“In yesterday’s decision, the [Illinois Supreme Court] — as it did in a 2015 case dealing with state workers—relied on a clause in the Illinois Constitution that treats government pensions as ‘an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.'” It wasn’t relevant that Chicago’s pension scheme was $8 billion in the hole, or that most of the city’s public unions had agreed to a deal with Mayor Rahm Emanuel under which the city would step up its funding in exchange for lower COLAs and higher employee contributions. “The bottom line …is that, having just been whacked with a record $543 million property tax hike to pay for old city pension debt, taxpayers are going to have to dig deep again — at least $168 million more over five years, by 2020, and rising from there.” [Chicago Business] Chicago now confronts population loss, aging of resident base [Chicago Magazine, Illinois Policy, Aaron Renn, City Journal] More: “While the US Constitution is famously “not a suicide pact,” the Illinois constitution apparently is.” [Jack Henneman on Twitter]
6 Comments
I think it’s the correct ruling, since that clause IS in the Illinois constitution. Pensions may be too high, but you can’t back out of what you’ve already promised to pay just because you don’t want to pay it. Perhaps bankruptcy is an option.
And what’s this deal? Do I understand correctly that it involves the city merely agreeing to pay its existing obligations if the workers agree to contribute more and get less? Or am I missing something here?
“Pensions may be too high, but you can’t back out of what you’ve already promised to pay just because you don’t want to pay it.”
What if you can’t pay? What if you have no hope of ever being able to pay?
“Perhaps bankruptcy is an option.”
Detroit filed for bankruptcy. The unions moved to have the bankruptcy thrown out on the grounds that a similar clause to the Illinois one in the Michigan constitution + the contracts clause of the US constitution made it unconstitutional/illegal for Detroit to file for bankruptcy.
I don’t know the outcome of the union challenge to the Detroit bankruptcy..
Pretty sure Detroit did indeed get bankruptcy. I’m not sure how much of that is federal and how much is state, so I don’t know if the precedent counts for anything. If they can file for bankruptcy, that’s my answer to “what if you can’t pay”.
I guess the other option is amending the state constitution to remove that clause preventing them from reducing the pensions, but I’m not sure if politically that’s feasible.
Bankruptcy is entirely federal, but under current federal bankruptcy law, cities can only file for bankruptcy if authorized to do so by their state.
The state can issue blanket authorization or do it on a case by case basis.
It was the validity of that authorization that the union challenged.
David, you are absolutely correct.
In several earlier rulings the IL Supreme Court ruled that neither the State nor the City is required to maintain the various pension funds at any particular funding level. They merely have to make pension payments to retirees as they come due. Thus there really is no immediate crisis that rises to the level of throwing out the Constitution.
The Court also noted in earlier cases that a State or City “promise” to make its actuarially determined contribution, as in the current case, is not protected by the Pension Clause. Thus the Legislature could easily remove that promise in the next legislative session, or even sooner.
This same idiocy is coming to New Jersey soon.
http://www.nj.com/politics/index.ssf/2016/01/nj_legislature_passes_public_worker_pension_ballot.html
This is the last ditch attempt by public sector unions to lock in their
spoilspensions. We’ll see more of this in blue states.