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A typical Illinois pension editorial

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Not having facts sure doesn’t stop the press from editorializing on pensions. The latest is from the State Journal-Register.

“We’re wondering why Rauner is pursuing a new avenue…instead of focusing his energy here on accomplishing change.” That’s the Journal-Register’s reaction to reports that Rauner is considering federal legislation that would override Illinois’ constitutional ban on cutting pensions.

“What the focus should be is working, in a bipartisan manner in the Statehouse, on a way to get it under control.

Oh, and what might that be?

Maybe the state should “essentially refinance the pension ramp to level annual payments, like a fixed-rate mortgage,” they say.

Did they tell us how much that annual payment would be? Do they have any idea? Of course not.

The fact is that we are contributing billions less than it would take just to keep the unfunded pension liability from growing and we still haven’t balanced the budget, even with the recent tax increase. It would take, ballpark, $13 billion per year at least to make that payment and to cover the annual normal cost, just for the state pensions. That would consume well over 1/3 of the budget. Would taxpayers and service recipients stand for that and for similar solutions that would be needed for most of the other 666 local pensions?

Or maybe just push the the cost back to local school districts for the teachers’ pension, says the editorial. No, you could push the normal cost along but there’s no legal way to release the state from its unfunded pension liability.

“There are other options too,” says the Journal-Register. There aren’t. Not meaningful ones.

It all comes down to four simple realities most editorial writers can’t seem to get:

  1. Unfunded pension liabilities have to be cut. That’s why nobody ever lays out a specific plan for dealing with them without cuts.
  2. The only legal ways to cut them are a state constitutional amendment deleting the pension protection clause or federal bankruptcy.
  3. The state amendment probably won’t work because of federal constitutional challenges and, in any event, it would take years to implement and litigate.
  4. That leaves only bankruptcy.

The federal legislation Rauner discussed is premised on the bankruptcy power that’s in the United States Constitution. That legislation is limited to cutting pensions but broader proposals are out there for the state, as we’ve written here before, and bankruptcy is already available for municipalities if Springfield authorized it.

Mark Glennon is founder of Wirepoints. Opinions expressed are his own.

 

 

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Rick

Bankruptcy will never happen until the bond market loses confidence. As long as investors know the politicians will side with them instead of taxpayers. And know in confidence that the taxpayers are a solid collateral for their risk. This train will keep rolling. We are living on usary, when that stops only then will bankruptcy be considered. The powers that be represent the bond market now, not us.

Mickey
first, who bought Illinois bonds and why. The interest rate does not come close to matching the risk. Second, at this point the best strategy to get things done is for the State to pay bills just to the limit of its cash flow meaning 3 to 6 billion of bills do not get paid whether its pensions, roads, social programs, education, welfare, and perhaps interest. Make it real crisis. But then we need a legislature up to something like this. I am tired of legislators pointing the finger at Madigan after their own failure to effect change. If the new US tax bill is passed, then… Read more »
Ron Sandack

The reality? Most of the members of the legislature are as ignorant as the various Op-Ed Boards, some intentionally, about the pensions crisis, retiree health care crisis and, cumulatively, the financial crisis affecting. IL. So what to do? Pass a law mandating IL children be taught to write in cursive.

I don’t know what Rauner thinks the federal government can do about the state constitution.

If they try to allow for bankruptcy for states, there will be a constitutional battle royale all the way to the Supreme Court.

If Rauner wants this stuff taken care of, then: the Illinois state constitution needs to be amended. The federal govt can’t do that for him.

nixit
Rauner should be joining all the other governors with pension crises in Washington. The all-powerful Durbin should be working on this as well. It’s absurd for SJR to suggest we should not go to Washington for help. And SJR needs to figure out the difference between bi-partisan and capitulation. You know what a bi-partisan solution to RTW would be? Let local jurisdictions create temporary RTW zones to try out the idea on a small scale. If it works, keep going, if not, scrap it. In other words, what was attempted a couple years ago. That’s meeting in the middle, not all or nothing. PS – Looks like… Read more »