Pension reform shouldn’t include contract guarantee
January 23, 2013 5:52PM
Updated: February 25, 2013 12:40PM
Illinois’ fiscal future rests in large part on how Springfield deals with the enormous unfunded liabilities of its public employee pension systems. These now approach $100 billion (really tens of billions more if the right discount rate were used).
Gov. Pat Quinn is right: Without reform, “Squeezy” the pension python will swallow up additional billions in the years to come, crowding out essential state services and programs.
State Rep. Elaine Nekritz (D-Northbrook) and state Sen. Daniel Biss (D-Evanston) deserve a “good intentions” award for proposing reforms that would trim the estimated liability. But good intentions can pave the way to state fiscal collapse and other inhospitable places.
Today, the unfunded pension liabilities are liabilities of the pension funds — but not the state itself. Thus, if the pension funds were to run out of money, the unions and their retirees and members would have perfectly valid claims against several empty paper bags.
So the public service unions have argued that the state should contractually guarantee the liabilities of the pension funds; and they have sought a special judicial enforcement mechanism — something no other claimant against state funds has. (The fact that they want an explicit contract guarantee in effect concedes that one does not already exist.)
The recently stalled Nekritz-Biss pension reform bill would give the unions both the guarantee and the enforcement mechanism. The obligation to fund state workers’ pensions would be declared “contractual obligations protected and enforceable under” the Illinois Constitution; and if the state failed to contribute “the amount guaranteed,” the pension system could bring an action to compel funding so long as it does not imperil the “public health, safety, or welfare.” Thus, basic policy decisions about how money should be spent — and, perhaps, whether a tax increase is required — would be turned over to a judge.
Worse, the state’s finances could be seriously jeopardized along with its cost of borrowing. Today, the state can negotiate with a big card in its hand: It has not contractually guaranteed the pension fund debt. Tomorrow, that card would be gone.
Also, tomorrow the unions could use their special mechanism to gain access to state funds — to the disadvantage of our K-12 schools, our universities and community colleges, our health-care providers and our safety-net social service agencies.
Would the state receive something in return if Nekritz-Biss passed? Yes. Its COLA and other reforms would reduce the unfunded liabilities by an estimated $30 billion. But the unions have not agreed to accept Nekritz-Biss as a deal. They have pledged to fight the reforms in the Legislature and to take them to court on constitutional grounds. It thus appears unlikely that the projected $30 billion in savings would ever materialize.
The Nekritz-Biss bill does not apply to Chicago’s four pension systems. But you can bet the unions will also want Chicago to guarantee funding of its systems — whose unfunded liability today is about $20 billion — as well as the Chicago Public Schools. Where would Chicago get that kind of money? From its taxpayers? Certainly not from the state.
Pension reform in Illinois is essential for our state’s future. That means a settlement — a fair deal — one that includes both reforms and adequate funding. But it should not mean a contract guarantee or special enforcement access to the state’s limited resources.
Eden Martin, a Chicago lawyer who has written and spoken on a broad range of public issues, will be writing a monthly column for the Chicago Sun-Times.