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.
- 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.