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By: Mark Glennon*

Are they wrong now or were they wrong then? Today, they say the opposite of what they told the public and the courts five years ago.

Governor J.B. Pritzker has made his position clear on pensions: No benefit reductions. No reforms. Not necessary. Just pay them. Nobody in his Democratic party has voiced any dissent and they hold supermajorities in both the House and the Senate.

But consider what the state argued in court and the General Assembly said in legislative findings five years ago to defend SB-1, a pension reform bill: Benefit reductions, not tax increases, were essential. That was in 2014 when Democrats also held the governorship and supermajorities in the legislature.

Democratic Attorney General Lisa Madigan, daughter of the House speaker, made the case. The pension problem and the fiscal crisis it caused were so severe that the rarely used “police power” doctrine justified cutting pensions, as SB-1 would have done, overriding the state’s constitutional pension protection clause. Her court pleadings were based on extensive analyses completed by three economists she offered as expert witnesses.

Her case was based on the same points that financial realists and pension critics had been saying all along – that increasing taxes or cutting services instead of cutting some benefits would worsen the flight of employers from the state and devastate the poor. Our article on her arguments from that time is linked here. Today, that article reads as if Madigan was prescient.

She and her economists got specific:

  • Raising taxes instead of making the pension cuts under SB-1 wasn’t a workable alternative, they told the courts. Doing so would reduce economic activity in Illinois by 1.1% and cost the state 64,000 jobs, “economically disadvantaging Illinois and worsening its competitive position.”
  • If the state tried to pay for pensions through spending cuts instead of higher taxes, cuts would hurt those most economically disadvantaged, they argued, hitting education, healthcare and social programs.
  • Respecting the flight of employers from Illinois, they said it was not the big corporate headquarters with well paid executives that were most subject to flight. Instead, manufacturers and transportation companies providing living wage jobs were most at risk.

Madigan also cited one of the express findings by the General Assembly, contained in SB-1:

Having considered other changes that would not involve changes to the retirement system, the General Assembly has determined that the fiscal problems facing the state and its retirement systems cannot be solved without making some changes to the structure of the retirement systems. [Emphasis added.]

Today, those and any other structural changes are off the table entirely.

In the five years since Madigan and the General Assembly said the pension problem was insoluble without benefit reductions, unfunded pension liabilities have grown another 30%. The unfunded healthcare liability for state pensioners has grown 37%. State government’s Net Position — basically, its net worth – plummeted $70 billion further into the red. Population shrinkage began five years ago and accelerated each year since.

Attorney General Madigan could have made her case much stronger. She and her economists ignored that unfunded retiree healthcare liability, which is also constitutionally protected. It’s $73 billion today. They also ignored the state’s 660 local pensions and the fiscal mess at their level. That’s a  colossal omission because the state’s crisis is a consolidated one of overlapping taxpayer liabilities.

Arguing her case more capably, however, probably would not have made a difference because the Illinois Supreme Court ultimately chose to disregard the police power argument entirely (though the doctrine remains alive and well in Federal courts) and invalidated SB-1 in 2015.

But today, Pritzker and his party are unequivocally opposed a constitutional amendment to allow for benefit changes like SB-1 or anything else, or municipal bankruptcy that would give local government the option to make changes. (One exception is Chicago Mayoral candidate Bill Daley, who says it should be considered for city pensions.) Not even sham reform proposals like the “consideration model,” which might be constitutional, are being discussed.

So, were they wrong five years ago or wrong now? It’s actually not a serious question. Good luck solving what “cannot be solved” without benefit reforms.

*Mark Glennon is founder of Wirepoints.

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NB-Chicago

Also (like b daley), now that snake-oil salesman rahm is bailing out he can admit the pension debt math is imposible and call for const amendment.

Andrew Szakmary

There is nothing astounding about reversing one’s opinion after getting shot down 7-0 by the Illinois Supreme Court. It is called accepting reality and the rule of law, and moving on. There have been many court rulings that I have strongly disagreed with at the federal level, decided by much narrower and completely partisan votes, such as Bush v. Gore in 2000 or the recent Janus decision, yet I have accepted these rulings because I have little choice. In response to them, and the election of a President who is totally unfit for office by a minority of voters, this… Read more »

Rather Not

The pensions shouldn’t be reduced. That would be a violation of the (explicit or implicit) contract with the workers. However, they should be hit with a surtax. Government workers are expecting the tax power to extract the money from everyone else, but there is not reason the taxing power should not be used on the pensions themselves. The pension promise was a pre-tax amount, not an after tax. Simple version. No surtax on any amounts below $24k/yr ($2k/mo). X% surtax on all amounts above $2k/mo and less than $5k/mo. 2x X% on amounts from $5k/mo-$10k/mo. Lesser of 5x X% or… Read more »

Darlene Senger

Great article.
Yes,the Illinois’s General Assembly, for one fleeting moment in time, actually put financial realities over political agenda’s. Took years to educate the members of the General Assembly.
Cannot hide under a rock on this problem.

Darlene Senger
Former State Representative and Sponsor of SB1.

Rick

They know the bond rating agencies will keep the whole ponzi going for them. The supply of borrowed money will not end because the investors know Illinois will remain “just above junk”. That’s where the high yield is. The rating agencies only need to know that the taxpayers will be adequately screwed over each year. As long as the state is robbing us dry, the rating agencies have us right where they want us. High yield Illinois bonds secured by stupid lemming taxpayers that keep begging to be robbed. This whole ponzi is running on borrowed money you know, from… Read more »

Hank Scorpio

Just like the problem with Health Care (blatant price gouging and racketeering), nobody wants to be the one to take the punch bowl away. They rather just let the charade drag on until it hits a wall on its own. If Pritzker doesn’t want to cut benefits and wants to spend MORE, we do not need to state the obvious path of how he does it…the only question is how much. Anybody that says they are proud to be an Illinoisan is either complicit in the fraud or ignorant of the truth.

Mike Williams

For those in office today like Governor J.B. Pritzker, there is no problem provided someone is still willing to lend to the state. I don’t think they worry about the interest rate or repayment, as that will be the next guys problem. They just need to structure the loans so they can keep the unions happy today and the inevitable financial collapse is delayed. When the loans dry up, we can expect many Illinois leaders to suddenly retire or leave public service due to “personal reasons”. Like past Illinois politicians, they will experience no consequences for their gross mismanagement.

Paul

Seems the Dems country wide are pushing full dependency on government. But what do you do when they run the government into the ground?

heath

Hey Mr Rauner, maybe you should have used this and you mightn’t have got beaten like a old rug

David

It was in Rauner’s platform. But if nobody is listening, it doesn’t matter. I don’t know how much worse it has to get before the public wakes up.

Riverbender

I have come to the conclusion the Illinois populace will never awake up. Those that do leave the state as soon as they can and are replaced by assorted members of the free stuff army who naturally will vote for the Democrat offering more free stuff. Unfortunately, based upon my historical observations, like it or not that’s the way it is.