Law says state can’t renege on pensions
By William Atwood February 17, 2011 11:24PM
Updated: September 24, 2012 6:25AM
For decades, the people of Illinois have benefitted from the services delivered by their public employees. Further, Illinois citizens have benefitted financially from the terms of employment with these workers. Schoolteachers, state troopers, social workers and corrections officers all opted for public service under a series of tradeoffs proffered by the State of Illinois: State employees would be paid a lower salary than that of their private-sector counterparts, but in exchange they would receive specific guarantees. Critical among these benefits was a pension — a provision so critical that the state’s commitment to retirement benefits was enumerated in the 1970 State Constitution.
This arrangement — lower salaries for state employees in exchange for a constitutionally guaranteed pension — allowed the state to balance its budget, allocate resources to other state needs and provide critical public services. Just like a private-sector employee who chose to take a lower salary in exchange for an extra week of vacation, state employees willingly accepted less money in every paycheck in exchange for an alternative, deferred benefit.
Today, with the state facing severe budgetary constraints, some are arguing that these pension obligations be discounted or ignored. That approach, however, is simply not legally or morally tenable. There is no doubt that Illinois’ financial condition will require shared sacrifice from all its residents. State employees know well of these sacrifices. They have already accepted furlough days, delayed reimbursement and reduced salaries. Like all Illinois citizens, public employees expect to pay higher taxes and receive fewer state services. Workers understand that these steps are an unfortunate necessity. Equally important is the state’s commitment to protect the guaranteed pension benefit enshrined in the constitution and promised to public servants for generations. The state cannot violate that unique protection simply because we find ourselves in financial difficulty.
Policymakers in Illinois have made a practice of declining to fund state retirement systems, effectively deferring payment for the services already rendered by state employees. They did so even in the face of a state constitution that is crystal clear in its acknowledgement of a contractual relationship between the state and its employees:
“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.”
Ironically, Newt Gingrich and other conservatives agree that state pension benefits are contractually and constitutionally protected. In an attempt to operate around these guarantees, Gingrich and others are proposing federal legislation to allow states to declare bankruptcy. Under that scheme, states would be able to file for bankruptcy protection and have contractual obligations reduced by the bankruptcy court. However, bankruptcy restructuring would not be restricted to pension payments, but would include all creditors — including vendors and bond holders. So, states would be able to negate not only the promises made to their public servants, but also those made to everyone else.
There is, however, the outline of a policy solution to our budgetary crisis. In 1995, Gov. Jim Edgar signed into law the Fifty Year Plan. The plan put the state on track to funding 90 percent of the retirement system by 2045. The legislation included a continuing appropriation to make payments to the retirement systems sufficient to reach that goal.
There is no doubt that compliance with this plan constitutes an onerous burden for taxpayers, public employees and policymakers. Taxpayers are forced to sacrifice through increased costs and fewer services. Public employees have felt the impact of this new fiscal austerity through reduced wages and increased responsibilities.
Policymakers took a very difficult first step by raising the state income tax — in effect asking taxpayers to pay now for services delivered generations ago. Lawmakers need to follow through on their commitment to fiscal prudence by resisting the temptation to increase spending and follow through with their commitment to fund the retirement systems as contained in the 1995 legislation.
These are reasonable expectations. For the state to consider balancing its books by denying promises made to generations of public servants — a pledge memorialized in the state constitution — would be an injustice.
William Atwood is executive director of the Illinois State Board of Investment.