Though the subject of state pension reform has sort of dropped from the headlines lately, buried by tons of other news, the reality is just as big and ugly as ever, with unfunded liability in Illinois’ five pension systems alone hitting $111 billion as of Dec. 31.
Now comes a new paper on what realistically can—and can’t—be done about it from a guy who in some ways has been the most accurate pension prognosticator in the state.
He’s Eric Madiar, who as chief counsel to Illinois Senate President John Cullerton, correctly predicted that courts would turn thumbs down on a plan pushed by Speaker Mike Madigan and others to unilaterally cut benefits and raise costs for workers.
In his view, there’s still a way to cut costs, somewhat, though others strongly disagree. He also sees promise in buying out annuitants and workers with lump-sum payments, or shifting some costs from the state down to local school districts.
But other proposed solutions, including amending the state constitution or allowing local units of government such as Chicago Public Schools or the city itself to go bankrupt, aren’t likely to work even if they made into law, he asserts.
Madiar outlines his views and takes a good look at how we got where we are in an article in the new issue of Illinois Public Employee Relations Report, published by IIT Chicago Kent College of Law and the University of Illinois School of Labor and Employment.
Madiar starts by looking at how the Illinois Supreme Court rejected both a state pension fix and one for the city of Chicago. Both became law, with the state arguing that it had a right to use its “police powers” to reduce payments, and the city asserting that was offering new guarantees in exchange for lesser benefits. But the court pretty much laughed, saying the Illinois Constitution means what it says when it describes pensions as a contractual right that “cannot be diminished or impaired.”
Madiar sees more hope in a plan pushed by Cullerton and backed by Gov. Bruce Rauner to force workers to chose between keeping their 3 percent annual compounded pension cost-of-living hike or having their wages frozen for pension purposes at today’s level.
His argument: Since no one is guaranteed a raise, except perhaps as a result of collective bargaining, the state has every right to put strings on future raises, i.e. a lesser COLA.
Labor groups have laughed at that, and I suspect they’re right. Refusing anyone a raise indefinitely unless they cave on pensions comes pretty close to extortion, in my book.
But the legal theory has enough going for it that it could make its way through the General Assembly as part of a budget/tax-hike deal next year.
Madiar also plugs another idea that quite probably would pass legal muster. That’s offering workers a choice between keeping their pension rights (and wondering if the state or city really is able to pay) or taking lump sum a buy-out of, say, 75 cents on the dollar.
If just one worker in five in the state’s largest pension funds took such a deal, the state would save $160 million a year and $7 billion total over term, Madiar says. That’s not huge, but it’s something.
For those who want to hold out for something bigger, Madiar looks at amending the constitution and passing a law to allow local-government bankruptcy.
The first isn’t constitutional, Madiar argues, since it is premised on the same “police powers” theory the court already has rejected. And bankruptcy effectively would overrule the will of voters who approved the state constitution, knowing that it made pensions a right effectively guaranteed by a first lien on state resources.
Read it for yourself. But it’s a good summary of one particularly informed view of the state of the Illinois pension world. And remember: If something doesn’t happen, both the state and city will have no choice but to pay until the pensioners are made whole.