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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J.A. Herzrent
Little question remains that a bankruptcy court can adjust pension promises whether vested or not. Realities of maintaining public order and public services will inevitably intrude because unions are intransigent and willing to ignore public safety if needed to preserve their pensions and other benefits. Teachers care little for disruption caused to students or their parents. These problems are likely to get worse as the pension funding crisis continues. So the question becomes whether to confront them now or later. The voters who elect the officials who can raise taxes and appropriate public money have not (thus far) been willing to support officials who are willing to… Read more »
Robert T

$50,000 per year for 30 years = $1,500,000. Paid for by taxpayers not paying their “fair share”. Middle class? I would love a $1,500,000 retirement package.
We need a constitutional amendment that limits annual public employee pensions to $50,000 per year MAX (that’s plenty when the private sector gets notta).

Paul

My neighbor is a retired barber that worked at a VA hospital in Illinois. He gets 80% of his final $89k salary plus 3% a year and fully paid health insurance. Nice if you can get it but who would pay a barber $89k a year?

Robert T
Let us get ALL the facts out while we are at it: Chicago school system rated one of the worst in the country. Can’t blame Republicans; there aren’t any! State pension fund $78 Billion in debt, worst in country. Chicago pays the highest wages to teachers than anywhere else in the U.S. Their average pay is $110,000/year. Their pensions average 80-90% of their income. Can’t blame Republicans; there aren’t any! Cook County ( Chicago ) sales tax 10.25% highest in country. Can’t blame Republicans; there aren’t any! George Ryan is no longer Governor, he is in prison. He was replaced by Rob Blagojevich who is, by the… Read more »
Rex the Wonder Dog!

We are now ending the third longest Bull Market in US history, and entering a Bear Market. The ROI is not going to be there, and within 5 years the principle left, the funded portion of these funds, will be to the point they can no longer pay out in full. That is when you will see action. I twill of course be too late when that happens and so sad, too bad.

mark glennon

Being in the House Rules Committee under Barbara Flynn Currie, a career Madigan stooge, means it’s going nowhere for now. Millions are wasted each day on debt payments that could be reduced if the inevitable would only be acknowledged and Chapter 9 authorization granted now.

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