By: Mark Glennon*
Not that it ever really did, but Illinois no longer has any excuse for not amending its constitutional pension protection clause.
That’s the subject of our monthly Crain’s article now out. Eventually, Illinois’ crisis will get so bad that even our Machine-controlled state government will be pressured to do it, so the sooner we get on with the discussion the better.
Crain’s editorial board already seems onboard, recently writing, “The ultimate solution may involve a constitutional amendment—a politically risky maneuver, but one that no longer seems unfeasible now….” Even Willam Daley, Chicago mayoral candidate said an amendment is “always a possibility.” I hope and expect others will follow.
The problem, however, is whether there would be political will to get it done right. That needs elaboration I couldn’t squeeze into the Crain’s article.
First, the basics from the article:
An amendment properly drafted and broad enough would eliminate all legal issues under Illinois law—it could be written to supersede not just the pension protection clause but all state constitutional issues. Previous Illinois Supreme Court pension decisions that effectively ruled our constitution to be a suicide pact wouldn’t matter. The amendment could be initiated by a three-fifths of both chambers of the General Assembly followed by a favorable election vote. See Section 2 of Article XIV of the Illinois Constitution. That’s all it would take.
If Arizona can do it, we can do it. Arizona’s state constitutional pension protection clause was worded identically with Illinois’ and, as in Illinois, its courts struck down pension reform efforts.
But this month, Arizona voters passed Proposition 125 to amend its constitution to reduce benefits for two of its major pensions, covering corrections officers and elected officials. In 2016, voters passed Proposition 124 for an amendment to reduce pension benefits for police and firefighters.
The world hasn’t ended in Arizona. The working class hasn’t been destroyed. Pensioners aren’t dumpster diving. Prospects for pensioners actually getting a fair, predictable benefit have improved.
Wouldn’t an amendment be challenged in court, making it a big waste of time?
Yes, it would be challenged, but that shouldn’t matter, for three reasons
First, the lawsuit would probably fail. We’re talking about a federal suit alleging violation of the Contract Clause in the U.S. Constitution. That clause prohibits states from passing any law that “impairs the obligation of contracts.” James Spiotto of Chapman Strategic Advisors in Chicago has been laying out the legal analysis. He is a nationally recognized insolvency lawyer, and his work is presented in a research paper he presented to the Brookings Institution and in a recent presentation to Truth in Accounting. So far in Arizona, no serious challenge has been made to undo the new amendments.
Second, even if an Illinois amendment ultimately failed in federal court, the pendency of the amendment during several years of litigation would provide needed leverage with public unions to obtain voluntary, negotiated reforms.
Third, we have no choice but to pursue all options with a reasonable chance of working. Nobody can honesty claim with certainty whether federal legal challenges would work. An amendment is worth a try.
Even if the amendment passed and survived in court, wouldn’t we have to wait until the 2020 election to see results?
Nor really. If Illinois were serious about reform, it could adjust its taxpayer pension contributions now to match what would be authorized under the reforms. That would send a firm message that, hell or high water, something is going to give. By the way, we are sort of doing that already by continuing to underfund pensions so badly that we are not even covering interest that effectively accrues on unfunded liabilities.
So much for the viability of an amendment, in concept. The real challenge, however, would be getting an amendment worded right.
Illinois lawmakers probably would try to draft an amendment narrowly to allow only for specific reforms, and they have a proven record of peddling petty reforms as if they are significant. The consideration model of pension reform and the new buyout plan are examples. Even SB-1, the supposedly serious attempt at reform that went up the Illinois Supreme Court, was a huge can kick that would have accomplished little.
Lawmakers are also adept at booby-trapping legislation they don’t really like so courts will knock it down. SB-1, again, is an example.
Furthermore, the state pension protection clause applies to all 671 statewide and local pensions in Illinois. They need different types and degrees of reform. It would not be feasible to address them all, specifically, in an amendment. In other words, on this issue, Arizona’s approach to wouldn’t work in Illinois. Arizona’s amendment specifically authorized previously invalidated legislation for three particular pensions. That won’t work here. We should hope for a simple amendment broadly authorizing any and all reforms lawmakers decide to make.
Lawmakers probably would also try to tie it to something else taxpayers wouldn’t like, perhaps an amendment allowing for a progressive income tax. The risk would be that, on balance, Illinois’ uncompetitive total tax burden wouldn’t improve. That must be resisted.
Keep this overarching reality in mind, as I put it in Crain’s:
Illinois and many of its municipalities have no way to end their fiscal crises without reducing unfunded pension liabilities. If you doubt that, ask why nobody has ever laid out even a rough outline of a plan to do so. Nobody will. Nobody can. The math is insurmountable. And those unfunded liabilities are mostly untouchable for now under our state court rulings.
None of this is to say a constitutional amendment would reduce the need for the dozens of other reforms, small and large, that Illinois needs and what we’ve called for here. Pensioners cannot and should not be expected to shoulder the entire burden of returning Illinois to fiscal stability.
Nor is any of this to say I am naïve enough to think an amendment will happen soon. But don’t you be naïve enough to think things won’t get much, much worse in Illinois. Days of reckoning will come, and they will be ugly. A constitutional amendment to allow for pension reform will be unavoidable. Sooner is better.