By: Ted Dabrowski and John Klingner
One of the biggest obstacles to pursuing pension reform in Illinois is the falsehood that any reforms would ultimately be overturned at the federal level. Gov. Pritzker claims that pension reform is a “fantasy” for just that reason, and even some Republicans, like State Rep. Tim Butler, echo the same message. The argument goes that pensions are a contract and that even with an amendment to the Illinois Constitution, any reforms would eventually get blocked because of the Contract Clause of the U.S. Constitution.
But that’s just not true. At Wirepoints, we’ve laid out the case for why reforms would pass federal muster in Why Pension Reform Is Legal, part of our overall reform report linked here and summarized here.
Perhaps one of the best examples for successful reform is Arizona’s recent effort, where the state amended its constitution and passed pension reforms to, as Arizona Gov. Doug Ducey described it, set its public safety “pension system on a path to financial stability while improving the way it serves our brave cops and firefighters.”
No federal challenges to Arizona’s reforms have been made – which is part of a longstanding pattern nationally. Dozens of states over the past several decades have reformed their public pension systems as problems became apparent over the years. None has been sued successfully under the U.S. Constitution – whether under the contract clause or any other provision – in all that time.
Below we lay out major reasons why Arizona’s reforms are so pertinent to Illinois:
- Arizona has virtually the same pension protection clause as Illinois.
- Arizona amended its constitution not just once, but twice in 2016 and 2017, to reform benefits.
- Reforms included reductions to cost-of-living benefits for both existing workers and new workers.
- Both sets of reforms were negotiated and largely consented to by public unions, but not all pensioners agreed with the cuts. To this day, dissenters could, individually or as a group, attempt a lawsuit challenging the reforms under federal law, yet none have tried.
Arizona’s retirement crisis
Arizona was feeling pressure from its public safety pensions funds as recently as 2007. By 2016, the Public Safety Personnel Retirement System (PSPRS) funded ratio had fallen from 100 percent to less than 50 percent in just over a decade. The system’s shortfall meanwhile, had grown to over $6 billion from zero in 2003.
One of the reasons for the system’s collapse was the fund’s Permanent Benefit Increase – Arizona’s version of Cost-of-Living Adjustments (COLAs) – that provided benefits to retirees based on the fund’s investment returns with no regard for how unhealthy the fund was.
In 2016, the various stakeholders in Arizona’s pensions – state legislators, unions, retiree organizations, and more – came together and developed a reform plan.
Several previous attempts at reform had been blocked by the state’s constitutional protections over the years. Arizona has a protection clause that’s like the one in Illinois. Article 29, section 1 of the Arizona Constitution says: Membership in a public retirement system is a contractual relationship…Public retirement system benefits shall not be diminished or impaired.”
One study has noted that, similar to Illinois’ own situation: “The courts have interpreted this language, in conjunction with the State’s Contract Clause, as a broad prohibition on virtually any modification of existing pension benefits and liabilities, including those due in the future to current employees.”
In spite of that precedent, government officials and public sector workers finally negotiated legislation that amended the system’s cost-of-living provision. New laws replaced the system’s unfunded, investment-based benefit increases with ones based on inflation and capped at a maximum level. A new system of defined-contribution 401(a) plans was also added for new workers.
Arizona went on to enact similar pension reforms in 2017 without incident. The law passed in 2016 impacted public safety personnel and the additional laws passed in 2017 covered changes to corrections officers and elected officials.
In both cases, however, those laws could not come into effect without ballot initiatives to amend the state’s constitution.
Ballot initiatives to amend the Arizona constitution
Proposition 124
The first proposition presented to Arizona voters in May 2016 was the Arizona Public Retirement Benefits Amendment, Proposition 124:
“The proposition and accompanying legislation permit the state to adjust certain benefits in the public safety personnel retirement system to alleviate system underfunding, including the replacement of the current permanent benefit increase structure with a cost of living adjustment that is indexed for inflation, capped at 2% per year.”
The measure appeared on the ballot as follows:
“A “YES” vote will allow the state to adjust certain benefits for public safety retirees, including the replacement of the current permanent benefit increase structure with a cost of living adjustment based on inflation, capped at 2% per year.
A “NO” vote shall have the effect of maintaining the current benefit increase structure in the underfunded Public Safety Personnel Retirement System and prohibiting the proposed legislative adjustment intended to stabilize the system.”
And the language added to the Arizona Constitution was as follows:
“Public retirement system benefits shall not be diminished or impaired, except that: 1. Certain adjustments to the public safety personnel retirement system may be made as provided in Senate Bill 1428, as enacted by the fifty-second legislature, second regular session…This section preserves the authority vested in the legislature pursuant to this constitution and does not restrict the legislature’s ability to modify public retirement system benefits for prospective members of public retirement systems.”
Proposition 124 ended up passing 70 percent to 30 percent.
Proposition 125
Proposition 125, introduced the following year, allowed the state to make adjustments to two additional state pension plans – the Corrections Officer Retirement Plan and the Elected Officials’ Retirement Plan.
The additional proposition, with similar ballot language to Proposition 124, called for another amendment to the Arizona Constitution. Proposition 125 ended up passing 52 percent to 48 percent.
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Arizona has successfully made major changes to pension benefits for existing workers and retirees twice now. In both cases, legislation was approved, officially endorsed by the public via a ballot proposition, amendments were added to the state constitution, and reforms were passed by the Arizona legislature that modified current and future pension benefits.
Arizona proves that pension reform that impacts active workers and retirees is possible. And separate reforms in Rhode Island reinforce the fact that such reforms are legal at the federal level.
Illinois can follow a similar path for reform. However, this state will have to differ itself from Arizona in one important respect: Illinois will need far more flexibility in reforming its multiple retirement crises at the state and local level.
Arizona’s constitutional amendments were narrowly written to allow for pension reforms already written and passed by the state legislature. That’s why lawmakers were forced to ask for reform permission twice, once with Proposition 124 and again with Proposition 125.
With so many different crises at various levels of government, Illinois will never be able to successfully amend its constitution in the same way as Arizona.
Instead, as Wirepoints laid out in a recent Chicago Tribune Editorial, Illinois’ constitution requires an amendment of 50 words to help save the state from an inevitable financial collapse in years to come.
“Nothing in this Constitution or in any law shall be construed to limit the power of the General Assembly to reduce or change pension benefits or other benefits of membership in any public pension or public retirement system, whether now or in the future, accrued or yet to be earned.”
That language, or something similar, would grant Illinois lawmakers powers to reform Illinois’ $420 billion in total retirement debts both now and in the future.
Wirepoints has crafted a plan based on those 50 words that cuts residents’ pension burdens, protects government workers retirement security, and makes this state more affordable for everyone. Visit our Pension Solutions page to learn more.
Read more about Illinois’ pension crisis and Wirepoints’ solutions:
A set of state lawmakers want to extend CPS’ current school closing moratorium to February 1, 2027 – the same year CPS is set to transition to a fully-elected school board. That means schools like Manley High School, with capacity for more than 1,000 students but enrollment of just 78, can’t be closed for anther three years. The school spends $45,000 per student, but just 2.4% of students read at grade level.
Hopefully, all media will get the message, in Illinois, too.
Ted joined Tom Miller of WJPF to talk about Illinois’ highest-in-the-nation property taxes, why lawmakers don’t want to touch the tax’s cost drivers, just how much Illinoisans’ tax burden has grown over the decades, why Gov. Pritzker failed to meet his promise to reform property taxes, and more.
Pensions were granted in exchange for a criminal activity – the bribery of Democrat politicians. That should make them subject to CLAWBACK. Bring in actuaries and determine what those bums would receive, based upon their cash contributions, under a real-world pension plan run honestly. That is all they should ever receive. Break existing pensions and adjust the payouts to reflect honest numbers.
When checks bounce, things change. Reality bats last.
The entire “education” combine is an epic scam. These incompetent bums earn 2-5 times what they could ever earn in a “real job” and their benefit packages would embarrass a CEO. When will this disgusting situation be fixed? Will bankruptcy be the only way out?
“Education” attracts dumb people who could not get to first base in the real world.
Well, you are likely not a man who ponders things a long time and from various angles, are you? Nope, you’re a guy who gets things done NOW! So, what’s the big deal if you hit the wrong city when releasing the next bomb from your plane? Hey, we all make mistakes, right? Sure, nobody is perfect.
Many, many people in the education field are morons. And their grades are inflated to make them look smart.
https://www.aei.org/research-products/report/grade-inflation-for-education-majors-and-low-standards-for-teachers/
But they have strong unions and families that all vote Democrat. So they make you pay.
Isn’t the reality that no one will come to the table until there aren’t funds left to be sent out? The way the idiot judges in most states and up to the SCOTUS rule, you’ll notice it’s all about just not making waves. No one cares about any state or Fed constitution anymore. Sheesh, the president just said openly he knows the (CDC) eviction stuff is unconstitutional but then said I don’t care do it anyway.
In order to implement any of these ideas you would need Democrats to vote for it from the House and Senate. With a super majority I don’t see that happening. What needs to be done is all on the local level. These deals whether it is for the teachers or administrators are all done behind closed doors. Compensation and benefits are never known to the general public until ratified by the union members which is usually 2 weeks or so after a tentative deal is agreed to. How many local officials like the mayor or city council which all have… Read more »
Well said. The obvious problem, though, is endless bickering should the public be allowed to speak as wanna-be board members, a role many would love to take. So, you’ll have endless pet peeves, shouting matches and arguments. Then, who wants to be a local citizen serving for free on such boards only to endure the hatred and abuse of their neighbors? No one having a business in that community! Your “transparency” is desirable if handled correctly; if not, its a nightmare.
Clarify for me, I’m under the assumption that the voted school board members at my school district are paid, true or false any insight.
I am fairly sure its a matter of law that all public school board members in IL work without compensation in terms of salary. There may be other perks of a minor nature as a token of gratitude and motivatgion such as paid travel, room and board for attendance at annual conventions, and the Chicago Public Schools may well not operate by the same set of rules.
Thank you
True. I know some people who were on a local small school district board a few years back and there happened to be a teachers strike and he said he was being called at home at all hours of the night and to settle no matter what. He was harassed and was told how do they find child care and had to take off of work. They settled quickly. I asked what were some of the demands by the union. He would not say and said some were ridiculous. He did not seek reelection. There could be a time frame… Read more »
Why would the same people collecting pensions, getting yearly annual compounded increases and ending up with $1000000 more or less over their lifetime ever vote to change anything in that policy? The people collecting the pensions are the same people who vote on the pensions. We the taxpayers fund most of those pensions. They’re getting rich and don’t care if we’re not. Y’all need to understand they’re never going to change it. That’s why they put it in the Constitution.
Now here is a person who has some active brain cells. Bravo!
“… ending up with $1,000,000 or more over their lifetime (in pension benefits) …”
Uh, try $4,000,000 or more. Remember, a lot of teachers retired in their 50s.
Those damn teachers are clearly the scum of the earth, and everbody knows it!
I have nothing against teachers. Are they supposed to reject the generous salaries and benefits they receive? No one would do that. I have a problem with how IL increasingly gouges the taxpayer.
Would IL have to pass legislation to set up a challenge, or could someone just file a bill?
Who would have standing to file a federal action?
How might one get both a reform proponent and a challenger lined up? Each would appear to be on a different side of the issue.
Or might one get a bill proposed and then file a declaratory judgment action? (I think something like this was done in Michigan.)
its pretty hilarious when theres an article about public pensions theres a whole lot of down votes,seems the public pensioners crawl out from under there rock to down vote everything-hilarious-come on guys,tryin to get some more down votes,put down your bowl of mac and cheese that mommy made for you and vote!
Illinois-(1) overall tax burden among highest of all states; (2) political corruption among the highest of all states; (3) efficiency of our political class (not published–maybe IDES fraud is a decent indicator relative to other states); (4) #51 (behind Puerto Rico) in fiscal condition.
Regular tax payers have been constantly sold out to the public unions via mainly pensions. We have had enough. Fix the almost half trillion dollar public pension looting from the citizens of Illinois. A shocking scale of malfeasance and corruption perpetrated by the political class against the regular Illinois taxpayer.
Thanks; I’m sure they will get to it right away!
Any law that prevents us from temporarily reducing COLAs for one year during a worldwide pandemic and tiny inflation is a law not worth protecting.
You are absolutely correct.
Wow. it looks like the AFSCME trolls are out in force on the comments down-votes. Like the public sector union pigs that they are, they squeal in terror whenever there is any threat to being pulled off of the taxpayer funded teat. Or perhaps a better metaphor is leeches being burned off the host. Either way, the end of their parasitic existence living off the honest hardworking taxpayers is inevitable. No matter how much James stamps his feet, the 60 years of Public Sector Union criminal collusion with Democrat Politicians will come to an end. The mathematics are inexorable.
I don’t necessarily disagree with the ending you predict, but reform of the severest kind Wirepoints wants requires striking while the iron is hot. That degree of acceptance may get there, but its only warm in today’s political climate in IL among the general population if you ignore the small group of shouters here. If they harrangue in that environment it will continue being largely ignored by the majority of IL voters and more so by the majority party in current power. It may be a stronger “I told you so” argument later.
I agree with you regarding the IL political climate. The thing that amazes me is how the rank and file public sector union voters keep voting for the same politicians who promise one thing and then provide another. For decades. Some pension funds are only 8% funded, 15% funded or 20%. Looks to me like the politicians have stolen the other 92% or 85% or 80%. Illinois already has one of the worst tax burdens in the country causing one of the largest population outflows. To think that IL taxes can rise to cover the missing % and keep a… Read more »
Politicians have “stolen” pension funds? Politicians find legal ways to make statutory minimum payments instead of making the actuarial required payment. The pension systems are not affordable for taxpayers.
If your last sentence is correct—and I think’s that’s the case—its been made that way purposely by roughly a hundred years of IL government choosing to govern with fiscal irresponsibility, always “robbing Peter to pay Paul” no matter the legal obligations to Peter meantime.
Looks to me like the politicians have stolen the other 92% or 85% or 80%.
Nope, the ones who stole it are the pubic employees who received RAISES and benefit perks that were unaffordable, instead of having that $$$ properly paid into their pension plans.
And, there’s off. Rex, the Wonder Dog leaps from the gate, and……
I do not understand your reference to “severity” regarding wirepoints’ desires on pension reform? At present, the growth of pension liabilities are rapid and uncontrolled. The goal is to slow down the growth and preserve the pension funds.
Your point of view is reasonable, but the wording of the Wirepoints’ suggested pension reform clause allows—and maybe even encourages—more drastic measures than your moderate remarks begin to even imagine. Their wording is entirely permissive with no safeguards against any and all future attempts to reduce public employees’ current and future pension rights as to the amount of such annuities going forward. ALL current legal guard rails against such reduction and diminishment would be removed and be at at the whim of the times politically.
James, not true. The federal Contract Clause would require that any changes be fair and reasonable under the specific circumstances, as made clear by case law that we have written about repeatedly.
Okay, then. But, its still likely attempts would be made repeatedly over time with varying legal logic based upon earlier attempts rendered unsuccessful. Take a bit here one way, a bit there another way and soon enough the deed is done. Besides, we all know “reasonable” is a quick-sand idea. If its reasonable to deny one man’s rights it might be a bit more reasonable to deny most people’s rights.
I think the point is that status quo advocates argue, falsely, that the Federal Contract Clause would prohibit laws or constitutional amendments that would cut-back expectations. The false arguments deter or discourage those who’d like to change the status quo. What Mark says is worth repeating until we find a legislator or an amendment proposer who is willing to put a reform proposal on the table and also be prepared to fight for that proposal if and when challenged in the federal courts. I don’t know whether the proposal needs to pass in order to set up a challenge. Let’s… Read more »
I’m most concerned about the “whole hog” approach of this particlar Pension Clause amendment, essentially giving never-ending permission to slash here, there and everywhere it concerns public pension payments over time and as the political winds of the times allow. I don’t believe there is a common middle ground, though, given the wording of the current Pension Clause. My guess is you either live with its concreteness or abandon it completely as Wirepoints and most here would prefer. I might go for a lesser version of pension reform if it helped give a sense of “fairness” to the whole matter,… Read more »
It’s the courts’ interpretation of the Illinois constitution that creates the problem. Other states with similar clauses interpret them more narrowly. So I think what’s needed is to sculpt or narrow the IL supreme court’s ruling. We can start with COLA or with something broader or narrower, whatever and wherever we can gain some ground. I think a narrow start (e.g., a cap on COLA) could frame an issue that federal courts could deal with under the principles of “reasonable” cutbacks. It’s not going to happen in 100 or 1000 days. The object should be to put the Federal constitutional… Read more »
We would then be like the vast majority of states that make repeated adjustments to their pensions, and the world didn’t end.
“Adjustments” can be reasonable or not at all so to those whose lives are ”adjusted.” I might favor minor tweaks, but whose to say when those minor tweaks will end and what the net effect would be. Again, your version of it is written so broadly in powers given and so potentially unending as to give little comfort to those being tweaked even a little at the first successful attempt.
NY has six pension tiers. Many states implemented a second tier of pension benefits well before IL did. I often wonder how much better off we’d be today if, in 1995 when the Edgar Ramp began, the state created Tier 2. The benefit cut wouldn’t have been as dramatic as the current Tier 2. Maybe we’d be on Tier 3 by now.
Coulda, shoulda, woulda
The pension clause has created a false sense of security for public pensioners. The best way to protect public pensioners and our most vulnerable residents is to create a system that the taxpayers can afford to fund. Unaffordable systems put our pensioners in grave risk.
The political and judicial history as well as political climate and specifics of the pension situation makes a comparison between Illinois and Arizona interesting. Nudging reform in the right direction appears to be more challenging in Illinois. There’s a more recent evaluation of the concrete efforts of proposition reforms brought forward in Arizona but there is more work to be done. https://reason.org/policy-study/arizona-public-safety-personnel-retirement-system-solvency-analysis/ https://reason.org/wp-content/uploads/arizona-public-safety-personnel-retirement-systems-pension-solvency-10-2020.pdf i think there are significant risks with the return assumptions and discount rates presently used. A crisis (economic, financial) would help accelerate the process and then even a chapter 9 set up could be considered. Interesting times.… Read more »
This Wirepoints version of pension reform is so onerous that its almost sure never to happen where such pensions are ”reformed” perhaps in mutiple ways and at multiple times. Such IL employees and retirees in general are highly organized while also living in a state almost guaranteed to be controlled by Democrats for years yet to come. Doing it in smaller ways might be successful and especially in another political climate. This version is nothing but a Republican’s wet dream and surely a wasted effort in the near term as currently written!
You mean as opposed to the public employee version that is so grounded in reality?
The future will tell which version was a “wet dream” as per your comment…
I’m not takking about the longer-term future, Doofus. Who can begin to predict that? Meantime, you and yours are in the political minority. No amount of huffing and puffing on your part will change that in the present.
James – the public unions and their members are the biggest rent seekers in our political system. I agree reform in any near term is not in the cards. The politicians and their beneficiaries will hang on by their fingernails, and for a long while. Even with federal assistance, which is what Illinois Democrats are counting on, the State’s economy will continue to slide as out migration continues. It will degrade to a Midwest variant of West Virginia. So while I am in agreement with your sense of timing I think the logical extrapolation from your conclusion is that productive… Read more »
What is so “onerous” about it? Please give us some specifics.
Did you READ the Wirepoints proposal for IL public pension reform? If not you really ought do so as it would permit the complete obliteration of the state’s current legal obligations under the Pension Clause’s as to either immediately reducing and/or even the future diminishment of a public employee’s pension. That may seem reasonable to many superficially, but it also allows an unending stream of such diminishments as time passes, all at the sole whim of the politics of the moment—akin to a “death by a thousand cuts.” There is little doubt that a pension promised at a given level… Read more »
James, please read up on the limitations imposed by the federal Contract Clause. You are wrong.
You have said repeatedly the contacts clause is no barrier. Clever lawyers always know clever schemes to reinterpret the written word. Only a few years ago a few legal eagles were reinterpreting the IL Pension Clause to their own ends. I remember it well! The IL Supreme Court denounced it in favor of “the clear meaning” of the written words there. Such attempts will forever be encouraged by the lack of side rail safeguards in your pension reform proposal as currently written. Your statement goes “whole hog” for what you want, and to that extent its headed toward almost certain… Read more »
James – it is not conservatism, but the pain inflicted by the worst form of crony capitalism between the public sector unions and government. The pension debt will increasingly crowd other government needs, and the pressure to raise taxes of any kind, even if terrifically regressive, will be relentless. The pain just hasn’t been felt yet to the extent it will be. I am not a bankruptcy lawyer, but insolvency proceedings tend to treat creditors equally as a class. In terms of social justice, this would be the worst possible outcome for Illinois pensioners. Those raking in 100,000, 200,000 dollars… Read more »
I think equal treatment among all creditors is called for here. Anyone having a financial interest with income from IL ought to be required to participate in any such outcome, contractors included. All I tend to read here is the endless chit-chat that pensions should be reduced. Maybe so, but I think ALL expenses of government should be reduced and that it should be done in an equitable fashion rather picking on one group while forgetting others. An alternate mechanism, perhaps a bit more appealing, is to start taxing pensions of all stripe, public and private. I wouldn’t suggest full… Read more »
Some uniformity in treatment of creditors might be achieved through bankruptcy, but those who can plausibly maintain “contract rights” are likely to come out ahead of contractors, vendors, etc. And those with the strongest legal positions have little reason to make concessions in any forum where their rights are on the line. Widespread default by public employers in making “required” contributions might gain some traction but what legislative body or executive or treasurer is going to do that sua sponte? Cognitive dissonance inhabits both the governors and the governed. Like climate change and COVID, the solutions may simply not exist… Read more »
What I have repeatedly said is that the Contract Clause is no barrier to reasonable pension reform fitted to the specific situation.
i totally support our cops and firefighters,i hope all the politicians have to stand in the free cheese line,linc cards for all politicians,no pensions for politicians!!
looks like adam kinsinger down voted my comment-lol