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:
- Rhode Island Supreme Court Shows Illinois The Way On Pension Reform
- Arizona Amends Its Constitutional Pension Protection Clause. World Doesn’t End.
- There’s No Legal Reason Not To Pursue A Constitutional Amendment For Pension Reform
- Illinois Constitutional Pension Amendment Is Long Overdue
- “Nobody is winning; everybody is losing” Wirepoints testifies before the House Committee on Cities and Villages
- Why a bankruptcy option for municipalities is essential – Wirepoints Testimony
- Why a bankruptcy option for municipalities is essential Second domino falls in Illinois: North Chicago revenues garnished for pensions
- Harvey, the first domino in Illinois: Data shows 400 other pension funds could trigger garnishment
- The Harvey fallout: Are Illinois public safety pension trustees protecting police and firefighters?