-- Connecting the dots between our economy, government and business --
Summary and audio linked here.
If this bill passes, say goodbye to local control over all Illinois parks and expect to see open drug and alcohol use, needles, no sanitation and fire hazards, but no ordinary park users.
Summary and audio linked here.
Chicago’s political leadership is floating a pension buyout program as evidence it is seriously addressing the city’s thirty-six-billion-dollar unfunded pension liability, but Mark Glennon, founder of the Illinois policy research organization Wirepoints, said that the proposal moves debt from one column to another rather than reducing it, and that the broader fiscal picture facing the city continues to deteriorate across every measurable dimension. Audio here.
SIGN UP HERE FOR OUR FREE WIREPOINTS DAILY NEWSLETTER
Audio and summary
While Mark and PPF battle over semantics, here’s my bottom line question. We know SS will be insolvent by 2033, at what point will the proverbial stuff hit the fan and city and state pension checks start bouncing? How many and how much tax increases will the public tolerate?
Just a few hours ago PPF put the income tax increase needed at roughly 0.5% (on average?). He gave no insight as to how that figure was obtained or whether it was simply a SWAG estimate. It surely is possible to know the state’s income tax receipts for a given year, and one can estimate the corresponding % increase needed here presumably with some degree of ball park accuracy.
.5% doesn’t seem like much, does it? But since the current rate is 4.95%, that addition of another .5% is actually a 10% tax increase.
And your friends in the public unions will make sure the additional money ends up in their pockets. They have shown they are unwilling to give up available funds to make pension payments. Witness the city and CPS battling over who is responsible for this year’s payment.
And a few years after the increase is implemented, we’ll be having the same discussion about the shortfall in pension payments. It’s the public union way.
Statistically, any population growth in IL is from low income immigrants while wealthy and middle income taxpayers are leaving. IRS statistics don’t lie. Won’t tax increases encourage more taxpayers with money to leave, decreasing revenue? And this is only an income tax increase, while property taxes will also increase. And what about Chicago’s budget problems? City income tax?
For all anybody knows, banks may continue to honor pension checks and go along with overdrafts by insolvent funds. Observance of laws and regulations has become entirely optional for individuals and entities subject to those constraints. It’s an all-fiat world and by the time SS and veterans’ pensions and food stamps and medical programs have become insolvent, the spineless legislators and executives (and judges) will be tempted to let the good times roll. And sensible politicians will know better than to intervene and hasten the chaos. As the sun goes down tonight we see support for deporting illegals dwindling as… Read more »
Unfair to active workers – old (i.e 55) retirees will lick the bottom of the trough before actives get to the rim. Fiduciaries should read the tea leaves and make prudent cuts to save the funds. Issue scrip for shortfall and pay when they overtake the dented can somewhere down the red ink road.
There needs to be public pension reform. Public pensions should be in line with private pensions. There needs to be a 10 year work requirement to collect. Johnson is going to get a pension after teaching only 4 years, and he has been accruing time even though he is not teaching and an active member. That needs to go! And raise the retirement age.
“There needs to be a 10 year work requirement to collect.” Done. That was changed in 2011. “Johnson is going to get a pension after teaching only 4 years, and he has been accruing time even though he is not teaching and an active member. That needs to go!” Done. They fixed that in 2012 Deb. “And raise the retirement age.” Done. They did that as well. The retirement age was raised to 67 in 2011. All of your “ideas” to reform pensions have already been implemented. None of those changes will make the debt go away. Try and learn… Read more »
PPF, that is for Tier 2 pensioners only. But the entire unfunded liability is owed to Tier 1s for work already performed.
I know this Mark. That is all you are legally allowed to reform. You can’t go back in time and change their contract. There is no reform for tier 1 members that would allow raising the retirement age when most are already retired. You can’t go and take away service credit that the state already provided.
Rhode Island and Arizona did, as you know, despite having pension protection clauses in their constitutions substantially like ours and despite the federal Contract Clause that you always falsely say is an impediment to an amendment.
Yes, Rhode Island and Arizona allowed for very minor changes. Illinois courts have been clear that it isn’t allowed. You continue to falsely claim that the federal courts will allow this when they have shown no desire or interest in taking up such a case. Keep living in your fantasy land while the pensioners keep getting paid in full each and every month. The fact that you believe the federal contracts clause isn’t an impediment tells everyone that you are not serious about this topic. At best, you can hope that they will allow some type of minor change but… Read more »
Illinois’ ruling was based on Illinois’ pension protection clause. You deliberately did not mention that our view here at Wirepoints is that the clause has to be amended, leaving only federal issues for possible litigation by reform opponents. It would be them who would have to go federal court, as you well know, and federal jurisdiction would be certain on the federal contract clause on which you rely. And law on the contract clause is clear that reasonable contract amendments are permissible, as explained by the Rhode Island in the pension case that is directly on point. It is you… Read more »
The predicament our mostly Democratic pols have put us in is such a travesty. I remember sitting at my kitchen table reading in the Tribune his Jim Edgar had the brilliant idea of shorting the pensions and using a “:ramp” to pay it back later. Democrat legislature went along, the Unions went along with it too. This unholy marriage John Kass calls the combine, that has ruined the state, now pits old vs. young workers, because the bill for the years of negligence, fraud and incompetence are coming due. We need to be adults, and come together to solve this… Read more »
Pretending to take the high road by stealing from retirees because you don’t want income tax rates to go up 0.5%. lol
The solution is to pay the debt. That is what the state will do. Cities may need bankruptcy but politically in Illinois I doubt you will be cutting much from those pensions.
“Illinois’ ruling was based on Illinois’ pension protection clause” It wasn’t based JUST on the pension clause and you know it. You are deliberately misleading, not me. They also based their ruling on the contracts clause in the Illinois and US Constitution as well as equal protection. “In addition, because the state’s self-interest is at stake whenever it seeks to modify its own financial obligations, the United States Supreme Court has made clear that it is not appropriate to give the state’s legislature the same deference it would otherwise be afforded with regard to whether the impairment is reasonable and… Read more »
Illinois Supreme Court rulings would have no bearing on court case after a proper amendment, and the facts have changed hugely in the ten years since the IL case. For example, as the IL Supreme Court rightly said in that decision, IL had just let the “temporary” income tax expire, making it hard indeed for the state to claim it had no option other than pension reform. Today, that tax cut has been reversed and many other taxes increased. The relevant federal law on the Contract Clause demands reasonableness in any contract impairment — a point you like to ignore.… Read more »
I have never ignored the “reasonableness” argument. I’ve addressed it many times but you choose to ignore the words of the US Supreme Court as well as the Illinois Supreme Court. “While impairment of a contract may survive scrutiny under the contracts clause if reasonable and necessary to serve an mportant public purpose, “ ‘[t]he severity of the impairment measures the height of the hurdle the state legislation must clear.’ ” Felt v. Board of Trustees of the Judges Retirement System, 107 Ill. 2d at 166 (quoting Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 245 (1978)). Changes in the factors… Read more »
“Claiming that you can get a constitutional amendment passed and ignore the contracts clause completely dishonest and utterly stupid.” I have never claimed you can ignore it. To the contrary, I have been pointing out repeatedly that it requires that pension reform be limited to what’s reasonable. It’s you who are ignoring that and pretending it’s a hurdle that can’t overcome. It’s a protection for pensioners that I fully agree should be enforced.
I’m not pretending anything. I’m stating that Illinois has other options such as cutting spending, raising taxes or re-amortizing the debt. Although it’s not really me saying it as much as the courts. Changing the pension clause and battling this out on the contracts clause would require you to prove “reasonable and necessary” which would be very difficult for a state to do with its vast taxing authority. They would need to prove it was the “least drastic” alternative. It’s not that I don’t think contracts can be broken but rather the state is in a very difficult spot to… Read more »
I do not “know it.” Ultimate resolution of the financial problems in Chicago, many other municipalities and at the state level will require a comprehensive and painful turnaround plan. That pain will have to be shared fairly. If pensions were left untouched Illinoisans would bristle and reject the plan. The savings that would result from true pension reform would not eliminate the unfunded liabilities, but they would be meaningful enough to satisfy the demand that pensioners have some skin in the game.
We can agree that the pain will be shared fairly. It will be across all taxpayers.
Oh, you favor having Illinois start taxing pension income, which it does not do now? And many pensioners don’t live here.
It’s not what I favor but what will be allowed. Taxing pensions would at least be legally allowed.
“I have never claimed you can ignore it.” Yet when I point it out this was your response. “despite having pension protection clauses in their constitutions substantially like ours and despite the federal Contract Clause that you always falsely say is an impediment to an amendment.” It is an impediment and I didn’t make a false claim. The only way your statement can be correct is if you think you can ignore the contracts clause. So which is it Mark? Did I falsely claim that the contracts clause is an impediment to altering pensions since now you’re claiming you can’t… Read more »
Oh, for Christ’s sake. It’s a limitation that has to be honored but not an impediment to any reform, OK? Stop with the petty quibbling.
Fine, we will use your word limitation. You will be limited to making changes because of the contracts clause of the US Constitution. You will have a higher hurdle to meet the “reasonable and necessary” requirements as Illinois can increase taxes, cut other spending or re-amortize the debt.
I would suggest you take your own advice about quibbling. “Impediment” to changing contracts vs. “limitations” to changing contracts. That was you that started all of this by falsely claiming I was wrong when I wasn’t. Don’t quibble with me if you don’t want it right back.
There is absolutely nothing preventing a haircut of pensions due to funding not being there, just like with SS.
You somehow feel you know that with certainty with “the funding not being there.” I disagree in that your position prompts the IL government to purposely do that which then results in a self-fulfilling prophecy. Being “there” has to do with setting priorities, and the “pension clause” clearly recognizes that. It’s a mandate to place pension funding as a high priority compared to more discretionary expenses.
I wonder if the current union members who are constantly asking for more money for themselves will nod meekly when you tell them they can’t have any more because your pensions are the highest priority.
Stacy Davis Gates and her CTU members seem like reasonable people who will surely bow down to the pensioners’ higher priority claims and immediately pull back any demands for increased wages for themselves.
Who knows? What you want to portray is a competition between two IL mandates, that of providing to its youth to have free education for a stated period as well as providing the timely routine and full payment of its retired governmental workers’ pension payments. There is no such mandate for how any of that is funded other than laws which can be changed over time. Seems clear enough that the state has at least two high priority spending mandates and is expected to meet both of them. The competition, therefore, presumably will eventually occur between lower priority governmental obligations… Read more »
I like how you turned “higher salaries for teachers” into “mandated obligation to provide free education for children”.
SS is a form of welfare and you have no contractual rights to receiving it if congress changes the rules. Pensions are contractual rights that the GA can’t take away. If you want to cut them, you can try bankruptcy but I doubt you’ll see much of a haircut.
Jack Bolly, PPF is full of it when he says contract rights can’t be taken away. One case that is right on point is from Rhode Island, described here. As this and many other articles on the case correctly say, “the U.S. Supreme Court has held that public contracts can be unilaterally changed by state regulation if there is “a significant and legitimate public purpose behind the regulation such as the remedying of a broad and general social or economic problem,” https://yankeeinstitute.org/2019/11/18/rhode-island-supreme-court-allows-city-to-cut-pension-benefits-to-avoid-bankruptcy/
I think your point of view would carry more weight if any such disaster was somewhat sudden and unforeseen. That’s not the case with the underfunding of public employee pensions. That problem has been known for roughly a hundred years, but the IL legislators have consistently chosen to ignore the obvious in favor of gratifying their voters elsewhere. That’s hardly a reason to seek relief at this late date. It was a creation of their own making!
True to a point. courts, too, are less receptive to adjusting contracts when the problem was self-inflicted, but that by no means is a decisive factor. On pensions, many of the guilty are long gone, and courts would likely recognize it as a generational equity issue. Sticking future generations with a problem created by earlier generations is no more fair than sticking them with a problem created by a sudden disaster.
“courts would likely recognize it as a generational equity issue”
You pulled that one out of your backside. Past court cases don’t support this theory.
What?! Have you started drinking? I pulled the matter of generational equity out of my backside? Generational equity has been a leading topic in pension reform everywhere for many years, as you can easily find in countless articles. We’ve long linked to some of them and written about it, too. Maybe start with this one by the largest state pension in the nation in California, listing many authorities from many sources over many years talking about the generational fairness issue, including courts, contrary to your comment. https://calpensions.com/2016/10/24/how-pensions-pass-the-buck-to-future-generations/. I wrote about it ten years ago:https://wirepoints.org/teacher-pension-debt-per-student-in-illinois-rivals-college-loan-crisis-wp-original/
Your last sentence might just as well be used by Trump’s team of sycophantic advisors who want to throw the U. S. Constitution’s separation of powers principle into the legal toilet. We have something of a permanently meaningful constitution in each case or we have fancy toilet paper? Which is it?
I don’t like many of Trump’s legal positions, but I don’t see your point on that one. We have a permanently meaningful Constitution, and its contract clause has long been interpreted to not be a suicide pact. For example, the allowance of contract changes when needed was applied during the depression to let stand laws that barred enforcement of mortgage foreclosures.
If it’s become a suicide act it’s been approved by both sides of the bargaining table to make so, something apparently unforeseen by either side to make any sense at all. But, so far that’s simply your take on it rather than being a fait accompli.
Again, your example fits the case of something unforeseen as akin to a one-in-a-million chance scenario. The pension underfunding issue wasn’t/isn’t like that at all. That was perfectly predictable in that failing to pay your debts always leads in a dire direction. You don’t even need Econ 101 to realize that. Some people here tout “common sense” solutions, yet fail to see the connection here somehow. Duh!
James,
You are 100% correct and the courts have noted this as an issue.
Jack, Mark is completely wrong about being able to take away contract rights. The US Supreme Court has held that when states are party to the contract that they wish to impair then the hurdle to clear the “reasonable and necessary” requirements is much higher. SCOTUS held that other less drastic solutions should be considered before any changes to the contract. These less drastic changes include tax increases, cutting other spending, or re-amortizing the debt. Mark chooses to ignore this ruling because it doesn’t benefit his argument. Please research United States Trust Co of New York vs New Jersey and… Read more »
PPF, if you believed that you wouldn’t be so obsessed with this issue. And Rhode Island alone shows how wrong you are.
Rhode Island courts will not be ruling on this issue for Illinois. I’ve pointed out how the Illinois courts have ruled and would rule. I’ve pointed out how the federal courts view this matter. You refuse to engage in those points and want to discuss Rhode Island or Arizona. Good luck getting those courts to hear your case. I point out how you and others are wrong so you will finally become adults and start working on actuarially paying this debt so we don’t spend money elsewhere. I’m no more focused on this issue than you are. I’m just focused… Read more »
Now you are pretending to not know the difference between what court hears it and what law they apply. After a proper amendment that removes all IL law obstacles to pension reform, only federal law would matter and federal law would be apply, as was the case in Rhode Island.
There’s no debt to sue for until the first default and the creditor can’t accelerate. So sue every couple of months for missed payments and pay 1/3 to the collection lawyer. Or you could try to sue the employer most of whose assets are pledged to secure borrowing. Then join thousands of other retirees holding judgments and figure out who gets what. You should refocus on legal solutions to THAT. ALSO, how could a court force a legislative body to appropriate funds the employer doesn’t have? Read up on separation of powers. Public employers are on a downhill track and… Read more »
Big problem is what pensions were promised is INSANE, who retires at 55 with full pay other than state employee’s?
“Full pay” is quite the political stretch comment on your part as compared to actuality. In general there is NO IL state employee whose first retirement check is the same or greater than his highest paycheck as an employee. The only exception—assuming it even exists—is where an employee quit a long-term governmental job, then decided to take a very short-term one at lesser pay. If there is any such person your statement might well be true. So, I’ll say with reasonable confidence you’d not find more than maybe a dozen or two such cases out of tens of thousands of… Read more »
They don’t care about facts James. Just want to whine to alleviate their jealousy.
If you are still living in Taxistan you are essentially a TAX MULE for the public sector unions!!
That’s a 13% pension debt increase in 5 yrs with the help of $billions$ in fed ARPA-COVID funding…..yikes, Chicago is totally screwed!!
Chicago is on life support and is dying a long miserable death. One day it will be Bankrupt.
From the movie “Animal House”: “Well, Sir, we’re hoping that our midterm grades will really help our average.”
More like “ thank you sir, may I have another”.