Illinois taxpayers are NOT required to keep feeding the state workers' pension funds

Why has feeding Illinois government workers’ pensions funds taken precedence over other desperate needs, especially as the coronavirus has added another crippling dimension to state’s already deadly fiscal crisis?

Here’s a surprise: Illinois taxpayers don’t have to.  Not even to conform to the state’s constitution requirement that no government worker’s pension benefits can be diminished.

No doubt that diverting hundreds of millions from pensions  into such pressing or desperate needs as education or health care for the poor would raise a huge stink from organized labor

Thanks to union pressure, the state acts as if  “fully funding” pension benefits are the highest priority, as if it were the be-all and end-all of the state’s existence and the indisputable reason for raising the Illinois income tax.

Yet, legal precedents and caselaw appear to allow the pension funds to be reduced to zero, as if they were a car’s gas tank that is allowed to run to empty before being refilled.

I discovered this by reading an article in the Fall, 2014 John Marshall Law Review: “Is welching on public pension promises an option for Illinois? An analysis of Article XIII, Section 5 of the Illinois Constitution,” by Eric M.Madiar.  A Springfield lobbyist and former chief legal counsel to former state Senate President John Cullerton, Madiar is a recognized expert on Illinois pension law, including the caselaw since the pension protection provision was adopted in the 1970 constitution.

Here’s how I read the caselaw as he presents it: The constitution does not require a certain level of funding; the constitution only requires that, as a contractural right, the benefits cannot be diminished and must be paid. He wrote:

Not long after the clause took effect, public employee groups began a long-standing litigation effort to require the legislature or local governments to pay the systems’ unfunded liabilities and fund the system on an actuarially sound basis. The Illinois Supreme Court addressed this issue on three different occasions and the employee groups’ efforts proved unsuccessful, as explained below.

Based on the statements of convention delegates Green and Kinney, the Supreme Court has held the clause does not mandate that the pension systems be funded at a specific funding percentage or according to a specific funding schedule. Rather, the Pension Clause requires that the pension benefits be paid when the pension benefits become due. In addition, the court has favorably relied on the statements of Delegate Kinney that pension recipients would have a cause of action to compel the payment of benefits should a pension system defaults or be on the verge of default. [Emphasis added.]

I want to make clear that this is not something that Madiar recommends. And I raise it to help educate the public that has been falsely led to believe that the constitution requires “full funding.”

As politicians genuflect to the idea, pension funding continues to gobble up money needed for other services. Gov. J.B. Pritzker budget directs that $100 million initially (more than double that in later years) generated from his proposed graduated income tax be used to fund pensions. Even if he doesn’t persuade voters to approve a constitutional amendment to impose the new tax, he would feed about 20 percent, of $8.6 billion, of the state’s operating budget into the funds. Twenty percent.

Wait, it gets worse. Illinois Senate President Don Harmon, a Democrat, has asked for a $40 billion bailout from the federal government because of the costs of the coronavirus pandemic. That includes $10 billion to help rescue the pension funds. The  request of American taxpayers to help bail out Illinois last-gasp pensions stands a snow-ball’s chance and, in my view, is simply a political move to make Republicans who are (correctly) sure to oppose it look flinty and evil. (For comparison purposes, $40 billion is about the size of the entire state budget.)

Besides, $10 billion would be a pittance, amounting to tossing a spoon into the Bessemer furnace that the pension funds have become. The state admits to unfunded pension debt amounting to about $140 billion. That’s a joke. Moody’s Investors Service says the real amount is $240 billion, if more realistic actuarial projections and true investment returns are a part of the  calculations. And that was before the current stock market crash and coming recession. 

Meanwhile, as the Chicago Tribune reported, “almost 20,000 adults with disabilities are awaiting admittance to programs funded by the state that would help them live on their own. The average waiting time is seven years.”

Reducing and redirecting pension funding to more immediate and critical demands would require legislative action. That’s  wildly imaginative and virtually impossible, considering the grip that organized labor has on Illinois’ government.

But think about it; as Illinois, Chicago and other jurisdictions get sucked further and further into the black hole of unrecoverable indebtedness, how can funding pensions for lavish benefits that come due sometime in the future be justified?

Letting the pension funds fall to zero and defaulting on the payments would be suicidal. Or would it? If the state could prove that it’s the only way to prevent bankruptcy–a legal thicket with unknown outcomes–would the courts find the saving the state has a higher purpose that “fully” (whatever that means) pensions? Let the unions sue and find out.

For decades, Illinois pols allowed those funds to shrink while they shifted revenues into other accounts to make the budget appear to be balanced. That was back when Illinois wasn’t as deeply in the toilet financially and well before the additional burdens imposed by the coronavirus pandemic.

Shifting some of those funds now to serve the more immediate and critical needs of Illinoisans is more than prudent. It’s necessary.

dennis@dennisbyrne.net

www.dennisbyrne.net 

My historical novel: Madness: The War of 1812

Comments

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  • I don't understand your reading of the Madiar article. He reaches exactly the opposite conclusion from the one you are suggesting. Near the beginning of the article, at p. 168, he summarizes the case he will make. "The Article concludes that the General Assembly cannot unilaterally cut the pension benefits of current employees or retirees as a means to reduce the State's existing pension liabilities based on the Clause's plain language, the drafters' original intent, voters' understanding of the provision, and court decisions construing the Clause. Simply put, there is no police or reserved powers exception to the Clause's protection." He restates this conclusion near the end, at p. 304.

  • In reply to jnorto:

    How did you manage to miss this: "I want to make clear that this is not something that Madiar recommends. And I raise it to help educate the public that has been falsely led to believe that the constitution requires "full funding."

    To repeat: I'm pointing out that the constitution does not require that the pensions be fully funded. I'm pointing that case law, as detailed by Madiar, does "not mandate that the pension systems be funded at a specific funding percentage or according to a specific funding schedule. Rather, the Pension Clause requires that the pension benefits be paid when the pension benefits become due."

    What is there not to understand?

  • In reply to Dennis Byrne:

    What page are you quoting from? The language you quote says the pensions must be paid when the pensions are due. So are you suggesting that the state can avoid that by simply not setting up a fund to pay them?

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    In reply to jnorto:

    I believe what is being said is that the state must pay pensions when they are due but their is no minimum or maximum amount of dollars that the fund must hold.

  • In reply to Ken Dietz:

    So?

  • In reply to jnorto:

    So? So, this gives the state flexibility to redirect money that otherwise would go into propping up the pension funds for more immediate, more pressing needs. Including, not having to go further into debt, or providing money for the coronavirus combat. Ken Dietz has it right. There is no constitutional or legal requirement that X amount of dollars go to funding the pensions at this or any other time. The only thing the constitution requires is that the benefits be paid when they become due. That only comes when the funds are exhausted, when the funds default. The caselaw says that when that time comes, the beneficiaries have a "cause of action", giving them legal standing to file suit.

  • In reply to Dennis Byrne:

    You are building a argument on a very feeble reed. Drawing a loose negative inference from language in a John Marshall law review article, You conclude that Article XIII Section 5 of the Illinois Constitution requires payment of public employment pensions, but that these payments need not be funded. But Article XIII does not end the query. Other laws also bear on the matter. Article VIII details the budgeting process. The governor is to propose a budget and the legislature is to adopt it. Once adopted, the budget controls the funding of state programs and obligations.

    To prove your point, among other things, you will have show us how the state can pay state pensions without budgeting funds to do so. Or, if you are advocating a default by Illinois on its legal obligations, you should tell us what the consequences would be.

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