millionaire, so that’s a lot of money to me,” Miyoshi said.</p> <p>And lower pay isn’t the only problem ex-IBM employees-now-subcontractors face. This year, Miyoshi’s payable hours have been cut by an extra 10 “furlough days.” Internal documents show that IBM repeatedly furloughs subcontractors without pay, often for two, three or more weeks a quarter. In some instances, the furloughs occur with little advance notice and at financially difficult moments. In one document, for example, it appears IBM managers, trying to cope with a cost overrun spotted in mid-November, planned to dump dozens of subcontractors through the end of the year, the middle of the holiday season.</p> <p>Former IBM employees now on contract said the company controls costs by notifying contractors in the midst of projects they have to take pay cuts or lose the work. Miyoshi said that he originally started working for his third-party contracting firm for 10 percent less than at IBM, but ended up with an additional 10 percent cut in the middle of 2017, when IBM notified the contractor it was slashing what it would pay.</p> <p>For many ex-employees, there are few ways out. Henry, for example, sought to improve his chances of landing a new full-time job by seeking assistance to finish a college degree through a federal program designed to retrain workers hurt by offshoring of jobs.</p> <p>But when he contacted the Ohio state agency that administers the Trade Adjustment Assistance, or TAA, program, which provides assistance to workers who lose their jobs for trade-related reasons, he was told IBM hadn’t submitted necessary paperwork. State officials said Henry could apply if he could find other IBM employees who were laid off with him, information that the company doesn’t provide.</p> <p>TAA is overseen by the Labor Department but is operated by states under individual agreements with Washington, so the rules can vary from state to state. But generally employers, unions, state agencies and groups of employers can petition for training help and cash assistance. Labor Department data compiled by the advocacy group Global Trade Watch shows that employers apply in about 40 percent of cases. Some groups of IBM workers have obtained retraining funds when they or their state have applied, but records dating back to the early 1990s show IBM itself has applied for and won taxpayer assistance only once, in 2008, for three Chicago-area workers whose jobs were being moved to India.</p> <hr /> <h2>Teasing New Jobs</h2> <p><span class="lead-in"><span class="dropcap">A</span>s IBM eliminated thousands</span> of jobs in 2016, David Carroll, a 52-year-old Austin software engineer, thought he was safe.</p> <p>His job was in mobile development, the “M” in the company’s CAMS strategy. And if that didn’t protect him, he figured he was only four months shy of qualifying for a program that gives employees who leave within a year of their three-decade mark access to retiree medical coverage and other benefits.</p> <p>But the layoff notice Carroll received March 2 gave him three months — not four — to come up with another job. Having been a manager, he said he knew the gantlet he’d have to run to land a new position inside IBM.</p> <p>Still, he went at it hard, applying for more than 50 IBM jobs, including one for a job he’d successfully done only a few years earlier. For his effort, he got one offer — the week after he’d been forced to depart. He got severance pay but lost access to what would have been more generous benefits.</p> <p>Edward Kishkill, then 60, of Hillsdale, New Jersey, had made a similar calculation.</p> <p>A senior systems engineer, Kishkill recognized the danger of layoffs, but assumed he was immune because he was working in systems security, the “S” in CAMS and another hot area at the company.</p> <p>The precaution did him no more good than it had Carroll. Kishkill received a layoff notice the same day, along with 17 of the 22 people on his systems security team, including Diane Moos. The notice said that Kishkill could look for other jobs internally. But if he hadn’t landed anything by the end of May, he was out.</p> <p>With a daughter who was a senior in high school headed to Boston University, he scrambled to apply, but came up dry. His last day was May 31, 2016.</p> <p>For many, the fruitless search for jobs within IBM is the last straw, a final break with the values the company still says it embraces. Combined with the company’s increasingly frequent request that departing employees train their overseas replacements, it has left many people bitter. Scores of ex-employees interviewed by ProPublica said that managers with job openings told them they weren’t allowed to hire from layoff lists without getting prior, high-level clearance, something that’s almost never given.</p> <p>ProPublica reviewed documents that show that a substantial share of recent IBM layoffs have involved what the company calls “lift and shift,“ lifting the work of specific U.S. employees and shifting it to specific workers in countries such as India and Brazil. For example, a document summarizing U.S. employment in part of the company’s global technology services division for 2015 lists nearly a thousand people as layoff candidates, with the jobs of almost half coded for lift and shift.</p> <p>Ex-employees interviewed by ProPublica said the lift-and-shift process required their extensive involvement. For example, shortly after being notified she’d be laid off, Kishkill’s colleague, Moos, was told to help prepare a “knowledge transfer” document and begin a round of conference calls and email exchanges with two Indian IBM employees who’d be taking over her work. Moos said the interactions consumed much of her last three months at IBM.</p> <h2>Next Chapters</h2> <p><span class="lead-in"><span class="dropcap wide">W</span>hile IBM has managed</span> to keep the scale and nature of its recent U.S. employment cuts largely under the public’s radar, the company drew some unwanted attention during the 2016 presidential campaign, when then-candidate <a href="https://www.computerworld.com/article/3139394/it-careers/at-campaigns-end-trump-takes-a-swipe-at-ibm.html">Donald Trump lambasted</a> it for eliminating 500 jobs in Minnesota, where the company has had a presence for a half century, and shifting the work abroad.</p> <p>The company also has caught flak — in places like <a href="http://www.investigativepost.org/2018/02/19/taxpayers-fund-ibms-dysfunctional-call-center/">Buffalo, New York</a>; <a href="http://www.telegraphherald.com/news/tri-state/html_ed60c223-cd97-55b3-b65e-a2386c0828a2.html">Dubuque, Iowa</a>; <a href="http://www.columbiatribune.com/b3ed78d6-f248-11e6-af28-576bcdc3ea18.html">Columbia, Missouri</a>, and <a href="http://www.theadvocate.com/baton_rouge/news/business/article_2d8f6c4a-a215-11e7-894c-b32baeed8a86.html">Baton Rouge, Louisiana</a> — for promising jobs in return for state and local incentives, then failing to deliver. In all, according to public officials in those and other places, IBM promised to bring on 3,400 workers in exchange for as much as $250 million in taxpayer financing but has hired only about half as many.</p> <p>After Trump’s victory, Rometty, in a move at least partly aimed at courting the president-elect, pledged to hire 25,000 new U.S. employees by 2020. Spokesmen said the hiring would increase IBM’s U.S. employment total, although, given its continuing job cuts, the addition is unlikely to approach the promised hiring total.</p> <p>When The New York Times ran a story last fall saying IBM now has <a href="https://www.nytimes.com/2017/09/28/technology/ibm-india.html">more employees in India</a> than the U.S., Barbini, the corporate spokesman, rushed to declare, “The U.S. has always been and remains IBM’s center of gravity.” But his stream of accompanying <a href="https://twitter.com/ebarbini/status/913336040932433920">tweets</a> and graphics focused as much on the company’s record for racking up patents as hiring people.</p> <p>IBM has long been aware of the damage its job cuts can do to people. In a series of internal training documents to prepare managers for layoffs in recent years, the company has included this warning: “Loss of a job … often triggers a grief reaction similar to what occurs after a death.”</p> <p>Most, though not all, of the ex-IBM employees with whom ProPublica spoke have weathered the loss and re-invented themselves.</p> <p>Marjorie Madfis, the digital marketing strategist, couldn’t land another tech job after her 2013 layoff, so she headed in a different direction. She started a nonprofit called Yes She Can Inc. that provides job skills development for young autistic women, including her 21-year-old daughter.</p> <p>After almost two years of looking and desperate for useful work, Brian Paulson, the widely traveled IBM senior manager, applied for and landed a position as a part-time rural letter carrier in Plano, Texas. He now works as a contract project manager for a Las Vegas gaming and lottery firm.</p> <p>Ed Alpern, who started at IBM as a Selectric typewriter repairman, watched his son go on to become a National Merit Scholar at Texas A&M University, but not a Watson scholarship recipient.</p> <p>Lori King, the IT specialist and 33-year IBM veteran who’s now 56, got in a parting shot. She added an addendum to the retirement papers the firm gave her that read in part: “It was never my plan to retire earlier than at least age 60 and I am not committing to retire. I have been informed that I am impacted by a resource action effective on 2016–08–22, which is my last day at IBM, but I am NOT retiring.”</p> <p>King has aced more than a year of government-funded coding boot camps and university computer courses, but has yet to land a new job.</p> <p>David Harlan still lives in Moscow, Idaho, after refusing IBM’s “invitation” to move to North Carolina, and is artistic director of the Moscow Art Theatre (Too).</p> <p>Ed Miyoshi is still a technical troubleshooter working as a subcontractor for IBM.</p> <p>Ed Kishkill, the senior systems engineer, works part time at a local tech startup, but pays his bills as an associate at a suburban New Jersey Staples store.</p> <p>This year, Paul Henry was back on the road, working as an IBM subcontractor in Detroit, about 200 miles from where he lived in Columbus. On Jan. 8, he put in a 14-hour day and said he planned to call home before turning in. He died in his sleep.</p> <p><em>Do you have information about age discrimination at IBM? <strong><a href="https://www.propublica.org/getinvolved/left-ibm-layoffs-retirements">Let us know.</a></strong></em></p>
The ouster of Cook County Assessor Joseph Berrios in the Democratic primary Tuesday paves the way for reform at a government agency that has operated for decades with little oversight or transparency, even though it has significant influence over the pocketbooks of millions of people.
It also upends — for now, at least — an arrangement that one insider referred to as a political ecosystem. There, faulty assessments led to a high volume of appeals that benefited a cottage industry of tax attorneys and appraisers. They, in turn, poured contributions into the campaign coffers of the assessor and members of the Cook County Board of Review, which handles property tax appeals.
But like any entrenched bureaucracy, the forces at work in Cook County’s convoluted and opaque property tax system won’t easily give way to change. As the recent independent study from the nonprofit Civic Consulting Alliance, or CCA, stated: “Bringing the system into compliance with industry standards will require fundamental changes.”
Cook County Board President Toni Preckwinkle commissioned the CCA study in July following publication of the “The Tax Divide,” which found deep inequities in the county’s residential assessment system.
Assuming a court challenge by a third candidate, Andrea Raila, doesn’t void the election, the presumptive winner of Tuesday’s vote, Fritz Kaegi — who will not face any Republican opposition in November — has vowed to bring transparency and professionalism to an office that many concluded has lacked both.
Kaegi, an asset manager who put up more than $1.5 million to fund his campaign, also pledged that, if he was elected, he would not take campaign contributions from the property tax appeal industry.
Berrios, who has collected millions of dollars from the industry since taking office in December 2010, had vowed to reform the residential assessment system but remained mum on other problems plaguing the assessor’s office.
If lasting change at the assessor’s office does take hold, the real winners will be those who have paid the price for an error-ridden system: owners of lower-valued homes and businesses.
Even with a new assessor, some remain cautious about prospects for a truly equitable system.
“I’m just taking a wait-and-see approach,” said Rozalyn Shelton, who owns a small stone house in the North Lawndale neighborhood that the assessor’s office overvalued for years. “I don’t know what the new person will do. But you try to remain hopeful that something will change.”
Benchmarks will help gauge the progress of reform. Here are some of the most important ones:
Residential Valuation Models
Fixing assessments for the county’s roughly 1.4 million residential parcels will require creating, testing and deploying new valuation models before assessment notices go out. Thomas Jaconetty, deputy assessor for valuations and appeals, told county commissioners earlier this month the office would develop and implement new models for the city of Chicago’s reassessment, which is slated for this year.
Because Kaegi, if elected, would not take office until December, he will inherit whatever system Berrios puts in place.
This isn’t the first time the assessor’s office has pledged to improve its residential valuations. In July 2015, the office said it had adopted a new model funded by the MacArthur Foundation. The new model, the office said, was supposed to increase accuracy by 50 percent and fairness by 25 percent.
But reporting showed Berrios never actually implemented the new model.
“Unfortunately, we have been here before,” said Robert Weissbourd, an economic development expert who led the project to build a new model. “We know from past behavior that the current assessor’s office cannot be relied upon to fix these problems by itself.”
A civil rights and fair housing lawsuit filed by three public interest law firms could help ensure residential assessments receive independent oversight and monitoring.
“Even with Kaegi’s election, the lawsuit will continue until reforms are done properly and with independent oversight.” said Aneel Chablani, advocacy director for the Chicago Lawyers’ Committee for Civil Rights. “The entire system needs to change, and we don’t think it can reform itself. If the election results in an opportunity to work together on that reform, we welcome that.”
Commercial and Industrial Assessments
The county’s assessment system, experts say, will not be truly reformed until major changes are made to how commercial and industrial properties are valued. But there’s no plan to study or improve commercial assessments.
A joint ProPublica Illinois-Chicago Tribune investigation in December found commercial and industrial assessments were even more inaccurate than those for residential properties, with small business owners paying for overvalued properties while downtown skyscrapers were consistently undervalued.
One reason for the bad assessments: Crucial information used to value the county’s commercial and industrial properties are still kept on paper or stored on individual spreadsheets, so the information is not easily analyzed and updated.
In July, for instance, the Better Government Association found that the assessor’s office didn’t realize a parking garage five blocks from the County Building had been torn down and converted into a surface lot.
So the office will need to completely revamp the way it collects and manages data, a potentially lengthy process. Meanwhile, experts say the office should also make public the methods and underlying data used to value commercial and industrial properties to ensure they are in line with best practices.
“It’s common for assessment offices to divide the work for residential and commercial, but it needs to be considered as a whole system,” said Richard Almy, a former executive director of the International Association of Assessing Officers, a professional organization that develops guidelines used around the world.
While every property tax assessment system involves appeals, experts say a well-functioning one has fewer of them. In Cook County, that will happen when the assessor’s office can defend its assessments and taxpayers start to lose appeals.
“One striking feature of the Cook County system is its unusually high number of appeals when compared to other jurisdictions in the United States and abroad,” the CCA study found.
It’s no wonder, considering reporting shows the assessor’s office has done a poor job assessing properties accurately the first time. As a result, the vast majority of people win reductions on appeal, so they have an incentive to keep appealing.
For months, Berrios and his staff claimed appeals make residential assessments fairer. But the Tribune and the University of Chicago’s Harris School for Public Policy partnered on a study that found appeals actually make the system less fair because wealthier homeowners appeal at higher rates.
The assessor’s office dismissed those findings, until the CCA report confirmed that the county’s reliance on appeals is a problem for the same reason.
For decades now, the office has been geared more toward handling appeals than correctly valuing property. That trend became even more pronounced under Berrios. The number and amount of reductions on appeal skyrocketed during his tenure.
What’s more, thousands of commercial and industrial values didn’t change between reassessment periods, which are three years apart. Experts said this indicated the office wasn’t doing its job.
“For values to stay exactly the same, that indicates they aren’t doing anything,” said Peter Davis, an expert on assessments who helped write standards for the International Association of Assessing Officers.
Changing the focus from using appeals to arrive at assessments to making accurate initial estimates could be the office’s most fundamental reform.
Cook County Board of Review
The assessor’s office isn’t the only place where taxpayers can lower their assessments. They can also go to the Cook County Board of Review, an elected three-member panel that hears appeals.
Even if Kaegi makes strides in improving the accuracy and fairness of the system, many of those improvements would be undermined if the BOR doesn’t undertake similar reforms. The CCA study found that errors increased and fairness got worse after the BOR adjusted assessments, which suggest it, too, must be scrutinized.
“The Board of Review in Cook County is unique compared to other jurisdictions,” said Almy. “It is behind even more of a curtain. My concern is that the same lack of transparency will take place, where you have this back room where decisions are being made about the distribution of the tax burden.”
Experts say none of the potential reforms will work if the assessor’s office fails to become more transparent. Even before Berrios succeeded James Houlihan as assessor, the office operated like a black box, with many taxpayers unable to get basic information about how officials valued their properties.
This, according to experts, undermines the credibility of the assessment system.
The Tribune, for instance, sought detailed data and records showing how the assessor’s office values residential, commercial and industrial properties, but Berrios denied the newspaper’s request. So the news organization sued the assessor’s office and, in December 2016, won in Cook County CIrcuit Court.
Berrios then appealed to the Illinois Appellate Court — at taxpayer expense. A ruling is pending.
A change in leadership presents an opportunity for change in how the office does business. Those who work in the assessment system and those who study it are cautiously optimistic Kaegi can deliver on his pledges of reform.
“There’s an exciting opportunity now to go well beyond just fixing what’s broken,” Weissbourd said. “We could lead the way in developing 21st century governance — and revenue streams to support public works — which are more accurate and fair because they better engage and are more accountable to citizens and businesses.”
When it comes to politics, there’s nowhere like Illinois. Throughout the election season, ProPublica Illinois reporter and political junkie Mick Dumke will analyze the state’s political issues and personalities in this occasional column.
If video killed the radio star, big money is sealing the fate of the old Democratic machine.
Cook County Assessor Joe Berrios, one of the last remaining machine bosses, conceded early Tuesday night to a political newcomer, a nobody, as the old pols used to say. Fritz Kaegi’s apparent victory — pending a possible court challenge by a third candidate to void the election — came after he vowed to fix what has been exposed as a faulty assessment process, one that burdens lower-income property owners while helping the wealthy.
But Kaegi wasn’t just any reformer promising to clean up this town. He delivered his message by pouring more than $1.5 million of his own money into his campaign.
As the assessor’s race unfolded over the last several months — and especially as the results began to come in last night — I kept thinking about how Berrios got his start in politics nearly 50 years ago: His alderman used clout to get rid of a speeding ticket for him.
It wasn’t his first ticket, and Berrios, then 17, was worried about losing his driver’s license. That would have been a serious financial blow to him and his working-class family, he said in a 2016 interview with me and Ben Joravsky of the Chicago Reader. Berrios’ parents were from Puerto Rico, and during his early years, his family lived at the Cabrini-Green public housing development before moving to the Humboldt Park neighborhood.
At a neighbor’s urging, Berrios mentioned the ticket to his precinct captain, one of those guys who’d been given a government job in return for keeping residents happy and getting them to vote for the machine. The precinct captain took Berrios to meet the boss of the 31st Ward, Alderman Tom Keane.
Berrios said he had no idea Keane was one of the most powerful men in the city, controlling not just his Northwest Side ward but the entire City Council as the right-hand man to Mayor Richard J. Daley. As Berrios stood before Keane’s desk, the alderman noted that the neighborhood was changing. He suggested Berrios volunteer for him.
“He said, ‘You know, we’re looking for some Hispanic kids to join the organization,’” Berrios recalled. Berrios understood that Keane was offering him a deal: You help me connect with Hispanic voters and I’ll help you take care of your speeding ticket. Berrios agreed.
Sure enough, when Berrios showed up for his court hearing, the judge immediately found him not guilty. “I was amazed,” Berrios said. “And that’s how, really, I got started in the game.”
Berrios, worried about finding work when he finished school, was happy for the chance to join the machine. He said his first patronage job was cleaning bathrooms in Humboldt Park.
“You’d be surprised, under the old system, how many people we were able to help on a day-to-day basis,” Berrios said. “Most Hispanics didn’t finish high school back then. It created opportunities for people who would not have had an opportunity.”
But the system also enabled corruption. In 1974, Keane was convicted in federal court of mail fraud for a scheme involving the purchase of tax-delinquent land in city auctions. He then installed his wife as alderman while the ward organization was run by a former aide — who ended up going to federal prison, too.
Meanwhile, Berrios rose through the ranks. In 1983, he became the first Hispanic to serve in the Illinois General Assembly. By 2007, he was chairman of the Cook County Democratic Party, and three years later, he was elected assessor. He also is an owner of a firm that lobbies government officials.
Following in Keane’s tradition, Berrios used his positions to put family members on the public payroll.
Yet his grip on power began slipping. Federal court decrees prohibit political hiring and firing for most local government positions, and the ward organizations don’t have as many jobs to hand out. Many voters are sick of insiders profiting off the system.
Few people thought rookie candidate Will Guzzardi had even a faint chance when he challenged incumbent state Rep. Toni Berrios, Joe’s daughter, in 2012. But Guzzardi came within 125 votes. Two years later, Guzzardi beat her handily after going door to door for months to talk with voters.
“I think we were able to show that the Berrios machine was really a paper tiger, and that they really didn’t have the strength everyone assumed,” Guzzardi told me in an interview last week. “People were really fed up with that brand of politics and wanted something different.”
Through it all, Berrios continued to brush off his critics. In speaking about the operations of the assessor’s office, he sounded a little like Mussolini boasting about the trains: “After one year in that office, I got the tax bills out in time,” he said, estimating this saved local governments millions of dollars in borrowing costs.
But Berrios appears to have gotten the bills out on time because thousands of commercial and industrial properties weren’t being assessed, as my colleagues Jason Grotto and Sandhya Kambhampati found in months of reporting. In short, the assessor’s office wasn’t doing its job.
Kaegi, a financial asset manager, ran for the right office against the right guy at the right time. He depicted his quest as a social cause as much as a political campaign — even as he engaged in the old-school power play of trying to knock a third candidate, Andrea Raila, off the ballot. A state appellate court ruling kept her in the race, but some voters were told their ballots for her wouldn't count, prompting Raila to call for a new election.
This wouldn’t have happened when the machine was humming.
For now, Kaegi is the winner — and Berrios is the clear loser. It remains to be seen if Kaegi will follow through on his vows to clean up and restore confidence in the assessment system. Voters are hopeful, and quite frankly, the bar is low.
Only a couple of the old-school bosses are left. As the machine dies off, the void is often filled by people with the finances and friends to purchase a pathway to office — as we’ve seen with Mayor Rahm Emanuel, Gov. Bruce Rauner and J.B. Pritzker, the Democratic nominee for governor.
Berrios noted the trend when asked about his practice of accepting campaign contributions from lawyers with appeals before his office.
“I am not the governor,” he said. “He can just flip the money out any way he wants to. I need to go out and solicit contributions.”
It was a weak excuse for engaging in pay-to-play politics. But it doesn’t mean Berrios was wrong about some of the new bosses getting rid of the old ones.
Last month, Donald Trump Jr. visited India to tout new Trump properties. Full page ads in India’s top papers announced, “Trump has arrived. Have you?”
It wasn’t Trump Jr.’s first trip to India. “I’ve been coming to India for over a decade,” he said during his visit last month. “There’s an entrepreneurial spirit here … it needs no further explanation.”
This week on “Trump, Inc.,” we’re looking at the Trumps’ yearslong work in India, where corruption in the real estate industry is endemic.
We worked with Investigative Fund reporter Anjali Kamat, whose reporting on the Trumps’ business in India appears in the new issue of The New Republic.
As with many of the company’s deals abroad, the Trump Organization’s India projects are all licensing deals. Trump Jr. has been closely involved in much of the work.
The Trumps’ first India project, in Mumbai, was halted in early 2012 after investigators found significant “irregularities.” The investigators had been tipped off by a state lawmaker who suspected a $100 million fraud scheme and warned of “gross violations” in the project’s plans. Authorities revoked the building’s permits.
A few months later, in April 2012, Trump Jr. traveled to Mumbai and, along with partners, met with a top official there to try to get the project restarted.
Chief Minister Prithviraj Chavan, the equivalent of a U.S. governor, had been told Trump Jr. wanted to discuss investing in the state. But instead, Chavan recalled, Trump Jr. and his partners asked Chavan to overturn the decision to revoke the permits.
Chavan declined. “I would get into trouble to sanction something that was blatantly illegal,” he told us. The plans were “not within the existing rules.” (Chavan has also described the encounter to The New York Times and Washington Post.)
The Trumps were back in India in 2014, after a new government came into power, Narendra Modi’s BJP. The Trump Tower Mumbai — a gold-hued skyscraper that the Trump Organization bills as “unlike anything you have ever seen”—is now slated to finished next year. It is one of five Trump-affiliated projects currently under development in India.
The Trump Organization said the projects are doing well. One Trump partner said they booked $15 million in sales on just one day during Trump Jr.’s visit. It was the last day buyers would qualify for an offer by the Trump Organization’s partners to dine with the president’s son.
Only a handful of names of buyers in the Trump projects have been disclosed.
The Trump Organization, the White House and the developers for the project did not respond to our requests for comment.
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