Monday, September 23, 2019
Home WP Original Stories States Government’s Malfeasance Passes New Milestone As An Illinois City Fails...

States Government’s Malfeasance Passes New Milestone As An Illinois City Fails To Deliver Essential Services

21
Print Friendly, PDF & Email

By: Mark Glennon*

Non-emergency police and fire phone numbers in a Chicago suburb were cut off for three days last month because city officials failed to pay bills. Failure to deliver essential service marks a milestone with statewide implications. It exposes just how long Illinois officeholders are willing to ignore the state’s fiscal crisis, and it has important legal implications as well.

First, what conceivable excuse does state government still have for refusing to give its municipalities the option of Chapter 9 bankruptcy reorganization?

Dozens of Illinois municipalities should at least be considering the bankruptcy option. Harvey, where the service cutoff occurred, is in uniquely bad circumstances, so deep that bankruptcy would be too late now. Whether its disaster could have been halted or at least ameliorated though bankruptcy may also be unknown. What’s certain, however, is that federal bankruptcy law offers Illinois municipalities a tool by which some could accomplish each of the things so many desperately need: an orderly, equitable reduction of impossible debut burdens including a means of overriding the state’s pension protection clause to permit real pension reform and give them a fresh financial start.

But Illinois towns and cities cannot consider bankruptcy until the state permits the option, as have Michigan, California and many other states. The state’s failure is inexcusable. Dozens of our towns and cities will collapse without intervention of some kind. Wirepoints is among those that have long advocated for the state to permit Chapter 9 bankruptcies. Our testimony to the General Assembly on the subject is linked here.

Second, this event shatters the categorical claim still being made by some pension reform opponents that federal constitutional law would invalidate any attempt at amending Illinois’ constitutional pension protection clause. The Contract Clause in the United States Constitution does not apply when violations are “reasonable and necessary to fulfill an important public purpose.”  In other words, pension reform is permissible under the federal law when a “higher public purpose” is at issue. That’s the phrase recently used by James Spiotto, a nationally recognized legal expert on the subject.

Police and fire protection unquestionably are essential services that meet that test, and they’ve been impaired in Harvey. While only non-emergency numbers were cut off in Harvey, “Those non-emergency numbers, in my opinion, handle emergency services as well,” Mayor Christopher Clark said, as reported by the Chicago Tribune. Harvey therefore provides a conspicuous example of where pension reform would be permitted after the right state constitutional amendment.

More importantly, a town or city need not deteriorate as badly as Harvey for reform to be allowed under federal law, as shown by a recent Rhode Island case. No court would require that a municipality actually reach point where essential services are already impaired. Instead, they would look at what’s coming – the wall that’s clearly ahead, which so many Illinois municipalities are heading toward. On that, see the chart below showing how 93 of Illinois’ 650 downstate pension funds are less than 40 percent funded.

Third, Harvey’s collapse bolsters the hope we’ve raised here that the Guaranty Clause of the federal constitution would have a place in how Illinois’ crisis ultimately resolves. That provision imposes an affirmative obligation of the federal government to “guarantee to every State in this Union a Republican Form of Government.” Never mind the debate about what Republican means. When police and fire protection fail, it becomes a matter of not having any form of government.

One way in which application of the Guaranty Clause could play out is in a lawsuit brought in a federal court by an ordinary citizen in a community like Harvey where basic services fail. I know of at least two prominent attorneys who have told me they believe such a lawsuit is viable and would like to find the right circumstances and plaintiff.

Finally, and more fundamentally, step back and think about what the state has done while Harvey sank into the abyss.

In a spectacular absurdity, in 2017 our court’s made Harvey the state’s first victim of a court-ordered property tax increase to fund pensions. Harvey’s property values were already declining towards zero; in most of the city, no true market exists. Anybody willing to take on property taxes can buy a home for nearly nothing.

What else has the state done for Harvey? It prioritized payments to pensions over even essential government service through the “intercept” laws, which were enforced against Harvey last year. That’s were state monies shared with local governments and otherwise usable for essential services are intercepted and directed towards pensions. That left Harvey with an impossible choice — to fund the pensions or lay off essential firefighters.

State government hardly bears all the blame for Harvey’s collapse. Among other causes, incompetence and graft have long plagued the city’s government, the loss of its manufacturing base is decades old and some of Chicago’s poorest residents migrated to Harvey and nearby south suburbs.

The point remains, however, that the state has done for Harvey the same it has done for Illinois’ other broke municipalities: nothing.

All indications are that state will continue to do nothing. No reforms of any kind. Not for pensions or any of many other unfunded mandates that have strangled Illinois municipalities and left them unable to deal with their own crisis.

*Mark Glennon is founder of Wirepoints.

Further reading on the topics covered in this story:

21
Leave a Reply

7 Comment threads
14 Thread replies
0 Followers
 
Most reacted comment
Hottest comment thread
17 Comment authors
  Subscribe  
newest oldest most voted
Notify of
Wez

Brilliant analysis as always. The public is so jaded by the criminal enterprise that is state government that they feel helpless to do anything. Ultimately that’s the real triumph of Madigan, the state supreme court, and the rest…make citizens feel so defeated, and so powerless, that they stop paying attention to potential solutions. The Harvey resident plaintiff lawsuit is a great idea. It could take a long time to litigate, but if successful could be the linchpin to an end run around Madigan.

Andrew Szakmary

The issue of towns losing population and facing financial difficulties as a result is hardly confined to Illinois. Louisiana, for example, is undergoing similar shifts as rural areas lose population to larger urban centers, As the attached link suggests, that state deals with this problem by taking over struggling municipalities and appointing managers with broad powers to cut staff, raise fees, etc.Sometimes the state must contribute money (“bailout”, if you will) to make it work, but no bankruptcy, no failure to pay contractual obligations, etc. It is far from a perfect system but it does show that bankruptcy is not… Read more »

Illinois Entrepreneur

So…the state–which is broke from pensions–should bail out each and every municipality–which are also broke from pensions–and that somehow will “fix” everything?

Do you have any idea as to the magnitude of this problem?

And, you don’t think that once the state starts these bailouts, that taxes will become even more confiscatory, and more residents will leave?

Anything to pay those damn pensions!

Bankrupt it all, and cut pensions down to a manageable, sane level. Or, eliminate pensions, and save your money for retirement like the rest of us.

Willowglen

Andrew, isn’t the reference to Louisiana relatively meaningless? Illinois’ most massive problems lie with its largest city and county, so the parallels to rescuing a 2000 person rural hamlet are inapposite. Moreover, math really matters. The math behind Illinois? Really, really bad, and also fragile to a unique degree because of an exodus of people and their AGI. The math behind Chicago? Even worse. No surprise Lightfoot trucked down to Springfield begging to be saved in the first 60 days of office. The interesting thing about your posts is that you argue against a proposition that already has agreement. .… Read more »

George W

The public pension is the problem. You can’t eliminate the pension without bankruptcy. There is only one option. Go bankrupt and eliminate all pension everywhere. The contributory 401k is pay as you go and is the only answer for democrats too stupid to save their money.

DOUG

Case in Point, As I’ve repeatedly have said here, the Democrats prefer to go down the “Scorched Earth Death Spiral” path towards utter destruction. They will never willing give up their egregious pension benefits and are willing to take down all the Taxpayers.

James

And somehow you think you’d see it differently if you were in their shoes? I doubt it. Can you recall a major league ball player foregoing his multi-million dollar contract in favor of a cheaper one so the fans might buy lower-priced tickets? Then, how about those usually high-priced lawyers who so willingly do their work for pitifully low wages so their clients might benefit? It’s not happening there either, generally speaking, is it? My point is that you are railing against human nature rather than any particular subset of it really. People do what nearly all other people do… Read more »

Well James, I could care less what a ball player gets paid since his pay is based on his market value and not what a politician and union decides. I can just not support the ball player by not going or watching him play. As for public employees I have no choice. I either pay my taxes or go to jail and have no say on their pay or performance. Their pay was set by a corrupt union and politicians.

DOUG

James is defending forced Financial Confiscation of Taxpayer $s by the Unions and Democrats.

EX-IL Resident

James you should be worried about your pension….the Ponzi scheme tide water is starting to retreat leaving lots of pensioners high and dry. Love how the pensioners always say it is a “promise” thus tax payers must blank-check the bill no matter how egregious or illegal. They all know the promises were bought with corrupt politicians. I made no promise so therefore I left and will let some clueless millennial that votes for corrupt politicians pick up the tab .

debtsor

Not sure if you’re familiar with the NFL but contracts are renegotiated all the time. There’s the total contract money, and then the guaranteed money. Often underperforming players renegotiate the total contract money just to get a little more guaranteed money. Which is what smart pensioners should be doing, if they could…

NB-Chicago

Fantastic writing!! Why isnt there some savvy repulican finding a group of harvey home owners to get a bankruptcy suite going?? Cant understand why rauner wasnt campaigning in the harveys of ill 24/7??

Illinois Entrepreneur

Whenever I read articles like this here at Wirepoints I am reminded of the absolute, incredible power of the public employee unions in this state. It all starts there. The fact that our politicians–our supposed “public servants”–would rather allow a city to literally burn to the ground before making a simple common sense pension reform, should tell you everything you need to know. This should tell you how far the politicians here are willing to go before anything is fixed. Every city in Illinois will become a chaotic disaster zone adding to the state government itself, before they will make… Read more »

debtsor

“Whenever I read articles like this here at Wirepoints I am reminded of the absolute, incredible power of the public employee unions in this state. It all starts there.”

The unions only have power because the citizens vote Democrat. It’s the Democrat politicians that allow the unions to have such power. A republican would bust them up. Walker in Wisconsin actually pulled it off. Rauner had some success in the courts. But it starts with morons who elect Democrats every year.

Freddy

You are correct that the unions have untold power. They are organized and unionized and generally speak as one voice especially in the voting booth. That is why taxpayers need to organize not like a Tea Party but as a taxpayers union and then we can speak with one voice. What chance do we have against approx 2 million union members that include family members and all benefiting from their unity. We need more than 2 Mil members and if each pays $5/mt that’s $120 mil for legal counsel per year. They (counsel)would act on our behalf in contract negotiations… Read more »

George W

That is the Chicago way. Buying votes is the system Al Capone set up 100 years ago, and no leftist politician will ever challenge it until all the cash is gone. That day may not be far off.

Gemini

How arrogant of the Illinois legislature to require municipalities to seek the Illinois legislature’s permission to file for bankruptcy! Who the hell is the Illinois legislature to substitute their judgment for the municipality’s? The municipality would know best, that’s for sure. But here’s the dirty little secret. If CHICAGO were allowed to file for bankruptcy, then the bankruptcy trustee would have full power and oversight into all expenditures and records. I don’t think it would take too much digging to uncover some financial improprieties, and a lot of powerful politicians would have a lot of very uncomfortable explaining to do.… Read more »

DantheMan

This is my rudimentary understanding. A town taxes the real estate inside it’s borders. First claim to that collected money is mandated by Illinois to be for public pensions. Whatever remains can be used by the town to pay bills and current employees. If that remaining amount is less than the town requires, it can request that Illinois allow it to file for bankruptcy. If allowed by Illinois, the bankruptcy court would likely allow a reduction in the pension amount paid to Illinois, allowing the town to survive at a near poverty level rather than completely ceasing to exist. I… Read more »

Hank Scorpio

Dan, it is clear Illinois leaders have absolutely no stomach to reduce pensions and are instead choosing to raise taxes across the board in order to maintain the status quo — they have already made that perfectly crystal clear.

The only thing that could change that and force their hand is a severe recession. I’m not hoping for one like some in the public-light are, as a means to get rid of Trump. But it is the reality of the situation.

The other possibility is that a real exodus occurs, rather than this slow bleed. But that is incredibly unlikely.

Indy

A real exodus will occur with the next recession as a lot of people will end up broke & homeless.