Another major error in an op-ed on Illinois pensions – Quicktake

Getting on the same page about the facts on Illinois pensions is a necessary first step. Unfortunately, we have a way to go, thanks in part to errors in news and opinion articles.

The latest example is from an author we usually agree with in an article we otherwise like. It’s Jim Nowlan’s guest piece in Crain’s this week, “Police and fire unions must lead on pension reform.” He’s certainly right that it would be in their own interests for police and firefighter pensions to come to the bargaining table to fix an unsustainable pension system.

However, he claims that’s the only way to fix our pensions. Why? Because a state constitutional amendment to our pension protection clause won’t work under the United States Constitution, he wrote.  “The state high court has said that benefits already granted are contractual, and a state constitution cannot override the U.S. constitutional right of contract.”

That’s dead wrong. We’ve often spelled out why that’s wrong, and we have plenty of company. While the issue might be litigated, it has become increasingly clear that federal constitutional objections would lose and a constitutional amendment would work, and that’s almost certainly true for the particularly distressed towns and cities Nowlan wrote about.

Just this June, the Rhode Island Supreme Court rejected what Nowlan called the “constitutional right of contract” as well as other federal constitutional objections to pension reform. They were applying the same federal law that would be applied if Illinois were to amend its constitution. See our article on that. Last week, James Spiotto, a nationally recognized legal expert on insolvency, wrote to the same effect. A growing number of newspapers, including Crain’s and the Chicago Tribune, have also endorsed an amendment, as has The Civic Federation.

Nowlan’s error undermines his own point about union cooperation. They won’t negotiate if they remain under the mistaken impression, propagated by their leadership, that the federal constitution guarantees their full pension. In contrast, Arizona unions have twice negotiated and agreed to amendments to their state constitution, which had a pension protection clause identical to ours. While some individuals dissented, nobody bothered to sue. More importantly, the world didn’t end.

-Mark Glennon

For further information on the legal issues pertinent to amending our constitution to allow for needed pension reform, see the following:

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Gary MacDougal
4 years ago

Mark: Terrific article – 100% persuasive! Gary MacDougal

Rick
4 years ago

Bailout, bankruptcy or some group getting a serious financial haircut is the only cure. Adjusting the clause is not a solution, pain is. Which of these three will happen first? Bailout is no solution if the same jamokes are in charge, that’s like giving a bum your wallet. Bankruptcy, same situation, same jamokes same results. Now pain is a different story, that might work. But who gets the pain? Well it’s either the bondholders, pension recipients or the taxpayers. So far the lawyers have crafted every law to protect the bondholders and recipients. We are toast.

Andrew Szakmary
4 years ago

My understanding is that the Illinois state constitution also has a contracts clause, separate from the pension protection clause, that similarly prohibits the passage of ex-post facto laws and the abrogation of contracts. Even if you delete the pension protection clause (a big if, given the many hurdles you need to jump through), and then tried to cut pensions, beneficiaries could sue in state court and it would likely wind up – you guessed it – before the Illinois Supreme Court. The same court that in its 7-0 ruling against the 2013 pension cut legislation strongly hinted that it would… Read more »

Cass Andra
4 years ago

The pension “contract” that the Illinois courts have interpreted is similar to the Michigan clause that the bankruptcy court in Detroit was prepared to invalidate in the city’s bankruptcy. So municipal bankruptcy (if permitted in Illinois) could extinguish or modify pension rights accrued in those municipalities. That’s one of the reasons for the push to have the State consolidate all municipal pensions under state sponsorship … i.e. the State can’t go bankrupt under current law. A federal court in Maryland, interpreting Maryland teachers’ pension rights under the U.S. constitution, declined to find future expectations protected by the federal anti-impairment clause.… Read more »

Adam
4 years ago
Reply to  Mark Glennon

Mark, eventually something will have to happen, because taxpayers are pretty much tapped out, and services can’t be cut much more. They will be forced to do something in time, whether people like it or not. As I have said many times before – this can’t go on much longer.

nixit
4 years ago
Reply to  Adam

The pitchforks will come out when the state starts taxing retirement income and services, the two only untapped revenue resources remaining. Critical mass will then be achieved.

debtsor
4 years ago
Reply to  nixit

I disagree, there are still plenty of things to tax. Sales tax to 15%, city fees to quadruple, RE taxes to triple, and so on. Citizens will just offset the higher taxes with reduced spending in other areas.

IT will be hell for those that remain, but, it’s still totally possible.

Adam
4 years ago
Reply to  debtsor

Not realistic. There is a limit to taxation, and IL is almost there. People will start defaulting on their property taxes en mass if they get much higher.

Adam
4 years ago
Reply to  debtsor

Not realistic. There is a limit to taxation, and IL is almost there. People will start defaulting on their property taxes en mass if they go much higher in many areas. The pensions will implode during the next recession if nothing else. There is no math that makes it work.

J. A. Herzrent
4 years ago
Reply to  Adam

What happens if an owner stops paying both mortgage and taxes? The bank will eventually foreclose, but will the bank evict? If the owner is responsible but broke, might the bank let the owner stay there because a vacant house is likely to become less valuable as a result of neglect or vandalism. Likewise, will the municipality try to take the property back through foreclosure of a tax lien? The municipality will end up with title to a whole lot of empty houses. The house will be hard for anyone to sell, with title clouded by both mortgage and tax… Read more »

Adam
4 years ago
Reply to  Mark Glennon

Also, Andrew gets a pension and will never face the fact it is doomed and will in fact be cut. Math will win Andrew, and so you will lose.

Rob
4 years ago
Reply to  Adam

As Mike Royko wrote so long ago, the Chicago motto, “Urbs in Horto”, City in a garden, should really be, “Ubi est Mia”, or Where’s Mine? Gimme is all you hear. No one wants to step up and lead us out of this mess. The only “fair” way out is for everyone to take a haircut, with the top recipients taking a larger haircut than, say, someone squeaking by on 1500 a month. Everyone pays more, higher earners pay a little more. There should be a three year freeze, no COLA. Cap pensions at 10,000 a month max. Adjust benefits… Read more »

James
4 years ago
Reply to  Rob

Oh, if only political decisions were all as easy to envision, promote and pass into law as you seem to suggest. There has been, is, and will be numerous reasons and interest groups opposed to everything you’ve suggested. Much of it comes under “been there, tried that” as well. None of it hasn’t been considered at one time or another.

Freddy
4 years ago
Reply to  Mark Glennon

Mark- I proposed this idea to Sen. Stadelman here in Rockford a while back at a townhall meeting and he said it was an interesting thought .Tax tier 1 retirees at a nominal rate and that tax goes directly back to where they made their contributions. Example Rockford dist 205 retired teachers pay tax’s back to the non- retired teachers fund/police back to their pension and so on. None of those tax’s goes to the state’s general fund where it disappears into an abyss. This would show that retirees are willing to help their own. Remember Tier 1 retirees prior… Read more »

James
4 years ago
Reply to  Freddy

On the surface I like your idea idea very much, but there’s an underlying principle that seems to undermine its logic. While anyone has the freedom to make contributions to causes that appeal to them it’s the responsibility of society at large to fund governmental expenses, isn’t it? That, too, can be taken to illogical extremes, but when it comes to funding local governmental services such as education, fire and police where the benefits presumably accrue somewhat equally and without restrictions, then the entire citizenry at that level should be paying for it. If particular subsets want to voluntarily add… Read more »

Rob
4 years ago
Reply to  James

Our “brave and “visionary” legislature will wait until the last minute and then protect their own money first and that of the fat cats and well connected. As with other state spending, everything will be “protected”, except services to the disabled and the needy. They will trim the benefits of someone getting buy on 1500 a month by the same % as someone making 15,000. They will call themselves “brave”. Leslie Munger once said she was at a dinner that Trump was speaking at. She told him of Illinois financial problem. He told her that we need to declare bankruptcy.… Read more »

Cass Andra
4 years ago
Reply to  Mark Glennon

I hope you are right. However a bailout linked with a state/municipal bankruptcy could have the following results: Bankruptcy cuts all pensions and caps a federal guarantee. No pensions will be guaranteed that exceed $X per month; no double-dip pensions will be guaranteed; no COLAs will be guaranteed, etc. Y% of state (municipal?) revenues will be committed going forward to fund these pensions that have been reduced. (I believe state or municipality can enter a binding agreement with the feds OR federal guaranty could be contingent upon this funding commitment being met.) Contract-based claims against state or municipality or system… Read more »

John Nokes
4 years ago

Mark
Both Rhode Island and Arizona unions brought these cases to the state and was contractural agreement. In Rhode Island there was dissenting individuals who sued and that decision was made by the Supreme Court.

Wise Wally
4 years ago

State employees gave 98% of their donations to legislators who returned the favor by giving them divine rights of employee pensions which are several times higher than social security. What’s wrong with this picture?

Bonnie
4 years ago

As a current INFORMED state employee, not far from retirement, I, too am sick of it. I ABSOLUTELY want something done, so I WILL KNOW WHERE I STAND. Until then, I don’t DARE retire…I will just HANG ONTO MY JOB since that seems to be the most stable thing going for me right now.

DantheMan
4 years ago
Reply to  Bonnie

My brother is in the private sector and his pension fund is going broke. The uncertainty of if/when he can retire is always on his mind. His pension fund tried to implement a plan that would bring some sanity to the situation, but the politicians in Washington said ‘no’, offering no alternative or solution. Like you, he will keep working under a cloud of uncertainty.

Adam
4 years ago

It sounds like you need to write an op-ed for Crain’s exposing this Mark. You also need to bluntly state that the pensions will collapse completely without something being done – it would seem hardly anyone wants to say that in a major publication, but it is true. They are doomed with no fix.

Adam
4 years ago
Reply to  Mark Glennon

Thanks Mark. For well-informed people like me, we are just sick of all of this. It is so obvious the pensions are doomed, and it is even more obvious that they will collapse very soon if nothing is done. Maybe collapse is what it will take for people to wake up sadly. The public unions will be the ones to blame when that happens. Their pensions are toast, but most of them don’t seem to know it.

DantheMan
4 years ago
Reply to  Adam

Respectfully Adam, don’t you think the public unions deserve a good portion of the blame? From my perspective, they support the liberal financial policies and politicians that created this financial situation. Also, why didn’t they call for strikes when they saw their pension funds being massively underfunded? Now it appears to be too late.

James
4 years ago
Reply to  DantheMan

There was a lawsuit brought by one of the IL public employee pension funds circa 2003 decrying the underfunding of one such pension system. I’m not sure at the moment which one was involved here. But, the lawsuit was tossed out by the courts when the persons bringing the lawsuit were declard to have had no grounds to do so. The court said the pensions were still being paid in full and on time and no “harm” had accrued to the pensioners involved. Until such time as one of those conditions applies pensioners have no grounds to complain in a… Read more »

DantheMan
4 years ago
Reply to  James

If a union did not specify a specific, annual, enforceable amount to be allocated for pensions in their contract, that’s just a badly run union.

James
4 years ago
Reply to  DantheMan

Maybe, but you’re assuming something that might not be true—that the union made no such specific demands. Even if they did what gives those demands any power to supersede what the IL Constitution says or does not say? Since the constitution makes no statement as to how public employee pensions are to be funded or how sufficiently they are to be funded surely it’s a political matter to decide such things rather than pressure by a union. Public employees and their unions can fume and fuss all they want; it’s irrelevant except as it creates pressure on politicians to act… Read more »

Adam
4 years ago
Reply to  DantheMan

Public unions deserve 95% of the blame.

DantheMan
4 years ago

As specified in this article, Wirepoints has stated before that an amendment to the Illinois constitution would survive a legal challenge. I agree with Wirepoints, so let’s call that ‘plan A’ for saving Illinois. I have to wonder what happens if ‘plan A’ doesn’t survive a legal challenge. Is there a ‘plan B’ or is it game over?

Adam
4 years ago
Reply to  DantheMan

I agree with Dan. It seems this site and IPI also has put all their eggs into the amendment basket, however, what if that fails? I assume total pension collapse and some sort of federal action in time. Either way the gig is about up. The next recession is game over for the pensions. Math will win. This can’t go on much longer at all. Dan and I would appreciate an answer. An entire state won’t be allowed to collapse, so something has to happen.

Adam
4 years ago
Reply to  Mark Glennon

Mark, Peoria is bankrupt now. Galesburg and Rockford aren’t far away, and of course Chicago is bankrupt now as well. My point is that all these mayors of these places need to tell the press they are in fact bankrupt, and then state plainly they will not raise taxes again for pensions and must be allowed bankruptcy. I am so tired of all this. These mayors need to act now.

danni smith
4 years ago
Reply to  Mark Glennon

Michael Bargo has filed suits. Contact him via FB. But this being corrupt illinois, with the judges having a conflict of interest, he is constantly stone-walled.

DantheMan
4 years ago
Reply to  Mark Glennon

Thanks for the response Mark. I suppose if every Illinois local municipality was permitted by the state to declare bankruptcy, it might have similar impact as if the state itself declared bankruptcy. Perhaps the declining Illinois population will be temporarily offset by all the bankruptcy lawyers from around the country arriving for a big payday.

danni smith
4 years ago
Reply to  Adam

and why won’t an entire state be allowed to collapse? Detroit did. New york is folding. chiraq is. pritzker already told lighthead ‘no bailout for cps”. baltimore has-san francisco is the noose around the neck of califormia and los angeles is the anchor around her ankles. those governments are majorly concerned for the health and wealth of illegals and criminals-pelosi’s, “there is a spark of humanity in ms-13 gang members”. Anarchy will prevail when the fedgub makes Aunt Tillie in Idaho pay for the $600,000 annual pension for richie daley.

Adam
4 years ago
Reply to  danni smith

The federal reserve will just end up bailing states out if nothing else. Once the fed cannot do that then the entire global economy crashes and we all cease to be quickly anyway. Illinois, while the US still functions as a country, will not be allowed to fail, because it would bring down the entire system in time. Detroit did not fail; it went bankrupt. Detroit is also not a state.

Adam
4 years ago
Reply to  DantheMan

P.S. How long until Peoria admits they are bankrupt? 100% of their high property taxes are going towards pensions now. Peoria is out of options and bankrupt.

Platinum Goose
4 years ago
Reply to  Adam

I’m not an attorney but I’ve been involved with enough bankruptcies to know that nobody is ever made whole in a bankruptcy. If the unions think the bond holders will take a gigantic haircut and they’ll be made whole they are in for a big surprise.

Adam
4 years ago
Reply to  Platinum Goose

They both will have to take big cuts, and those cuts get bigger every year nothing is done. There is a recession looming, and it is about game over time.

Platinum Goose
4 years ago
Reply to  Adam

I think the unions know it which is why they’re making these ridiculous demands for wage increases. They figure if they have to take a haircut they better take what they can now before it falls apart.

DantheMan
4 years ago
Reply to  Platinum Goose

Isn’t that kind of what they have been doing all along? Just sayin…

Ditmar Redfern
4 years ago
Reply to  DantheMan

The commute from Indiana isn’t that bad.Don’t dare stay,lest they drain you of your own resources.

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