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Blue Model Blues
Illinois Supremes Scuttle Pension Reform

The Supremes have spoken: The Illinois state constitution is a suicide pact. Less than two years after invalidating an adjustment to state workers’ budget-busting healthcare benefits, the highest court in Illinois has ruled unconstitutional the City of Chicago’s last-ditch efforts to stabilize its woefully underfunded pension system. The Wall Street Journal reports:

The Illinois Supreme Court on Thursday rejected a plan to cut future retirement benefits and boost employee contributions for Chicago city workers, undercutting a pillar of Mayor Rahm Emanuel’s strategy to stabilize one of the nation’s most troubled pension systems.

The justices ruled the changes would violate the rights of city workers and retirees protected under the Illinois constitution. The Emanuel administration had argued that the changes came as part of an agreement under which the city would increase its annual contributions to two of the city’s four pension funds to ensure they remain solvent.

Our focus at Via Meadia is on politics and policy, not constitutional interpretation, but it appears that the meaning of the Illinois constitution is clear, or at least unlikely to change anytime soon: Both this ruling and the one that preceded it were unanimous, with the court’s three Republican justices joining its Democrats in ruling that the constitution’s “shall not be diminished or impaired” clause protects all current public employee benefits from any adjustments, even if the government is approaching insolvency. The ruling is a reminder of how deeply entrenched the blue model is in state and local government structures; even when reform-minded Democrats push through modest changes in deep blue jurisdictions, they stand to be derailed by longstanding constitutional provisions and a judiciary bound to uphold them. Amending the Illinois constitution is a daunting task, requiring a supermajority vote in both houses and supermajority approval in a statewide referendum.

The Windy City now needs to go back to the drawing board to figure out how to rectify its crumbling fiscal situation. Given that benefits for the unionized public sector are largely off limits, City Hall will likely need to raise taxes (thereby becoming even less attractive to business investment) or else scale back services like criminal justice, education and welfare (further eroding confidence in the government, especially among minority communities) or—perhaps most likely—continue more-or-less on its current course in the hopes that a federal bailout might be forthcoming.

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  • Tom

    It is not the responsibility of the courts to declare provisions constitutional or unconstitutional based on policy recommendations, but on the text of the constitution in question.
    This headline, therefore, is misleading. It should read, “Illinois Legislature scuttles pension reform”

    • mhjhnsn

      Good point, but better phrased, “IL Supreme Court Affirms that Chicago Pension Law is Contrary to IL Constitution.”

  • Anthony

    “Already reeling from a mountain of financial woe, Chicago just got bit again – twice. New Census estimates show that the region’s population is actually shrinking, and yet another pension reform deal has been overturned by the Illinois Supreme Court.” See: city-journal.org/html/honey-i-shrunk-chicago-14309.html

  • Fat_Man

    What I can’t figure out is who the Illinois Courts think they are helping. It can’t be the taxpayers. It can’t be retirees, their pensions have become riskier because an insolvent plan cannot pay out full pensions. It can’t be current employees, they just had the risk of losing their jobs so the money can be spent on retirees.

    • Andrew Allison

      The Illinois Court is simply doing its duty: the IL constitution is clear. The solution, as noted by PKCashmir, is to amend it, but the legislature appears to be owned by the unions. They don’t even have the guts to vote to put a modification on the ballot (extremely difficult in IL, but the alternative is bankruptcy). This being Chicago, I can’t help thinking that the parties to the agreement knew perfectly well that it would be struck down.

      • Frank Natoli

        Surely you jest [and don’t call me Shirley]. The Court may have said that the Illinois Constitution prohibits the actions the court overturned, but curiously the author of this article does not quote the relevant Illinois Constitution’s Article. Kind of like, you know, the U.S. Constitution guarantees a right to kill the most innocent and most defenseless.

        • Andrew Allison

          Dear Shirley (just jesting),
          Did you read the post (“. . . it appears that the meaning of the Illinois constitution is clear . . . . Both this ruling and the one that preceded it were unanimous, with the court’s three Republican justices joining its Democrats in ruling that the constitution’s “shall not be diminished or impaired” clause protects all current public employee benefits from any adjustments, . . . .), or just the comments? Google could have told you that it’s Article XIII Section 5 of the IL constitution.

          • Frank Natoli

            Would you consider converting from a “defined benefit” to “defined contribution” be ipso facto “diminished or impaired”?

          • Andrew Allison

            1. You’ve changed the subject.
            2. Conversion wouldn’t apply to existing retirees.
            3. Of course converting would be an impairment; the only way that current employees could match their promised benefits is by contributing most of their salaries.

          • Fat_Man

            The Republicans will go along because they don’t want to swim in the Sanitary Canal with concrete overshoes on.

      • Fat_Man

        Come on Andrew, No Democrat thinks any law is that clear. They are doing what the Unions want them to do, I understand that. The only way that this makes any sense is if they (the Unions and the Machine), think that Uncle Sugar is going to bail them out. Maybe. Maybe if Hillary is elected and brings the House and the Senate with her, and they can seal the deal before the 2018 elections.

        • Andrew Allison

          Nonsense. The IL Constitution (Art. XIII, Sec. 5) is perfectly clear, and the IL Supremes would have been as derelict in their duty as you suggest they were to have found otherwise. Had they done so, the supreme Supremes would have been bound to reverse the decision. It’s not rocket science: the IL Constitution forbids changes in pensions, and the solution is for the legislature to amend it.

          • Fat_Man

            Nothing is ever that clear to a Democrat. Last year Ruth Ginsburg opined that the word legislature could mean a body that has no authority to pass general laws.

            The US Supreme Court has no jurisdiction over, and will not accept a case on, the interpretation of a State Constitution.

          • Andrew Allison

            Oh, please. The language is explicit. Ginsberg’s opinion on what the word “legislature” might mean is completely irrelevant to the subject at hard.

          • Fat_Man

            Ginsburg is a Democrat. Democrats write opinions to order, not because of logic. The only question for a Democrat is “who sent you?”

          • Andrew Allison

            You appear to have lost sight of the subject, which is whether the IL Supremes were right to reject the (pseudo-) agreement entered into between the City and the Unions. It has absolutely nothing, other than the abject failure of that in IL to act responsibly, with Judge Ginsberg’s opinion about legislatures.

          • Fat_Man

            Let me try again. Democrats do not believe in right and wrong. Judicial decisions by Democrats have nothing to do with clear language, or right and wrong. The only thing Democrats care about is political power.

            Now, the Illinois Supreme Court which has a majority of Democrats decided to throw out a deal. The question is not was it right or wrong. That is meaningless. The question is who sent you? The next question is why did the guys who sent you think the deal ought to be thrown out?

          • Andrew Allison

            No question that judges sometimes make decisions for ideological rather judicial reasons . This is not one of them. The Illinois Supreme Court was present with a case and issued a judgement based on the clear language of the IL constitution. As I wrote, for them to have found other than they did would have been an example of the judicial malpractice which you decry, and to pretend otherwise is blind political partisanship.

          • Fat_Man

            Your faith is touching, my son.

          • http://whenfallsthecoliseum.com/author/kwatson/ megapotamus

            Sometimes it’s just what it says. And even if it is not, so what?

        • http://whenfallsthecoliseum.com/author/kwatson/ megapotamus

          That there is some longer term consideration at play, especially with the unions, is not in evidence, to put it mildly.

  • PKCasimir

    A solution is available – amend the Constitution.

    • mhjhnsn

      Unlikely to work unless you also repeal the contracts clauses in both the IL and US Constitutions, and their prohibitions on retroactive laws.

      Good luck with that.

  • Dale Fayda

    Social Democracy’s slow, painful collapse.

    Love it!

  • Bob Hawkins

    Why not then reduce current salaries in light of this generous fringe benefit?

    • Kevin

      I suspect this might run afoul of the same rule. All that’s available is to fire existing municipal workers and hire new ones hired under a new retirement plan. Or pay everyone with IOUs – 75% of pay & benefits in cash, 25% in IOUs.

    • Andrew Allison

      You don’t understand: they are government employees, and thereby entitled [sarc]

    • texasjimbo

      That is exactly the kind of outside-the-box, sane thinking that no politician interested in getting reelected (99+%) would ever engage in.

  • Frank Natoli

    Both this ruling and the one that preceded it were unanimous, with the court’s three Republican justices joining its Democrats
    Well, that took the wind out of my sails. I was all ready to post another he-who-lies-with-dogs-gets-fleas when the author pre-empts me. Illinois is very much like my home state of New Jersey, overwhelmingly Democrat, with Republicans who have evolved, Darwinian style, to simply appear as Democrat-lite. How pathetic.

    • Andrew Allison

      What’s pathetic is engaging fingers before operating Google, see IL Constitution Art. XIII, Section 5.

  • Blackbeard

    If Illinois tries to solve this problem with some combination of reduced spending and higher taxes they will just accelerate the exodus of people and businesses that is already underway. That will require further spending reductions and tax increases. That way lies a death spiral. On the other hand amending the state constitution will require union cooperation and that will never happen. The only solution is a federal bailout. That may seem unlikely at the moment, but if the Republican Party continues its self-destruction who will stop them?

    The ultimate question is then who will bail out the federal government when that day comes?

    • Andrew Allison

      I wonder if union cooperation is really required. When (not if, but when) Chicago goes belly-up, the residents of IL are, per the constitution, required to maintain the ludicrous benefits being paid to Chicago retirees. That would require the State to take over the City’s pension obligations. In the dog-eat-dog world known as” Blue”, they might object. The alternative of borrowing is pretty much foreclosed because IL has the dubious distinction of having the lowest credit rating among the 50 states. The utterly insane Dem proposal to make PR pension obligations “special” is probably the last nail in the municipal debt coffin. Next up, of course, is Uncle Sugar, but the taxpayers of the entire country might object to paying Chicago pensioners.

      • f1b0nacc1

        Precisely right. I rather think that the residents of IL that do NOT live in Chicago (and they are the majority) are going to happily accept a whacking huge tax increase (and significantly reduced services as well) in order to straighten out the books of the notoriously corrupt Chicago Machine. Now in truth this is not all that clear-cut, as the entire state has been sucking at the pension teat for a long time, and Chicago is hardly the only place that is going to get bitten in IL, but I suspect that the unions aren’t going to be in a terribly good place now that the courts have made it clear that there isn’t a painless alternative.

        Should be fun to watch….from a distance…

        • Andrew Allison

          This has GOT to stop! [grin]

          • f1b0nacc1

            Correct (on both counts)

        • mikekelley10

          The really sad thing about lefty death spirals is that they take so many good people with them. Check out Roughcoat’s comment above. It is the same in California. Most of the state, geographically, is pretty conservative, but the big cities full of leftists out-vote them every time. Increased urbanization will be the death of America.

          • f1b0nacc1

            I have never doubted that the death of the Blue model will take a lot of good people with it, and that saddens me more than might be otherwise apparent. With that said, arithmetic wins in the end, and the longer that this misbegotten mess continues, the worse the reckoning is going to be. LOTS more good people will get taken down as this disaster unfolds…
            Finally, as for Roughcoat’s comments, I genuinely sympathize with him, but lets be blunt….these Stalinists didn’t just appear on their own, they were voted (and sustained) in office, often with the votes of the very people who are now bemoaning their fates. I have seen this in CA, IL, and NY…lots of conservatives who were happy to dip their bills into the trough when it benefitted them are now quite unhappy to see the bill come due. Lots of conservatives who were ‘nice people’ and didn’t want to fight against this mess as it was developing (over decades) are now appalled to see that they are helpless, just as they were warned they would be by the ‘bad guys’ on the hard right. You either fight the machine or you don’t, but if you don’t….well, the results should be clear…

          • mikekelley10

            It varies from person to person. I see comments from people in California who hate the insanity but are held there by family ties and business connections. Many productive people have left there and Illinois, though. I have several friends here in Montana who left California and like it better up here because the insanity isn’t as pervasive, although Missoula and Bozeman are well on their way.

          • CapitalHawk

            I wonder why Missoula and Bozeman are well on their way to becoming insane. Couldn’t have anything to do with those Californians the fled the insanity of California, could it? The real problem is that these people never learn. They just, like locusts, fly to greener pastures and proceed to turn them brown.

          • mikekelley10

            Missoula and Bozeman are our two major college towns. That means plenty of lefty propagandists at the schools and thousands of gullible young people who don’t know they are being conned. When they get to my age, they will wonder where their prosperity and freedoms went when their professors promised them a socialist paradise. Missoula in particular is sort of our version of Boulder or Madison. Republican wars bring huge protests, and Obama’s debacles bring crickets.

  • Terenc Blakely

    In the mind of lefties I’m sure the ‘solution’ would be a uniform tax rate in all the states. If that is somehow done, then there would be no place with lower taxes to flee to. Not that such a ‘solution’ is constitutional in any way, shape or form but lefties have been ignoring such inconveniences for decades.

    • http://whenfallsthecoliseum.com/author/kwatson/ megapotamus

      Right, the problem is always that there is a means of escape. Close that off and all is well.

  • Roughcoat

    I’m a resident of Cook County (but not Chicago). I’m a conservative. I vote Republican. Let me give you the perspective on this whole situation of someone who lives in the belly of the beast: it sucks. It’s outrageous. It’s depressing. The mobile young and the wealthy or well-off of all ages can contemplate leaving the state but for most of us this isn’t an option. I’m too old and too deeply entrenched to move. In this economy my wife and I are unlikely to find jobs anywhere else at our age (we’re in our 60s and no, we’re not retired–can’t afford to retire). So we’re stuck. The Democrats rule Illinois as a medieval fiefdom. Illinois House speaker Michael Madigan (D) is a dictator in the Stalinist mold. He doesn’t kill his enemies like Stalin but then again, he doesn’t have to: he eliminated any meaningful opposition long ago. The GOP in Illinois can make no headway against him. In Cook County the GOP scarcely exists and it is Cook County with its massive Democrat-voting population that controls the state’s legislative agenda. Apart from Cook County the state is overwhelmingly Republican: were it not for Cook County Illinois would be a Red state.

    Did I say the situation sucks?

    • Andrew Allison

      One would think that a decline from top-10 SQLI to bottom-10 since 2000 would have awakened the voters, but as de Tocqueville wrote “The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.” Illinois, a poster child for his thesis, will probably the the first State to implode. As an aside, Cook County contains over 40% of the State’s population, which has unfortunate implications for the remainder.

  • Suzyqpie

    When the Democrats are at the negotiating table with public sector unions no one is representing the taxpayers.

    • http://whenfallsthecoliseum.com/author/kwatson/ megapotamus

      A reality recognized even by FDR.

  • Corky Boyd

    Years of corruption and malfeasance have brought this impasse on. Yet there are solutions for the city other than bankruptcy. Like all cities, Chicago has property that can be sold. For starters, ancient city government office space can be sold. The city could move to leased space. Other cities have done the same. Meigs Field would bring in a small fortune. A billion here and a billion there and you are looking at real money.

    • MrJest

      Nobody will want to buy land in a place which will become the second Detroit in a decade or so. No profit in it.

  • MrJest

    It will be amusing to watch this situation disintegrate into madness and chaos.
    Eventually you run out of other people’s money.

  • JeffreyL

    This really irks me. And thus you get why the Donald is doing so well. We all sprout platitudes about being strict constitutionalists and conservatives, but when it comes to provisions we don’t like, suddenly the right path, the conservative path, but the hard path of amending a provision within a constitution, suddenly gets thrown out the window and we groan and pound our fists when Judges actually tell us the truth in a lawsuit that should never have been filed. how much more plain fricking english is shall not be diminished?

    There is a very simple solution to the pension problem, and its not suing in state court

    Amend the constitution of the state of Illinois

    I realize that its hard, but its the right thing to do.

    • MrJest

      Problem is, there aren’t any conservatives in ChicagoLand. And precious few in the surrounding state as well. Democrats own this; they built it, and they will go down with it. That’s the elemental nature of “progressives” – they ignore reality in favor of their own fuzzy and irrational dreams.

      Too bad a lot of retirees will starve because of it, but oh well – they voted for this mess too. Just deserts.

    • http://whenfallsthecoliseum.com/author/kwatson/ megapotamus

      Get going on that. In ten years or so you might have a shot at it.

  • Hal9000

    Pass the popcorn. I am enjoying the collapse of Chicago.
    .
    Why on earth did they EVER think that Mexicans and blacks would be able to sustain Chicago, its pensions and attractions and produce sufficient jobs?
    .
    Given what we have seen in Detroit, East St. Louis, Newark, Philadelphia, Flint, and Baltimore, once you run off all the white folks, the entire economy and infrastructure collapse.

    • Tom

      Except that’s not how it actually works, you racist twit.
      For the love of all sanity, could you at least try to not join the Left in screaming “culture=race?” Of course, then again, they got that concept from you…

  • http://whenfallsthecoliseum.com/author/kwatson/ megapotamus

    Scribbling something in your Constitution has no magickal effect. It doesn’t change the iron rules of mathematics which are the osmium rules of finance. Illinois is not alone in making its pensions a matter of existential proportion and the pensions are not alone in being so distinguished. Some state Constitutions likewise enshrine the right to an education which applies even (or especially) to those who resist learning like some of us resist psoriasis. Either reality or the Constitution must relent. And reality is unlikely to lose the contest.

  • mhjhnsn

    So many commenters who know next to nothing about this issue!

    Chicago’s and Illinois’ pension crisis is not due to excessively expensive pension benefits–there are a few outrageous examples of politically connected people who got laws written to let them abuse the system (for example, union leaders were subject of a big expose a few years ago), but they are far too few to matter, actuarially. Benefits are not that high, and most of the pension horror stories you hear are from New York, New Jersey or California, and under formula that no longer apply to new hires, at that.

    Chicago employees (and many State employees) do not get Social Security, and contribute between 8.5 and 9.125% of gross pay. This usually gets overlooked in all the propaganda.

    The problem has been that the State and City wrote the Pension Code such that for many decades they did not contribute what the pension actuaries told them was necessary. The employee unions went along because this meant the pols could balance their budgets without raising taxes, and still have more employees, paid more, than they could afford if they were paying the full cost of those employees as it accrued. Both sides were at fault, conspiring to fleece future taxpayers, many not even born yet.

    When I say many years, I mean in its 2015 decision on the State’s pension bill, the IL Sup Ct cited a report of a special pension funding commission from 1916, that could have been written in 2015 if you just add 2 or 3 zeroes to the numbers.

    The Pension Clause got in the 1970 Constitution because of that terrible history, and most proximately because in 1969-70 many police across the state were afraid that new “home rule” powers being given to municipalities would allow those municipalities to reduce or eliminate their pensions, which were covered by State law.

    At this point there is no good answer, but one-sided propaganda like that thrown around by the Chicago Tribune and the Civic Committee of the Commercial Club is not helpful and is so misleading in what it doesn’t say, it comes about as close to lies as you will ever see in public discourse.

    • JeffreyL

      mhjhnsn

      Illinois pensions are way out wack. We know they don’t get social security. However, if you believe that guaranteeing an 80% payout of inflated last three years average salary (yes, i know some of the worst pension spiking has been remedied, but only like yesterday, and some still exists) comes from an 8% contribution rate, i have bridges in NY to sell you.

      Look at what social security pays out. Social security pays out 22% of your 35 year average with a 6.4% contribution rate

      Illinois education pensions pay out 80% of the average of your 3 final years (ie your highest earning years) with only an 8% contribution rate

      See any difference here?

      • mhjhnsn

        1. SS is an incredibly bad deal because the proceeds cannot be invested; its internal rate of return is around 2% for young worker, who are really getting hosed. If people knew how bad, they would march on Congress with torches and pitchforks.

        2. Since 2011, new hires in almost all Illinois public pensions are in “Tier 2”, which includes, inter alia, an 8-year Final Average Pay Calculation. 3 years is very short even in “Tier 1,” 4 years more typical in Illinois. And I am not denying there have been abuses, there have been and some really make my blood boil, but with Illinois $100+Bn in the hole, and Chicago $30+Bn (if you include its school system), they are a very small part of the problem.

        3. You need to brush up on your pension actuarial math. An 8% employee contribution, matched by an employer share of the same size or a bit larger (say, saving 20% of your GROSS pay, combined), which is what the IL Pension Code generally provided for, invested at 7.50% per year, compounded (which is the average of what the various pension plans assume they can earn) produces a very substantial value to be annuitized after 30-35 years. Set it up in Excel if you doubt me.

        Now, a lot of people, including me, think 7.50% is too high to be prudent. And many of the pension funds use mortality tables that are somewhat out of date or not as “forward-looking” as the Society of Actuaries recommends. But more prudent assumptions going forward would just make the liability look bigger, it would do nothing to add assets to those Funds.

        The problem has been around for 100+ years. Occasionally, times would be good and the pension funds’ financial status would improve, but the response by the politicians, often (but not always) aided and abetted by the unions, was to then reduce the employer contributions and use the money for other things. The unions would go along because those “other things” often included no layoffs or better pay grids for their members. Consider it like a ratchet, set so that any action on the handle would cut contributions and hurt the pension funds. It was, in essence, a conspiracy of the politicians and the unions, against future taxpayers. It has been called “intergenerational theft.” But the residents also took advantage–they got more and better services than they were paying for. So, everybody chose not to look into what was actually going on; many of the victims were children or not even born, yet.

        As recently as the late 1990s and early 2000s, Illinois and Chicago were playing this game, with contribution “holidays” and early retirement programs that were not properly funded. a big thing all over the country at that time.

        The problem in Chicago was that the City’s employer contributions were not pegged to the needs of the pension funds, as they are in most places, but was just a fraction of payroll, so the City’s contribution did not increase in the face of, e.g., the dotcom bust or the 2007-2009 crash. That drove the pension fund into the dirt. In many places, the pension contributions had to rise after 2002 and again after 2009, and that created budget strains but in the end worked out OK. In Chicago, pension contributions didn’t rise, but the pension hole grew (“Pay me now or pay me later”). Each dollar not paid was, essentially, a loan at 7.5% interest.

        The IL constitution has been in place since 1970–almost 46 years. Reading between the lines in its 3 recent decisions on pensions, the Supreme Ct is not inclined to cut any slack because the language is very clear and has been ignored for 46 years. In oral arguments on one case, they observed that the funding crisis was created by the governments acting irresponsibly by not funding what the actuaries said was needed, and if we let you do it this time, why would you not just underfund again, create another crisis and come back for more–and the response was, essentially, “trust us this time.”

        Now, with Chicago’s last two pension funds projected to be insolvent in the rating agencies are downgrading Chicago’s credit and it is time to pay what wasn’t paid before, including the actuarial interest.

        Personally, as a Chicagoan, I would prefer to see some of the pain born by pensioners, current and future. Everybody gained from deferring rather than paying costs as the accrued, and there would be a rough, imprecise justice to every group bearing some of the burden. Keeping in mind that many who gained cannot now be caught–pensioners who died, residents who moved away.

        But the law is very clear and despite what some people who must think themselves very sophisticated are writing here, the Court’s interpretation is sound–if anything, to have found otherwise would have been the more political decision.

  • Fifty Ville

    One Federal bailout of a self-inflicted economically-disatrous blue state, and they’ll ALL want one.

  • teapartydoc

    Close the public schools. They aren’t doing anything anyway. Cut the police in half. All of them. Dead men don’t collect on pensions. And if their families try to collect, just show them the bodies and ask them if they really want to press the issue.

  • JDsHandsomeSon

    OK, so a court ruled it unconstitutional to cut the pay and benefits of unionized workers. So what? What if the other two branches of government simply did it anyway, simply cut their pay and retirement contributions, depositing less money in the checking accounts and the pension accounts? Does the court have a police force with guns to arrest the lawmakers and the governor? Does the court have an army to force the other two branches into submission? If not, then ignore the court ruling.

    In 1997 the Ohio Supreme Court ruled that Ohio’s reliance on property taxes to fund schools was unconstitutional. Guess what? Ohio never changed. It still relies primarily on property taxes. And so far no one’s been arrested, jailed or executed.

    The judiciary is but one branch of government. The other two branches have an equal right to interpret and execute the constitution also. It is ultimately up to the voters to reward, or punish, those who operate in ways that violate the people’s understanding of the constitution.

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