By: Mark Glennon*
If I offer you an equal trade for something which you are free to accept or reject, have you sacrificed or given anything up? Of course not, yet the notion that you’d have somehow made a big concession is behind the “pension reform” piece of the Illinois budget deal now being discussed.
We’re talking about the “consideration” approach to pension reform, which has long been pushed by Illinois Senate President John Cullerton (D-Chicago) and his go-to lawyer on pension matters, Eric Madiar. The idea, differently stated, is for pensioners to give up benefits in exchange for being given something else. It would have to be a fair, equal swap and voluntary to be constitutional, since the Illinois Supreme Court has made very clear that benefits cannot be cut.
If it’s not obvious to you that the consideration approach makes no sense, please read why, “by definition” it wouldn’t solve much, explained by the City of Chicago in a sworn court filing in earlier pension litigation:
Nor would ‘consideration’ work from an economic standpoint. To give participants (or their legal representatives) an incentive to agree, the value of such consideration would need to be similar to the value of the benefits given up. But this would involve trading one obligation for another and by definition would not solve the problem that neither the fund nor the governmental entity has enough money to pay the benefits promised…. And, even if this ‘consideration’ were constitutional, it is unclear how many participants would accept it and, to the extent they did not, full funding would not be available and the funds would not be saved, to the detriment of all participants. (Pages 19-20.)
The Illinois press continues to be suckered into thinking there’s merit in this approach. Whet Moser at Chicago Magazine fell for it again in an article on Monday. The State Journal-Register fawns over the bipartisan progress represented by this approach, opining yesterday that Cullerton is bravely risking alienating his constituents. No. Cullerton’s constituency is public unions and he knows he’s giving up nothing.
That’s why you haven’t seen any evidence for the supposed savings that could be had through the consideration approach to pension reform. Proponents assert that up to a $1 billion per year in pension contributions might be saved. Where’s their support for that? Nowhere. They’ve claimed to have some earlier actuarial report on it but it’s never been released.
It gets worse. In a lengthy legal piece touting the consideration approach, Madiar says this about the supposed savings: “According to news reports, the Senate President’s proposal is estimated to save the State about $1 billion a year.” But the news report he cites is just an article that says “Cullerton estimates” the approach could save $1 billion (page 13 and note 182)! Basically, they cite themselves to prove the claim, and wrap it a 38-page, tedious legal analysis to make it look legit.
Finally, even if $1 billion would be saved, that wouldn’t help much. The state is now contributing about $8 billion per year to its pensions, which is about to increase by $1 billion next year. And that’s not nearly enough to begin funding them properly.
Wake up, Illinois. You’re being duped again.
*Mark Glennon is founder of Wirepoints. Opinions expressed are his own.