By: Mark Glennon*
“We did our best to reform pensions,” lawmakers will say, “but the courts killed it, so now there’s no choice but to _______.”
We’ll fill in that blank below, but first realize that a good pretext is the only positive thing that could come out of the Illinois Supreme Court’s hearing last week on SB-1, the 2013 pension reform law that’s widely predicted to be invalidated. SB-1 has been a waste of precious time, and these indisputable facts show why:
• If upheld, it would leave us in far worse shape than we were in 2013 when the bill was passed. SB-1 would cut just $20 billion from the unfunded liability (that’s the state’s own number). Today, the total state unfunded liability is officially $111 billion, but that does not include about $50 billion of unfunded healthcare liability added to constitutionally guaranteed pension benefits by the Kanerva decision after SB-1 was passed. Those liabilities were assumed to be discretionary before that. So, the unfunded liability today, assuming SB-1 were law, would be roughly $141 billion, compared to $97 billion when SB-1 was passed. Even excluding healthcare, SB-1 would only take us back to unfunded levels higher than just three years ago.
• If SB-1 is upheld, an endless court mess will result. The state-level pension case would go back to the trial court for a tedious trial on the facts of the “police power” defense, trying to answer the questions the supreme court justices asked on Wednesday, and plenty more: Can’t the state raise taxes? Why cut pensions but not other debts? Exactly how broke is the state, precisely enough to justify SB-1? And many of those answers from the trial would go up on appeal again.
• All that litigation would have to be replicated for any of the other 650 local pensions that attempted reform, including Chicago’s. Each municipality would need a separate trial on the facts. Litigation would be endless.
Does anybody really think that judges, all pensioners themselves, are the right ones to decide things like how much yield the state and troubled municipalities could really get out of a tax increase, what gimmicks are hidden in their budgets, which expenses are more important than pensions, what can reasonably be projected for future costs, and what actuarial assumptions should be used in pensions? That’s all part of what must be answered to complete the police power defense.
So, when the court, mercifully, invalidates SB-1, legislators and local officials will have a pretext for other action. But for what? The choices for that blank above are a) tax increases, b) real pension reform, or c) both.
For Chicago, Rahm has already been clear that Chicago property taxes will explode if reform is ruled unconstitutional. Garcia wouldn’t need any pretext for higher taxes. Most Democrats in the legislature already support tax increases and many will double down on that position. Gov. Rauner has not put taxes on the table, aside from possible expansion of the sales tax.
I’m taking a hopeful view on this. The public is finally seeing the massive folly of its pension system, the exodus of people and employers from the state and the futility of raising taxes. The court will rightly rule that if we want to change the constitution we have to amend it or, or for municipalities, look for relief under Federal bankruptcy law, which trumps it. Those options are needed for real pension reform — broad and equitable adjustment of pension liabilities. Those options should have been debated years ago, but denial has ruled in Illinois. Denial will end, if the public insists that real reform and restoration of the state’s competitive position are nonnegotiable.
Let the politicians who bankrupted us have their pretext. Let them brag about how hard they tried with SB-1. Give them an honorable way out — an excuse for changing positions. But insist that SB-1’s invalidity demands that all core, underlying problems be fixed before one cent of new tax is levied.
*Mark Glennon is found of WirePoints. Opinions expressed are his own.