Illinois should put itself under receivership over pensions

Blogger two years ago

By John Ruberry

“As a result, Illinois government is a massive retirement system that, during work hours, also offers some services.” Chicago Tribune Editorial Board in 2016.

“You never let a serious crisis go to waste.” Rahm Emanuel in 2009.

Last week the president of the Illinois state Senate, Don Harmon (D-Oak Park), sent a letter the state congressional caucus, a gerrymandered lot–more on that latter–asking for $41 billion in aid in response to the COVID-19 outbreak.

The devil is in the details–Illinois is a hellish place—and in that letter from Harmon is a request of $10 billion to fund its woefully-underfinanced public pension plans.

Illinois’ pension crisis goes back decades. In 1989 Governor Jim Thompson, a Republican, signed into law an annual compounded three-percent cost-of-living-adjustment for the state’s public pensioners. But the funding wasn’t there. His successor, Jim Edgar, another Republican, seemingly placed a fix into the system in 1994, “the Edgar ramp,” which started with low payments for the 15 years of his plan. But by that time, when the “ramp” was to kick in, Great Recession arrived. And there were “pension contribution holidays” before then. When the 2008 economic collapse hit Rod Blagojevich, who was as bad as math as Edgar and Thompson, was governor.

In the early 1990s pension payments consumed four percent of the Illinois budget–now it’s 25 percent. The state-controlled public pension plans are only about 30 percent funded.

All that time–except for two years–powerful Chicago Democrat, Michael Madigan, has been speaker of the state House.

According to the Illinois Policy Institute, 19,000 state pensioners collect more than $100,000 annually. On average these pensioners paid a paltry $160,000 into their retirement plans. What a great deal!

New Jersey and Kentucky have public pension funding issues that are as bad, or perhaps slightly worse, than that of Illinois. Will they be asking for pension bailouts next?

Cutting the three-percent COLA has been tried–it was ruled unconstitutional in a unanimous decision by the Illinois Supreme Court because of the pension guarantee clause in the state constitution. Repealing that clause is the smart thing to do but it’s a politically tall hurdle. Such an amendment would likely have to pass both chambers of the General Assembly. Thanks to Madigan, a skilled gerrymanderer who is also the chairman of the state Democratic Party, there are Dem supermajorities in both chambers. Two attempts by petition to effectively ban gerrymandering by way of a constitutional amendment was struck down in court. Allies of Madigan were behind the anti-Fair Map suits. The petition process to amend the Illinois constitution is deeply flawed. 

The organized labor wing of the Democratic Party, the public sector unions, won’t remain quiet if pensions are challenged. Hey there unions, you contributed to this problem too. In 2005 most public service unions signed on to that year’s pension holiday.

Last week Fitch lowered its bond rating for Illinois to BBB- with a negative outlook. That’s one level above junk.

I’m against an Illinois pension bailout by the federal government. For the most part. But if such aid comes in the form of an International Monetary Fund-style rescue package with conditions that Illinois cleans its fiscal house, such as dropping the 3-percent COLA and taking aim at the top pension earners, those six-figure retirees, I’m willing to listen. 

But receivership is best. Okay, let me dream a bit. As Chicago architect Daniel Burnham said a century ago, “Make no little plans; they have no magic to stir men’s blood.” I know, states are viewed as sovereign entities and cannot, as Detroit did in 2013, declare bankruptcy. But what if Illinois agrees to a strings-attached receivership deal? An emergency manager can be appointed. Pritzker, or whoever is governor if receivership comes about, can still handle the ceremonial stuff, such as ribbon cutting for a new bridge and placing bets with other governors when Chicago sports teams are playing for a league championship.

Oh, I’m thinking loans from the feds, not handouts.

As badly funded as Illinois’ pension plans are, many local government pension systems are in worse shape. Illinois municipalities and government agencies, unlike those in Michigan, cannot do so under current state law. That needs to change too.

On a personal note, several friends and relatives of mine are collecting state pensions. Money that was taken from their checks every two weeks for their retirement was instead spent on lord-knows-what. They deserve to be angry and that fury needs to be directed at every Illinois governor from Thompson through Blagojevich. And of course at the Where’s Waldo of Illinois failure, Boss Michael Madigan. He deserves the most rage.

Let me be clear: I don’t take my pension reform views lightly.

Prior to Harmon’s bailout request, the latest pension fix idea was a constitutional amendment to eliminate the Illinois flat income tax guarantee and replace it with a graduated one. That amendment will be presented to Prairie State voters in November. My guess is that it will fail. And even if the graduated income tax amendment passes, the additional revenue won’t be enough. Illinois, which has had negative population growth for six straight years, can’t tax its way of the mess.

John Ruberry regularly blogs from Illinois at Marathon Pundit

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