Illinois legislators, with the 'help' of public sector union officials, various other state and and local politicians, as well as complicit governors and naively trusting taxpayers, are faced with a profound yet simple math problem in need of a solution.
With unfunded state pensions of $111 billion, and assuming 11 million citizens, that means each man, woman and child owes ~ $10,000 to fully fund public sector pensions. That, my friends, is indeed a whopper of a bill. But like most whoppers, it began as a small problem, went unattended and now has become the full grown whopper that it is today. And like all whoppers, nobody in politics wants to take ownership and solve the problem.
You see, my friends, simple and easy aren't the same thing --- not even close to the same thing.
Will the legislators and public sector union officials pay their fair share of the bill they have created? Of course not. The taxpayers of Illinois will pay. All the legislators, public sector union officials and local government representatives ever do is promise the negotiated goodies. They don't ever make arrangements to fully pay for them.
We have a constitutional form of government in America, and in the state of Illinois as well. The powers of governance are separated into the legislative, executive and judicial branches.
As by far the most powerful among the three branches, the legislature creates or makes the laws. It also raises the funds through taxes and fees to pay for the governmental functions and activities that it authorizes. The weaker executive branch then enforces those laws and the weakest judicial branch makes sure the constitution and the laws approved by the legislative branch are followed and that the executive enforces the laws and constitution under which those laws are established. It's all conceptually very simple.
We the People, aka the taxpayers, decide by voting periodically which public officials will make the laws and related rules and regulations which in turn are used to govern the body politic.
One more thing is noteworthy -- the legislative branch through its powers also decides to what extent, if any, it will approve or empower public sector unions, such as teachers, police and firemen to represent government employees when dealing with the representatives of We the People. The legislature also decides whether individual teachers, police and firemen can be required to pay union dues as a condition of their employment or whether that choice will be left to the discretion of the individual employee.
Thus, in Illinois (and many other states) we have representatives of coerced government employees bargaining with other government employees to see how big the taxpayers' bill will be. In practical terms, the taxpayers and unwilling dues paying individual employees are told to shut up and pay up. And they have done so in Illinois for a very long time. Now the bills are coming due, and they are really 'whoppers.'
Future taxpayers should beware. So should current taxpayers. And so should public sector employees and retirees as well. Illinois has a mess and it's a really big one at that. But it's not just Illinois, sports fans. It's throughout America.
In Illinois and throughout America today, most public sector workers have generous pay, generous benefits, and generous retirement options. Generosity requires money -- lots of it. And that's where the taxpayers enter the picture. Taxpayers pay for what the governing officials legislate into law -- period. And so in Illinois taxpayers will pay.
And in my view, that's only fair, even if it's crazy and unaffordable. Because in the final analysis, taxpayers make the rules or at least select the rule makers. If they don't like the rules, they can change them. Period.
Illinois Pension Blowup is subtitled 'State judges tell taxpayers to pay for political-union failure:'
"The Constitution is not a suicide pact—except maybe in Illinois. On Friday the Illinois Supreme Court struck down modest pension reforms as a violation of the state constitution in a decision that tees up state taxpayers for years of tax increases.
The court ruled unanimously that pensions are inviolable under the plain text of the state constitution, which holds that “Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”
The law isn’t that simple, and the practical damage will be great. State pensions are underfunded by $111 billion—a 500% increase from 1995 and up 75% in the past five years. About one in four state tax dollars already finances pensions, which is more than Illinois spends on education. Yet the court accuses politicians of shortchanging pensions.
Politicians are to blame for the state’s fiscal woes, but mainly because they colluded with unions to promise unsustainable benefits in return for political support. Less than 40% of the increase in the state’s unfunded liability since 1995 is due to inadequate payments. The rest is due mainly to benefit growth and faulty actuarial assumptions such as investment rate of return.
The 2013 reforms at issue capped salaries of current workers that are used to calculate pensions at $110,600 (with a carve-out for collectively bargained increases) and raised the retirement age for workers in their 20s to the ripe, old age of 60. Compounded 3% annual cost-of-living increases were also tweaked for younger workers, a modification that courts in nearly every other state have upheld.
In toto, the changes were projected to shave a mere $20 billion off Illinois unfunded liability. Pension payments would still constitute nearly 20% of the state budget.
This is legally relevant because the U.S. Supreme Court in 1934 ruled that states can invoke their police powers to impair contracts in an emergency. The High Court has since established a balancing test that requires judges to consider whether state contractual impairments are substantial, serve an important public purpose and can be achieved through less drastic means.
Yet the Illinois court blows right through this judicial standard. Based on its prior rulings, the court opines that “neither the legislature nor any executive or judicial officer may disregard the provisions of the constitution even in case of a great emergency” or “for economic reasons.”
If pensions can be modified, the court opines, then “no rights or property would be safe from the State. Today it is nullification of the right to retirement benefits. Tomorrow it could be renunciation of the duty to repay State obligations. Eventually, investment capital could be seized.” This irony of this slippery-slope fallacy is that by shielding pensions the Illinois judges are making it more likely that the state will renege on debt or other obligations. . . .
All of this means that Illinois and its municipalities may soon have little choice but to raise taxes or restructure debts to pay for pensions. Chicago, whose credit rating is two notches above junk, faces a $20 billion unfunded liability for pensions and $1.1 billion balloon payment next year. Unions ... will probably beg Washington for a rescue.
Republican Governor Bruce Rauner has floated an alternative: a state constitutional amendment allowing pension modifications, which would require a public referendum and two-thirds vote of the legislature. Barring that, Illinois taxpayers may want to start contemplating Indiana or Florida residency."
Yogi Berra said that it ain't over 'til it's over.
Of course, the problems in Illinois ain't over. Not by a long shot. In fact, they've only just begun.
And now the legislators, public sector unions and taxpayers will have a whole lot of work to do coming to grips with the reality of this ugly and could-have-been avoidable pension debacle.
For those keeping score, Illinois is underfunded by ~$111 BILLION (with a B) and counting.
Throughout America (including such entitlements as Social Security and Medicare) we're underfunded by ~$111 TRILLION (with a T) and not even bothering to count it yet. Talk about a whopper!
Looked at in its entirety, Illinois is small potatoes.
That's my take.