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By: Mark Glennon*

As America celebrates its Independence this week, it’s right to consider the most far-reaching questions raised by Illinois’ crisis.

Did the Founding Fathers miss something? Did we miss something the Founders stood for? Is our form of democracy fundamentally flawed?

Those questions are part of why Wirepoints exists, and why we hope other states follow Illinois’ story.

Illinois inherited assets most states and nations envy. Its GDP remains larger than all but fifteen countries of the world. More importantly, it inherited constitutional self-government.

But it’s failing.

Illinois is bankrupt. The state and many of its towns and cities sink further into insolvency each day — the facts and numbers are irrefutable. Its moral insolvency is less quantifiable but no less apparent. Graft, both legal and illegal, is exposed incessantly, usually to no end. Scandal fatigue overtook the state long ago. Numbed voters left politicians free to do little good and plenty wrong. Not a single major reform, fiscal or otherwise, is currently under serious consideration in Illinois.

How can a democracy have done this to itself?

The reasons are myriad. Many are debatable. Some are particular to Illinois. Most of the 20,000 articles we’ve linked to or written on this site are about those reasons.

But on the overarching question of universal importance — whether Illinois has exposed some fundamental flaw of democracy — the story hasn’t ended. Nobody knows how Illinois’ crisis ultimately will sort out, but there is reason for qualified, partial optimism, albeit over a long time with much pain in the interim.

That optimism derives from the likelihood that much of our crisis will be resolved in courts — federal courts exercising their place in the federal system we inherited — and the hope that those courts will honor the foundational principles of American government. The Founders’ foresight, not their failure, perhaps may yet shape Illinois’ history. Perhaps.

The initial questions that might end up in the federal courts have already gotten some attention. If Illinois amended its constitution to delete its pension protection clause, would the United States Constitution’s Contract Clause still prohibit pension reform? Could the federal Bankruptcy Code be amended to allow bankruptcy for states? Could some other form of federal legislation authorize adjustment of pension obligations? And if Illinois eventually authorizes bankruptcy for municipalities, which is probably unavoidable at some point, many questions about that process remain unanswered by courts.

More fundamentally, it’s only a matter of time before a federal court faces a situation somewhere in Illinois where essential, basic government services fail. A court will face a “police power” question, as it’s called.

Illinois courts have frowned on the concept but federal courts recognize it in exceptional circumstances such as those Illinois eventually will face.

It’s that concept I suspect will become central and will be recognized in some fashion, whether under the label “police power” or otherwise. Government must function. Though the Illinois Supreme Court has essentially read the state constitution to be a suicide pact, permanently committing the state to insurmountable pension obligations, federal courts, I hope and expect, will see things differently.

Perhaps they will even give life to the Guaranty Clause in Article IV of the United States Constitution. Through it, the Founders affirmatively obligated the federal government to guaranty to every state a “republican form of government.” Never mind what “republican” means for now. We’ll come back to that. At a minimum, it means a government of some kind. If basic services truly fail, federal courts will seek to restore them. They will find a way, and the Guaranty Clause would help if it were honored.

A conspicuous portion of the Janus decision handed down last month by the Supreme Court is pertinent. The majority of the court seemed to go out of its way to describe Illinois’ financial problems. Because they are so grave, the court held that the First Amendment prohibited forced union membership because a member should be free to advocate as he chooses on them. “To suggest that speech on such matters is not of great public concern is to deny reality,” the Court said.

The depth of Illinois’ problems, in other words, influenced the Court’s ruling on the First Amendment. So it will be, I suspect, on other Illinois matters ending up before the Court.

But democracy in Illinois does have a flaw that federal courts probably cannot undo. It’s one Benjamin Franklin identified: “If when the people find that they can vote themselves money that will herald the end of the republic.”

That’s Illinois.

Alexis De Tocqueville, author of Democracy in America, warned of the same thing in 1835: “The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.”

Did the Founding Fathers indeed leave that issue unaddressed?

No. but their check on it has faded away.

The Founders didn’t believe in democracy. They all believed in republicanism — indirect democracy with firm protections for minorities that trump simple majority rule. Republicanism, they believed, provided the check on tyrannical majorities.

“A democracy is nothing more than mob rule, where fifty-one percent of the people may take away the rights of the other forty-nine,” said Thomas Jefferson. From John Adams, “Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself.”  At the Constitutional Convention in 1787, Franklin was asked if we got a republic or a monarchy. With no hesitation, Franklin responded, “A republic, if you can keep it.”

We haven’t kept it. Illinois government wields unchecked power incompetently and voraciously. Homes, particularly in lower income communities, have been confiscated by absurd property taxes used to pay pension promises that were awarded through legislative incompetence and legal bribery. Unfunded mandates became ubiquitous, making the simplest fiscal reforms impossible for municipalities. Legislative maps drawn by legislators let politicians pick their voters instead of the other way around.

In short, statism replaced republicanism. The coalition majority in Illinois became rapacious and tyrannical, exactly as the Founders feared.

Undoing the power of that tyrannical majority in Illinois, however, will be difficult. Federal courts cannot be expected to do it alone because so much of that coalition’s power has become institutionalized, in contrast to the republic the Founders envisioned. The job will be left to the electorate and, in Illinois, the majority of the electorate has shown little understanding of the nature and depth of the state’s problems.

So, has democracy failed in Illinois? Yes, but don’t blame the Founders or their vision of government. Maintain a degree of optimism that federal courts will end up enforcing constitutional checks the Founders gave us and hope Illinoisans eventually will see fit to endorse some state version of the foundational principles the Founders believed in.

*Mark Glennon is founder and executive editor of Wirepoints.

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mike

As someone leaving Illinois soon, I am going to laugh when the day of reckoning comes. I’ve been warning anyone that would listen for years. At some point, nobody will lend funds no matter what interest rate, and the tax base will have dried up. It won’t matter what the Illinois courts say, their simply won’t be any money anywhere to pay the retirees. Also, good luck Illinois trying to convince your fellow states that they should bail you out. There will be no sympathy from me. You voted liberal over and over and soon you will see the end… Read more »

J.A.Herzrent

Regarding the several discussions about the integrity of professional firms “serving” public-sector clients and their unions, I would like to share the following song (lyrics) performed at a municipal bond closing in NYC involving major law and underwriting firms. Taxpayers were not invited. ****** THE BEST THINGS IN LIFE ARE FREE The chit belongs to government; The best things in life are free. The closing costs are heaven sent; The best things in life are free. The seven-day lark, With a view of the park. The meal and the play; All the citizens pay. Tax exemption works for everyone. The… Read more »

Rick

Two professions have miserably failed the public concerning pensions. The actuaries that put us here and the bond raters that create a market for continued borrowing at inflated favorable ratings. Politicians and unions aside. Union employees will always try to rake in what the could and politicians will always try to buy voting blocks on the taxpayers dime. Every year actuaries. Are consulted by government on how to manage the pensions, and every year, time and time again they seem to think they are absolved of blame so they only say what their pension wants to hear, and not the… Read more »

Mr. Common Sense

Rick,
Put all the Bond and Actuary people aside.
The teacher pensions are ridiculously too high! Retiring teachers will make more money from their pensions, than when they worked!

t z

It is both worse and more subtle.
When people find they can vote themselves largess from the public trough, it will be bad.
When they find they can vote themselves largess from the unborn masses a decade or two from now, it will doom everything, but only after time passes and those who didn’t even exist are required to fulfill the promises.

Rick

The borrowing from the next generation is again enabled by bond raters keeping Illinois above junk. Its gotten to the point where they now reward Illinois with good ratings directly proportional to how much the taxpayers are getting screwed. The only economic force that pushes our ratings better is when a politician passes a law to screw us over more. Lower taxes is now a big negative to moodys. They clearly want all the risk on the residents and no risk on their market.

People can’t have nice things for very long because of the Good People/DirtBag cycle of society. Good People build things up and then because they take goodness for granted they raise up generations of DirtBags who destroy that which was built.

Hard times create good men
good men create good times
good times create bad men
bad mean create hard times

It’s like an iron law, er something.

Larry Littlefield

Right. Why did Generation Greed, those born 1930 to 1957 or so, the richest in American history, become Generation Greed? Because they were the richest.

You don’t sacrifice for the future if you will be richer then than you are now. You don’t sacrifice for the next generation if they will have it better than you.

Then you had all the social/tribal conflict of that era, and the Vietnam war, which devalued the very idea of sacrificing for the common good.

Kvetch 22

LL: Your date parameters also describe the generation that benefited from Social Security, employer-provided health insurance, risk-mitigation via the FDIC, education via the V.A., and loan programs, private- and public-sector pensions, etc. These programs reduced financial risk while medical science extended life. Religious and patriotic norms eroded and TV propagated everything to everyone. As we now begin to experience the results — homelessness, environmental degradation, disparities in financial and physical well-being, etc. we can recline in our La-Z-Boys and watch our successors try to pay our bills and maintain a functioning economy and society.

The systems in Illinois can work only with high IQ, high trust people.
The current ‘denizens’ have neither of those traits.
The failure of that state is a BLACK mark unfairly listed against markets and limited government.

Rex the Wonder Dog!

One of the very best articles I have read on the pension problem, and the larger underlying problem of self-dealing without checks and balances. Excellent Mark Glennon, excellent.

Don Robertson

Come on! If you are a goddamned public employee making over $100k a year, what the Hell to you need a publicly funded pension for anyway? Cant’ you save for your own retirement like everyone else????

S and P 500

Watch the final scene of “Turn”. Incredibly moving end to the show. The evil SImcoe became a Governor in Canada who ended slavery in his province. Washington united the country but kicked the can down the road regarding a divisive issue. The bill has literally come due for a different divisive issue in Illinois.

Ed S

Every time I try and talk to anyone in Illinois regarding fiscal responsibility I only hear things like “if you can’t say anything good don’t say anything at all” or “why don’t you enjoy our new <fill in the blank" In view of that to me most Illinoisans are some of the most brain dead voters out there and their politicians some of the smartest as they continue to pillage the Treasury. Won't it be fun to watch them when the final bell rings? Have plenty of popcorn on hand because it is going to be a show not to… Read more »

s and p 500

I’m keeping a mental record of the dumbest comments I’ve heard from liberals and education activists. They don’t seem to know the difference between a debt and an asset. I pointed out the $3 billion of pension debt on the Philly School balance sheet and one reader said “no, that debt is not a problem. We need to invest in the kids.”

And yes, it will be better than a Michael Bay movie. Check out the you-tube vid “ABC’s of our crumbling schools.”

Larry Littlefield

So what should be the model for what life is like in public sector bankruptcy? How about the conditions imposed on New York City in the 1970s? A state and local tax burden at 17.0% of personal income, compared with a U.S. average of 10.0% (with Illinois less for most of the past 25 years until recently). Fifty kids in a class. The old people (bag ladies) left to die in the street. Parks filling with garbage. Police and fire layoffs — large areas burning down, and crime out of control. A transit system that barely worked. Bridges not painted.… Read more »

Advocate

New York got a federal bailout.
AIG and Co did too after 2008.
Savings and loan scandal bailouts. Etc.

Mark M

Yes, Advocate, but don’t count on Illinois getting a bailout. This is an Illinois Democratic Machine problem, almost entirely of their making, and it will be interesting to see how Pritzker resolves it. My guess is that he doesn’t do anything but raise taxes, virtually none of which will be used to reduce pension debt (this is what happened with the most recent tax increase as debts actually increased). And Illinois will continue to face continuous population loss, with billions in GDP flying away. Illinois will be a desperate place to live. One fascinating and perverse development is also at… Read more »

snapperhead

We can only hope that the public sector bastards have their rich healthcare and pension benefits stripped away. I for one, want to see the suffer. I despise every lat one of them. And I know many on a very personal level. I hope i live long enough to see it.

S and P 500

It’s happening now. 4 retirees of Loyalton, Ca, and the “LA Works” agency lost half of their pensions because their employers didn’t make their full CalPERS payments. There is no longer any “shared risk” between cities. If your city doesn’t make its CalPERS payments, then the employees don’t get what they have been promised.

https://www.sacbee.com/news/politics-government/the-state-worker/article138546503.html

P M

That is a beautiful thing to hear. You made my night. Awesome. Too bad it is only 1/2 though.

Kvetch 22

Just wondering; is the bondholders’ upper-hand the result of contracts that can’t be impaired by the state? Are they also contracts that a bankruptcy court could impair or otherwise modify or invalidate? It’s enough to make Fred Klonsky vote Republican!

Mark M

Mark, you have earlier pointed out the perils of having so many bond holders “liened up”, secured by sources of revenue. Since the political class in Illinois seem utterly incapable of structural reform, i.e., spending considerably less than they do now, there will more and more such deals in Illinois done to keep government units operating. Casting aside the utter lunacy of borrowing to pay operating expenses, these secured deals will make any form of bankruptcy that much harder as the lenders will have secured claims to much of the available cash. Your blog does a great service because the… Read more »

snapperhead

Yes, the prospect of assetless bankruptcy, which is what you get when everything is liened up, is what I find most terrifying.
Why? I am lost. What is so bad about an asset less bankruptcy? Doesn’t that just mean those who have unsecured claims on the state get nothing?

I am all for every single Government employee seeing their pension and healthcare packages vaporize. That is what they deserve. It is fitting.

Help me out here. What is so bad?

Rick

Favorable bond return rates, incompetent actuaries, fraudulent bond ratings, prohibited bankruptcy, a public whose labor and property is commoditized as collateral by law, judiciary and congress owned by public sector unions, and our constitution are all aligned to incentivize that the ponzi that is Illinois will continue for a long time. This only falls apart and moves to bankruptcy when Moody’s stops colluding with Madigan as the primary market maker for Illinois debt factory. At this point we are being bought and sold, we are the collateral. It’s time someone sued the rating agencies for fraudulent practices.

P M

incompetent actuaries
How do the actuaries get blamed in this? You do know that they are given a set of assumptions that they then base their evaluation on don’t you? For example for pensions, they are given the assumed rate of return as a fact, an input to their calculations. They are not given the latitude to determine what the rate of return should be. Hence all you are likely to see in the fine print is that there is a risk if the plan cannot meet its assumed rate of return.

Kvetch 22

Actuaries are required to use “reasonable assumptions” — they can’t assume pensioners and their spouses will all die by age 60, for example. Also, to the extent their assumptions are wrong, they are supposed to make actuarial “adjustments” to eliminate the effects of the errors. However, actuaries have a lot of wiggle room in deciding what’s reasonable. In the interest of “keeping the client” they frequently do what the town treasurer prefers because they realize if they don’t the treasurer can pay another actuary to give him the assumptions he wants. The actuaries have gone along to get along and… Read more »

Rick

Actuaries and bond rates both have sold the integrity of their craft to politics. If the numbers they come up with don’t look good, then they just change the formulas. At any given time risk is A constant, politicians use actuaries and bond raters to shif that risk to the taxpayers. Lessening the risk to the bond market and state coffers. This is evidenced by the inflated favorable bond ratings in Illinois which should be junk. And evidenced by government never giving an inch on their risk to have to do more with less money.

P M

You do know if you actually believe what you are writing about Actuaries you can file a complaint and get their accreditation stripped? The SOA (Society of Actuaries) takes this type of thing very seriously.

Kvetch 22

My experience is with larger actuarial consulting firms and I doubt SOA would go all Arthur Andersen on them. Similar experience with large CPA firms. They charge high fees and earn them by giving CFOs what’s needed to get them and the fellow executives their “performance” bonuses for the current quarter. Actuaries for public plans are a whole other story: they work hand in glove with the union trustees. In one case, when the public safety union did not get what they wanted through collective bargaining and arbitration, the actuaries lowered the assumed interest rate to increase the city’s pension… Read more »

P M

The SOA has nothing to do with how a firm conducts itself, they concern themselves with the conduct of the individual Actuary. Not to be demeaning to them, but CPAs are a dime a dozen, Actuaries row a much harder course. I know about 11 CPAs who tried to become actuaries who failed miserably in the attempt and were blown out during the preliminary exams. An Actuary or a group of them sign their work. If you think the work is deficient report them. They have an internal review board that will revoke people’s fellowships etc. Honestly I do not… Read more »

Kvetch 22

I promise to stop beating the dead horse, but this was not a “gig.” It was and is an ongoing engagement that has lasted for decades. The actuarial firm works for the trustee (a union-dominated board) and does that board’s bidding. Several lawsuits against the actuarial firm are pending. The plan sponsor went bankrupt; pensions were cut and there is no assurance that they won’t have to be cut several more times. Many Illinois municipalities are on the same trajectory. Ditto in N.J. and California. Professional firms that used to be the guardians of financial integrity have become tools of… Read more »

Kvetch 22

Isn’t the mortgage itself a contract? On what principles does that contract sidestep being impaired by a bankruptcy court? A mortgage opens up some state law legal remedies (e.g. foreclosure) but the bankruptcy process sets aside or stays the remedies until the court permits them to go forward. Might the court have a choice and deny the right to foreclose upon the collateral? Perhaps it’s jumbled in with the concept of equity jurisdiction — I gather a bankruptcy court has only limited equity jurisdiction. I understand that there’d be chaos in the marketplace if liens could be set aside, but… Read more »

Larry Littlefield

NYC got guarantees of high interest loans, which were paid back. Here is the key thing about NYC’s survival. It wasn’t because of “sacrifice.” It’s high taxes and service cuts would have just allowed it to limp along in a state of “service insolvency” like Buffalo or Detroit before the Great Recession. What saved NYC is that it “really” only paid half of the debts and retroactively increased pension deals of the Lindsay years. How? The Consumer Price Index doubled from 1970 to 1980, meaning the “real” values of those debts (fixed rate) and pensions (had no inflation adjustment at… Read more »

Rick

Excellent! Yes this happened here. And it continues because the people are not represented. Instead they have had their labor, creativity and value production comoditized by government. in collusion with bond rating agencies and a bond market profiting from all the usary backed by nothing more than a promise to the market that the taxpayers will be squeezed more and more to pay off every bond. Under constitutional protection that essentially the borrowing, cannot, constitutionally be stopped. So the financial market profiting from our abuse can continue. This beast is too deep under to be saved by any one time… Read more »

Mr. Common Sense

Good thing we have 49 other States to choose to live in.
Illinois is dead in the water, bankruptcy is the only option now.

Tough Love

My takeaway, quoting ……………

“Illinois government wields unchecked power incompetently and voraciously. Homes, particularly in lower income communities, have been confiscated by absurd property taxes used to pay pension promises that were awarded through legislative incompetence and legal bribery.”

Which is WHY Illinoisans MUST find a way to renege on the 50+% share of Public Sector pensions (AND benefits) that assuredly would NOT have been granted in the absence of that “legal bribery” (i.e., the trading of Public Sector Union campaign contributions for our Elected Officials’ favorable votes on Public Sector pay, pensions, and benefits).

Larry Littlefield

The issue is generational. When you have a generation whose goal is to take as much out of anything in common as possible and put in as little as possible, you get the mess than Illinois — and the United States — are in. You note that Illinois taxes are high. But they were below the U.S. average as a percent of its residents’ income for decades. You imply that state and local pension benefits are high. But for younger generations, they have been slashed to nearly zero. You imply that services may collapse. But the key public programs for… Read more »

Well said, Larry. So true about generational theft. As a former high school teacher, I got so sick of hearing that everything was “for the kids.” NOTHING public unions, politicians, or generation greed does has EVER been for the best interests of the children.

Larry Littlefield

My generation, Generation Apathy, didn’t help either. “We’re screwed anyway, so we’ll just look out for ourselves.” We’re going to find out how well that works out when all those senior benefits are taken away right when we become eligible, while Generation Greed is grandfathered, and our grandchildren don’t even get high school.

Laurie

Excellent!

NB-Chicago

fantastic article Mark. Are there any cases heading to supreme court currently for municipalities (like harvey)in those states like Ill that are prohibited from declaring bankruptcy to be able to do so? seams that would be huge winner for republicans & mr t. or maybe not? that would seem the most likely route to limiting state monarchism. if rauners toast anyway, would he have time to spearhead filing such a case like he says he did for janus-what would he have to loose?

Contemplague

The only system that can last indefinitely is a system that evolves, just as everything else does. Since evolving things change classification, no one system can ever be maintained forever.

We simply need a barebones system that upholds moral integrity. From there, we can tailor things as needed in an ever-changing world.

Elias

It’s a failure to a constitutional republic and democratic ideology, that tax and spend works no where in America. Illinois like other democratic run cities and states can not keep the same ideology and expect different results.

What a beautifully written, thought provoking column. Even though we’re in California, I often post your articles on Citizens for Sustainable Plans Facebook page because the states’ paths are similar. Both lead to insolvency and the eventual exodus of overburdened taxpayers and businesses.

mike

People of Illinois are free to move to another state so the system still works (sort of). All those union members that think their pensions are guaranteed don’t understand that anything can happen when the money simply doesn’t exist and nobody will lend to Illinois. Also, unless Dems control congress and white house, bailout is not happening.

P M

No, it is a failure of a republic and is an edifice to what Democracy amounts to: mob rule. In a properly functioning republic the rights of the individuals are guaranteed against the wants and desires of the masses. In a democracy, all it takes is a majority to vote your rights away. That is what we have in IL. The majority, the democrats via the unions are able to steal your property through unjust taxation in order to pay for their unjust compensation packages that were the result of negotiation with an accomplice. When you think of it, a… Read more »

Tough Love

I couldn’t agree more !