By: Mark Glennon*

Governor J.B. Pritzker wants Illinoisans to believe that an amendment to Illinois’ pension protection clause is doomed to fail. He went so far as to call the effort a “fantasy” during his budget address on Wednesday. Pritzker’s claim is that any amendment would be struck down because of the Contracts Clause of the U.S. Constitution.

Pritzker is either dishonest or horribly misinformed. Court rulings and actual experience in other states make it clear that Pritzker is wrong. A pension amendment would almost certainly work to allow for needed reforms to most of our 667 pubic pensions in Illinois.

This is important because an amendment is essential if we want serious public pension reform. The only alternative is bankruptcy. That’s because without either an amendment or bankruptcy, changes to pension benefits are prohibited by the pension protection clause in the Illinois Constitution, our state courts say.

Why is Pritzker wrong? Let’s put this in plain English, without legalese:

The most recent lesson from the courts came last year in Rhode Island after the City of Cranston lowered certain pension benefits. Some pensioners went to court trying to invalidate the cuts. There was no state constitutional issue there, making the case just like we’d have here after a proper constitutional amendment.

So, the only thing pensioners could base their case on was the U.S. Constitution, including the Contract Clause Pritzker referred to. That clause prohibits states from breaking contracts, and pensions are contracts in Illinois.

But the Rhode Island Supreme Court ruled against the pensioners. The Contract Clause and other U.S. constitutional matters are not blanket rules against breaking contracts, the court reminded us. The United States Supreme Court has long said that.

The Rhode Island court weighed all the circumstances in making its decision – how hard off Cranston, RI was, the reasonableness of the reforms and similar matters. Protecting contract rights gives way when there’s a “higher public purpose,” as one nationally recognized legal expert put it.

That is, government has to be able to provide proper services. Pension costs were squeezing out money for proper services in Cranston, just as in Illinois.

“We the People,” in other words, are not bound by a suicide pact because of the Contract Clause or anything else in the U.S. Constitution. Pensioners tried to appeal their loss to the United States Supreme Court but the high court let the Rhode Island decision stand.

Then there’s Arizona’s experience. It had a state constitutional pension protection clause just like in Illinois. They’ve amended it twice to cut benefits, mostly with the approval of union pensioners. Unlike Illinois, most of them saw the long-term benefit of reform even for pensioners.

However, not all pensioners agreed with the cuts. Yet none has sued under the Contract Clause or anything else. Still to this day any one of them could sue if they thought they could win, individually or as a group. They would sue if Pritzker were right about pension amendments being “fantasy.” They haven’t. They know they’d lose.

Where has pension reform been struck down under the United States Constitution, as Pritzker says would happen? Nowhere! Almost every other state has been reforming its pensions as problems became apparent over the years. None has been sued successfully under the U.S. Constitution. That’s why most are in better shape than Illinois.

How would this work in Illinois?

After a constitutional amendment that eliminates all state law issues, the reasonableness of pension reforms would depend on the circumstances of each pension. There’s no question at all that reform could be made for many of our worst off towns and cities with their own pensions. Their plight is far beyond the guidelines for breaking contracts laid down by the U.S. Supreme Court.

Even beyond the worst off, however, the vast majority of our other towns and cities already are cutting back basic services because of pension expense. It’s worsening rapidly and they are already overtaxed. Most would pass that “higher public purpose” test, or very soon will.

Same for the state’s own pensions. Yes, public unions and some of those pensioners might try to sue if we amend our state constitution and adjust benefits. But they would likely lose. Illinois, like most of its municipalities, would pass that “higher public purpose” test, or very soon will. The state has been losing money at the rate of $1.1 million per hour since 2001! That’s simply not sustainable. And Pritzker’s “Fair Tax” increase would barely dent that problem because new money from it is already promised away on other things. In fact, it would probably backfire by driving more people away.

The legal expert I mentioned summarized the reasons for a state constitutional amendment this way:

It is now time for all states to recognize what the U.S. Supreme Court and virtually all other state courts have agreed: For the financial survival of public pensions and for the necessary funding of essential governmental services and needed infrastructure improvements, reasonable and necessary modification of public pension benefits in times of dire financial distress must be permitted for a Higher Public Purpose as in the recent case of the City of Cranston, Rhode Island.

Support for an amendment is growing.

A pension amendment is essential if we want serious pension reform instead of bankruptcy. Pritzker, however, is effectively ruling out any meaningful reform by blocking an amendment. Why? Because he made that promise to public unions during his campaign.

And that’s why a growing number of voices on many sides of the pension debate are saying Pritzker is wrong and that Illinois should amend its pension protection clause. They include The Civic Federation, The Chicago Tribune, Crain’s Chicago Business, former Chicago Mayor Rahm Emanuel and former mayoral candidate Bill Daley.

Each has recognized the simple fact that it’s not an amendment that is fantasy. Rather, the fantasy is expecting Illinois to right itself without structural pension reform.

*Mark Glennon is founder of Wirepoints.

Some earlier articles on this topic by Wirepoints and others:

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Victor

The solution is easier that anyone has stated. I cannot believe the solution is not being more frequently discussed. Anyway, a constitutional amendment is not necessary. Simply tell all new public employees the pension they get is a defined contribution plan, a 457 plan. Those working or are pensioners continue with pensions they were promised, the defined benefit plan. Once you leave public employment the employee takes their funds with them. The public employer’s obligation ends once the employee leaves public employment. The legal issue will be to get the unions to agree, and I think that will be doable.… Read more »

The Truth Hurts

While you are correct that your plan can be done without an amendment it wouldn’t do anything for reducing the current liability. I’m also not sure it would save the state very much money when compared to the current tier 2 structure. Remember that under your plan the employer would now need to contribute to social security. I’m not saying it shouldn’t be done I’m just saying it really doesn’t accomplish much financially.

James

Victor, for the Illinois’ downstate public school teachers (all those working for school districts other than Chicago’s CPS) one of the immediate problems is that there would be no more contributions of those new employees to the state’s public teacher retirement plans. Under that ongoing arrangement those plans get funding from three sources: mandatory contributions from each current employee’s paychecks or the equivalent when the employing district subsidizes it, any gains realized from the investment of the pension fund’s assets and state funding to the pension system. Taking away that first source puts even more stress on the state’s budget… Read more »

Pension lawayer

You have union contracts to deal with in most situations. If the unions agree, you might still have constitutional claims from member-employees.

mqyl

Beware of band-aid changes that Pritzker will take credit for in the next few years under the guise of significant reforms to ease the burden on the IL taxpayer. For example, they may scrap the automatic three percent raise for retirees in favor of a raise tied to some cost-of-living index.

Of course, that change, like the others Pritzker has proposed, will not result in any noticeable reduction in burden on the taxpayer.

Mike

It’s obvious to me this is the key reason people should vote no on the graduated tax initiative

Frank Goudy

“To understand the legal argument about making them whole to day X and then a new system afterwards you would need to go back to when the pension amendment was added into the constitution back in 1970. The intention of those drafting the amendment during the constitutional convention was to guarantee that public pension employees would know from their first day of employment how their pension would be calculated.” The Truth Hurts stated the above. It is dead on target. However the bigger question is this. If there were a Constitutional amendment to change the Illinois language how would it… Read more »

Mike Mike

“The intention of those drafting the amendment during the constitutional convention was to guarantee that public pension employees would know from their first day of employment how their pension would be calculated.” If that was the interpretation by the Illinois Supreme Court, then benefit hikes after the employees’ first day of employment could be cut. To put that into context, there have been hundreds of legislative pension benefit hikes since December 15, 1970, and obviously many came after the first day of employment of hundreds of thousands of employees. Instead, the interpretation is unlimited pay and benefit hikes are protected… Read more »

Riverbender

Unless I am mistaken the involved Judges are members of the Illinois pension systems and to expect them to invalidate their own pensions is the funniest thought of the day in my mind.
If it can’t be taken into Federal court everyone should forget judicial relief…it ain’t gonna happen.

Pension lawayer

It seems to me that the “Illinois rule” that public pensions can’t be changed amounts to a wholesale surrender of sovereignty by state government in the sense that pensioners theoretically commandeer the entire budget as a result of the “contract right.” See Butler v. Pennsylvania, 51 U.S. 402 (1850) where the Court observed: “The establishment of such a principle would arrest necessarily everything like progress or improvement in government, or if changes should be ventured upon, the government would have to become one great pension establishment on which to quarter a host of sinecures. It would especially be difficult, if… Read more »

Juicy Smollier

I think that the arguments listed below (as Mark says, priority of required or integral, essential services) would be effective within 3 years. Places like East St. Louis, Matteson, Harvey, etc all would be hot button issues for safety and notoriety due to the predominantly black population that resides there, by definition raising the issue and also seemingly being more “political”. These features could easily catapult it to the Supremes if challenged, who would have a high likelihood of taking the case, even. What is the legal argument against making you whole up to this day (or day X) and… Read more »

The Truth Hurts

To understand the legal argument about making them whole to day X and then a new system afterwards you would need to go back to when the pension amendment was added into the constitution back in 1970. The intention of those drafting the amendment during the constitutional convention was to guarantee that public pension employees would know from their first day of employment how their pension would be calculated. They didn’t want someone working their whole career and then when they retired their pension was reduced. Since that time the courts have ruled that pensioners have a right to have… Read more »

Pension lawyer

The wording of the constitution is ambiguous. Few would quarrel with an interpretation that benefits once earned can’t be diminished or impaired. It is a further step to say that the benefit formula can’t be reduced. Taking that step ties the hands of the government and impairs its sovereignty. In a sense, it also ties the hands of a union because the government might not be able to bargain for higher salaries in exchange for a reduced benefit formula going forward. Granted, you could get into a Tier One and Tier Two arrangement. When the obligation reaches its current size,… Read more »

Mike Mike

The benefits are part of a complex government ponzi scheme racket that has been going on for 80 years which escalated after the so called protection clause was added to the state constitution so in many cases they should be cut.

The Truth Hurts

“Few would quarrel with an interpretation that benefits once earned can’t be diminished or impaired. It is a further step to say that the benefit formula can’t be reduced.”

It’s not a further step considering the Illinois Supreme Court ruled on this very issue in May of 2015. While I can appreciate your argument, this is settled case law in Illinois. The decision was 7-0, slam dunk. It’s no longer up for debate.

Mike Mike

The state & local unfunded pension liability is $200B, plus the state OPEB unfunded liability is $73B, for a grand total of $273B.

The state and local pensions collectively are 48% funded and their collective pension unfunded liability grew $10B from 2017 to 2018 per the 2019 IDOI Biennial report.

https://wirepoints.org/illinois-other-debt-disaster-73-billion-in-unfunded-state-retiree-healthcare-benefits-wirepoints-special-report

https://wirepoints.org/gov-pritzker-dont-blame-wirepoints-the-math-diminishes-your-monumental-claims-not-us

https://insurance.illinois.gov/Applications/Pension/PensionDataPortal.aspx

http://cgfa.ilga.gov/Resource.aspx?id=5

Pension lawayer

What I am saying is that the “settled case law in Illinois” violates the U.S. Constitution. When the Illinois court interpreted the ambiguous language so broadly, it infringed the sovereignty of the state by taking away the state’s power [to the extent of public pension and health obligations] to govern citizens. The Illinois court did not totally infringe that sovereignty because there is still some money left for the state to use. But the federal constitutional test is a “substantial impairment” of sovereignty. I am also saying that this theory should be tested in the federal courts. The US Supreme… Read more »

The Truth Hurts

“ambiguous language” – While the language in the amendment is ambiguous the courts looked to all of the documents during the 1970 constitutional convention that outlined very clearly the intent. Hence the rulings. Testing your theory in the federal courts – The deadline to appeal the may 2015 ruling has passed. So as far as the law is concerned it didn’t violate the constitution. Also, not sure how you could get it in front of SCOTUS without passing the law again, losing in the ILSC, and then appeal. I would also assume you would need the Governor or Attorney General… Read more »

Pension lawyer

I don’t advocate appealing the 2015 decision. I advocate a test case in which plaintiffs take the position that the constitution’s pension provision as it has been interpreted violates the federal constitution. There is no statute of limitations on such a case.

Juicy Smollier

The funny thing is that the law, even with a slam dunk decision, is only as good as the money that is actually there to pay the “promises.” Then all of a sudden, poof! the law changes. Which is amusing if you look at strict legal things and the so-called “rule of law”, since it ultimately is ALWAYS malleable, as proven by this scenario, or the coming one. Law is also really weird in that the judges could say, “Well THAT QUESTION wasn’t raised in that case. You need to ask us if you can’t diminish benefits that already were… Read more »

Pension lawyer

You are right that if and when the money runs out there won’t be any pensions or retiree health. But from here to there is not a smooth path. There’s currently some money set aside in pension trusts, but those are diminishing faster than they can be replenished. When that money is gone, the retirees will go after the state or city or school district for their pensions and health insurance. So what happens? Assume a lawyer takes a case on a contingent fee and gets a judgment against a city for one month’s pension and one health insurance premium.… Read more »

Mike Mike

It is illegal for public safety workers (police, fire) to strike in Illinois.

Pension lawyer

True enough. They may work if they are getting paid, but if teachers have their way all the city’s money will be dedicated to pension funding. Public safety officers may even work if they are not getting paid. My experience is that when police unions don’t get what they want they have various means short of striking to accomplish their goals. Blue flu. Don’t write tickets. Don’t arrest striking teachers disrupting traffic. This takes nothing away from the vital importance of public safety officers and their dedication to their mission. Their compensation and benefit packages reflect society’s need for their… Read more »

Mike Mike

Public safety (police, fire) in Illinois that are covered by a collective bargaining agreement go to binding arbitration when the union and employer can’t come to a resolution. https://www2.illinois.gov/ilrb/arbitration/Pages/Arbitration2018.aspx The arbitration law is not taxpayer friendly. For example consideration of the pension funding status is not required (is the pension grossly underfunded, etc.). In general the public safety workers come out well in arbitration decisions. The police patrol generally do not pull blue flu, don’t write tickets or other stunts during negotiations. They are like any other worker and do their jobs. Either party can file a grievance if they… Read more »

Pension lawyer

I am familiar with mandatory arbitration laws and generally agree with your assessment. It is even worse when the unions pick the pension trustees. The pension trustees select “discount rates” for measuring pension liabilities. In a situation I know first hand, the pension trustees lowered the discount rate (raising the city’s contribution obligation) in order to force the city to grant some union demands that the union had failed to get in arbitration. The court [with a judge beholden to the public employee unions] declined to intervene. Political power extends to the executive, legislative and judicial branches. Government is stale-mated… Read more »

Mike Mike

“It is even worse when the unions pick the pension trustees.” By pick you mean appointed or elected? Which pension fund? One from Chicago, Downstate Police, Downstate Fire, or IMRF? Pension fund trustees consist of a mix from management, labor, retirees, and perhaps sometimes elsewhere. So for that strategy to work the union would have a majority on the board or some allies among management and retirees. Perhaps the union and retirees consisted of a majority, with the retiree(s) being ex union members? If the discount rate decreased, causing the employer contribution to increase, the employer would have less, not… Read more »

Pension lawyer

This was Detroit c. 2005-2013. The rest of the story is that the city filed for bankruptcy. Going by recollection, the union held a majority on the board but most of the other members were either city employees with their own mirror-image pension plans or local “citizens” — sometimes clergy — who were closely associated with the unions. The pension fund lawyer was later indicted and convicted, but died before serving any time. I forget all the details, but they were revealed in The Detroit News: some pension fund advisers sold him two condo’s in Florida for something like $50… Read more »

Mike Mike

The General Retirement System or the Police and Fire Retirement System?

Pension lawyer

The actuarial tango was Police and Fire. Zajac was counsel to both systems. Another Zajac strategy was to have the Detroit plans hire outside counsel to appear as amici curiae in major investment fraud cases being litigated in NY or elsewhere and “monitor” those cases while running up legal bills for sitting in at out-of-town depositions. The legal team (guardians all) would discuss the case at dinner at 21 or Four Seasons then limo back to the War Room at the Waldorf. The law firms he hired would thus be conflicted out of any case adverse to the union-dominated board… Read more »

Tom Paine's Ghost

Governor JB Pritzker wants Illinoisans to believe that an amendment to Illinois’ pension protection clause is doomed to fail because Pritzker and the Illinois Democrats are slaves to public sector unions like AFSCME, IFT, CTU and SEIU. The public sector unions will always be prioritized over the needs and wallets of Illinois taxpayers and citizens.

Pritzker calls it “fantasy” because he is a ventriloquists dummy and is simply mouthing the words for his puppet masters: Picture Mike Madigan’s arm up the backside of ventriloquist dummy Pritzker and Madigan’s hands operating the mouth.

Mike Mike

Before an amendment gets to the Governor’s desk it must be passed by a majority of those voting in the House and Senate.

Will a full vote that’s 30 State Senate and 60 State House members, and ideally them pledging to override a Governor veto.

There’s no organized effort to elect such candidates.

The Governor has already said he’ll protect pensions and healthcare.

Mike Mike

Actually the Governor does not vote on House Joint Resolution Constitutional Amendments (HJRCA) and Senate Joint Resolution Constitutional Amendments (SJRCA).

http://www.ilga.gov

Mike Mike

If a HJRCA or SJRCA were to pass both chambers and the resulting amendment approved by voters in an election, then ensuing legislation such as a House Bill or Senate Bill to make specific changes to pensions would require a Governor approval or House and Senate override to a Governor veto.

Danni Smith

I would enjoy a wirepoint comment on the status of real estate tax fraud Pritzker’s payment of his legitimate debt. Also the fees, fines and penalties that accrued. Also, what blago knows about this theft from the taxpayers.

Susan

What could be a “higher public purpose” than doctors and nurses, tasked to save and elongate lifespans of Illinois taxpayers? Illinois political industry can justify public sector defined benefit compensation guaranteed by taxpayers to teachers. Therefore Illinois should provide defined benefit compensation guaranteed by taxpayers to doctors and nurses. Otherwise, Illinois should inform doctors and nurses: We hold you in laughable contempt, we expect you to be slaves in servitude to your social superiors(tachers and government workers)). Not only should you slave for longer hours, annually for similar salary, earn less per hour, work at higher risk to your personal… Read more »

Freddy

I agree 100%. My wife is a nurse and we are looking at options for retirement and they are very very dismal looking. Part of it is our fault by not putting in enough into 401K’s but work injuries have hampered that effort. Money was needed to pay ever increasing property and other tax’s instead of putting into retirement fund. Even if we could have maxed out contributions she would never get 75% of final pay and or contributions. Vacation and personal days are use it or lose it mostly 12- 24 months max. No end of career salary spiking.… Read more »

Andrew Szakmary

Have you read the 2015 Illinois Supreme Court ruling? There is a contracts clause in the state constitution as well, and the justices made it quite plain that they would likely have invalidated the 2013 pension legislation based on that clause alone, even without the specific pension protection clause that you are proposing to eliminate. Where do you think legislation cutting Illinois pensions (were you to get the pension clause deleted despite 100 to 1 odds against) would likely go for a ruling? Not to Rhode Island or Arizona, but the very same Illinois Supreme Court! And yes, you could… Read more »

The Truth Hurts

I agree. I know I’m not dishonest on this issue and don’t believe I am misinformed. They even referenced the states argument about diminishing a contract. Here is what they said. 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 necessary to serve an important public purpose. “A governmental entity can always find a use for… Read more »

debtsor

It literally boggles the mind that pension clause, put on the ballot by special interests in 1970, is forever permanent and the liabilities that have accrued since are untouchable. That’s pure craziness that some magic words inserted into the constitution by UNIONS are more permanent than the existence of the state of IL itself, which can be changed by a vote of the people and approval of congress. The pension clause challenges the very soverignity and fiscal life of the state itself, but it must be paid no matter what, beacuse some voters in 1970 made it permanent? It’s pure… Read more »

debtsor

After Jabba gave his speech, he felt very hungry. Because lying so much was hard work and it make his big belly rumble. So to satisfy his urge to eat, and tame the tiger in his tummy, he ate the souls of the 37,000 children aborted in Illinois last year. And that was just lunch. But he was still hungry.