Another sudden and unexpected factor will transform this year’s elections. Many states, cities and counties are about to, suddenly, run out of money. Wages won’t be paid. Services won’t be delivered. Institutions will shut down abruptly. Many state colleges may fold. And yet most state and local political and administrative leaders just sit and watch. Voters will not be pleased.
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Expect no retraction or apology. This what they do.
The state’s existing buyout program for its own pensions is the precedent for Chicago, which should be a warning: Look out for similar exaggerated claims and shoddy analysis.
An article in the Chicago Tribune dated 8-10-2015 states “City pensions are fundamentally different. The city is not legally obligated to pay pensions beyond its statutory obligation to make contributions to the pension funds — an obligation Chicago has always fulfilled. This is not ambiguous, not a lawyer’s argument about what is implicit. The law governing city pensions says, in so many words, that there is no city obligation to the beneficiaries beyond the amount that the city is obligated to contribute to the funds.” I don’t know what law is being referenced or if the law has changed …… Read more »
Since that Tribune article Illinois courts have ruled that the sponsoring unit of government is directly liable on the pensions if the pensions run dry. In fact, they have also said that courts could force a tax increase to fund the pensions when the pensions get close to running dry, and one court did just that in Harvey. Your point remains correct, however, that if the city did not pay, pensioners would just have a lawsuit to collect, just like any other creditors.
Isn’t there a separation of powers issue? Assuming the power to tax resides with the legislative body, how can a court force an independent arm of government to act? Michigan’s Supreme Court determined it lacked the power to force the legislature to appropriate funds. 448 Mich. 503 (1995) And Washington implicitly acknowledged a similar constitutional restriction which it attempted to sidestep by “fining” the legislature $250,000 per day until school aid funding was increased … although I believe such fine was never enforced or collected. I’m not sure a court could “force” a tax increase in the sense (for example)… Read more »
I am not dismissing your point but during the budget shutdown while Rauner was in office the courts stepped in and said who would get paid. The states history suggest that without a budget or enough funds to pay all of the bills (what happened during stalemate) the courts would get involved. My guess is the courts wouldn’t have to issue a tax increase. They would just step in to say pay pensioners and bondholders first. You want money for police and fire? You will need to raise taxes.
How can they pay pensioners first? I don’t think pensioners have a legal claim to be paid first. Just because they must be paid doesn’t imply that they will be paid First. The government may operate this way (as they take Harvey’s money to pay for its pensions, and allowed teh phones to be disconnected for a few days) but when everyone is in court fighting it out, the constitution does not mandate that pensioners are first in line for any state funds. They’re at the back of the line like everyone else. Just because the law says they must… Read more »
Yes unpaid bills are near the front of the line with bondholders and pensioners. Money to pay for current services are not owed anything in the future. You would be forced to cut or raise taxes for those items.
There should be a separation of powers issue, but this is Illinois. Here’s our earlier article about the IL court-ordered tax increase, with the link to the decision: https://wirepoints.org/court-ordered-taxes-for-pensions-begins-in-illinois-litigation-turmoil-looms-wirepoints-original/
How did you go bankrupt?
Two ways. Gradually, then suddenly.
Ironically, bedroom communities like mine that rely primarily on real estate taxes, already run lean (relatively speaking, of course), will likely fare a lot better than other communities that rely heavily or in substantial part on retail, commercial or industrial taxes (ahem, Schaumburg). This is truly a ‘survival of the fittest’ situation, where in coming years, real estate taxes will go SKY HIGH some communities to make up for the loss of revenue, which further depresses values; while in other communities, real estate taxes will remain stable, thereby increasing the values of the communities with relatively lower taxes compared to… Read more »