How to solve the pension crisis in Illinois

One way or another, neither the Great State of Illinois nor the City of Chicago is going to be able to pay out all the pensions it has promised to retired and yet-to-retire state workers.  As in California and some other jurisdictions, politicians promised future benefits to employees that would have to be paid for after their terms in office ended with no regard to the practicality of paying for it.  That day of reckoning is almost upon Illinois and its largest city.

As the Chicago Tribune noted three days ago:

The average Chicago firefighter hired before January 2011 can retire at age 50 with just 20 years on the job.  If that firefighter lives to full life expectancy, he or she will receive pension compensation worth more than $1.3 million.

That firefighter will have contributed a small fraction of that total.  Taxpayer money and investment returns make up the rest of the pension formula.

The problem is that full payment of these pension promises is required by the Illinois Constitution:

Article 13, Section 5: "Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired."

That language – drafted at the 1970 Illinois Constitutional Convention and strictly interpreted in 2015 by the Illinois Supreme Court – has been described by critics as a suicide pact.  Eventually the inability to reduce benefits will drive the city of Chicago, the state of Illinois and hundreds of municipalities statewide, and their pension funds, into insolvency.  The alternative?  A tax burden so onerous, residents and businesses will continue to flee.

The Trib wants Mayor Rahm Emanuel to speak in favor of amending the state constitution, but is there political will to do this?

Another approach is that of Illinois state representative Jeanne Ives, R-Wheaton.  Via Scott Reeder of the Dispatch-Argus:


Rep. Jeanne Ives.

The state entered into illegal contracts when it signed up employees for pensions over the last 40 years.  While the state constitution says pensions of public employees cannot be diminished, the constitution also mandates that state legislators pass a budget they believe to be balanced and the constitution also says Illinois cannot take on more debt unless three-fifths of lawmakers agree.

And yet, Ives contends lawmakers have been well aware that the budgets they have passed each year have not adequately covered anticipated pension obligations.

Her contention is that this was a deliberate violation of the balanced budget clause of the state constitution and thus its "contract" with pensioners is void.  She also says that promising payouts without funding them creates a debt obligation that should have received a super-majority vote each year, but didn't always.

Reeder notes that the Illinois Supreme Court likely would have no appetite for such a finding...

But if the case is somehow argued in the federal courts, this argument might prevail, especially with the conservative majority on the U.S. Supreme Court.

Fans of irony will note that inventive legal theories to find inconvenient laws unconstitutional have been a specialty of the left.  This might be a bit of payback.

One way or another, Herbert Stein's famous law will be shown to be true: "If something cannot go on forever, it will stop."

Hat tip: Peter von Buol

One way or another, neither the Great State of Illinois nor the City of Chicago is going to be able to pay out all the pensions it has promised to retired and yet-to-retire state workers.  As in California and some other jurisdictions, politicians promised future benefits to employees that would have to be paid for after their terms in office ended with no regard to the practicality of paying for it.  That day of reckoning is almost upon Illinois and its largest city.

As the Chicago Tribune noted three days ago:

The average Chicago firefighter hired before January 2011 can retire at age 50 with just 20 years on the job.  If that firefighter lives to full life expectancy, he or she will receive pension compensation worth more than $1.3 million.

That firefighter will have contributed a small fraction of that total.  Taxpayer money and investment returns make up the rest of the pension formula.

The problem is that full payment of these pension promises is required by the Illinois Constitution:

Article 13, Section 5: "Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired."

That language – drafted at the 1970 Illinois Constitutional Convention and strictly interpreted in 2015 by the Illinois Supreme Court – has been described by critics as a suicide pact.  Eventually the inability to reduce benefits will drive the city of Chicago, the state of Illinois and hundreds of municipalities statewide, and their pension funds, into insolvency.  The alternative?  A tax burden so onerous, residents and businesses will continue to flee.

The Trib wants Mayor Rahm Emanuel to speak in favor of amending the state constitution, but is there political will to do this?

Another approach is that of Illinois state representative Jeanne Ives, R-Wheaton.  Via Scott Reeder of the Dispatch-Argus:


Rep. Jeanne Ives.

The state entered into illegal contracts when it signed up employees for pensions over the last 40 years.  While the state constitution says pensions of public employees cannot be diminished, the constitution also mandates that state legislators pass a budget they believe to be balanced and the constitution also says Illinois cannot take on more debt unless three-fifths of lawmakers agree.

And yet, Ives contends lawmakers have been well aware that the budgets they have passed each year have not adequately covered anticipated pension obligations.

Her contention is that this was a deliberate violation of the balanced budget clause of the state constitution and thus its "contract" with pensioners is void.  She also says that promising payouts without funding them creates a debt obligation that should have received a super-majority vote each year, but didn't always.

Reeder notes that the Illinois Supreme Court likely would have no appetite for such a finding...

But if the case is somehow argued in the federal courts, this argument might prevail, especially with the conservative majority on the U.S. Supreme Court.

Fans of irony will note that inventive legal theories to find inconvenient laws unconstitutional have been a specialty of the left.  This might be a bit of payback.

One way or another, Herbert Stein's famous law will be shown to be true: "If something cannot go on forever, it will stop."

Hat tip: Peter von Buol