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By: Joe Mathewson*

 

As the need for taxpayer relief from the unconscionable debts our elected leaders have amassed becomes more and more acute, two questions arise:

 

1. When will the Illinois legislature, due to adjourn at the end of May, address (and pass!) the necessary permissive legislation to authorize municipalities, including school districts and other special districts, to file for bankruptcy protection under Chapter 9 of the U.S. Bankruptcy Code? The City of Chicago, the Chicago Public Schools and other debt-ridden municipalities have offered no plans for taxpayer relief, much less actual payment of these impossible obligations, so Chapter 9 must be considered.

 

In fact, Chapter 9 is the only feasible way that these ever-rising, existing debts, not to mention the impossible pension obligations that don’t officially count as debts, can actually be reduced to manageable level. The legislature must authorize that relief. The bill, H.B. 298, by Rep. Ron Sandack of Downers Grove (a former mayor), is in the House Rules Committee chaired by Rep. Barbara Flynn Curie of Chicago.

 
2. Inasmuch as the Illinois courts have consistently upheld (as they must) the state constitutional guarantee of pension obligations, in Bankruptcy Court does that protection still prohibit taxpayer relief from the huge and always-growing contributions our politicians have pledged to public pension funds? The answer can’t be certain, but there’s reason to hope.

 

Only a few other state constitutions guarantee public pension funds. New York is one. Another is Michigan, which says this: “The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby.” The key words are contractual obligation. In bankruptcy all contracts are on the table. Debts owing to commercial suppliers, to bondholders, to unions, and yes, even to pension funds are all contracts. So, in the recent Detroit bankruptcy, there was no fuss about whether pension promises could be trimmed, and they were.

 

Guess what our Illinois Constitution says? “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.” (Italics mine.) The Detroit case is not a binding precedent that the Bankruptcy Court of the Northern District of Illinois must follow, but it surely sets an example of how feasible it is to reduce even pension commitments, along with other unsupportable obligations, in a municipal bankruptcy proceeding in Illinois.

 

Our elected leaders, who created this mess over many years, owe it to the taxpayers, we who are ultimately responsible for paying the piper, to now face the music and prepare for bankruptcies—perhaps lots of them in our Illinois never-never land.

 

*Joe Mathewson formerly practiced law in Chicago. He teaches at Northwestern’s Medill School of Journalism, Media, Integrated Marketing Communications.

 

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