Illinois' massive pension crisis, arguably the worst in the nation, is about to probably get worse. The state's Supreme Court has unanimously ruled that efforts to tamp down on the crisis by scaling back workers benefits is a violation of the state's constitution. A provision in the state constitution states that benefits for government employees cannot be "diminished or impaired."
The pension reforms Illinois enacted to try to rein in its unfunded liabilities and more than $100 billion in debt involved curbing cost of living increases and putting a cap on how much of an employee's salary may be used to calculate pension payments. The court determined these reforms count as diminishing or impairing benefits. The decision was written by Justice Robert Karmeier, whom the Chicago Tribune notes is a Republican:
Karmeier rejected arguments by the state that economic necessity forced curbing retirement benefits despite the constitution's pension protections.
"Our economy is and has always been subject to fluctuations, sometimes very extreme fluctuations," Karmeier said.
But, he noted, "The law was clear that the promised benefits would therefore have to be paid and that the responsibility for providing the state's share of the necessary funding fell squarely on the legislature's shoulders.
"The General Assembly may find itself in crisis, but it is a crisis which other public pension systems managed to avoid and… it is a crisis for which the General Assembly itself is largely responsible," Karmeier wrote.
Both the state and government employees themselves have a very long history of skipping pension payments. The judge even criticized them for failing to keep a temporary tax hike from 2011 to bring in more revenue to the state. The Tribune notes that right now about a quarter of every tax dollar collected in the state's general account goes to pay for pensions.
John Tillman, CEO of the free-market, pension-reform-oriented Illinois Policy Institute, took a dim view of Karmeier's call to raise taxes to fix this problem:
The court's ruling suggested that raising taxes is a way to pay for pensions. Raising taxes will not fix a broken system. The pension system is beyond repair, and there will never be enough money to fund it. Case in point: The 2011 tax increase. That tax increase generated more than $31 billion, and 90 cents out of every $1 collected from the tax increase went to pensions. Yet it still was not enough to make the pension system whole.
Ultimately, the only way Illinois can break the cycle of siphoning more and more tax dollars and sacrificing more and more state programs to pay for pensions is to follow the lead of the private sector and move new employees to a 401(k)-style system. In the short term, it will not be surprising to see calls to change the state constitution or allow Illinois to file for bankruptcy.
For an interesting historical perspective, check out our own Reason Foundation's dire pension report from 10 years ago, titled "The Gathering Pension Storm: How Government Plans Are Breaking the Bank and Strategies for Reform" (pdf: analysis of Illinois begins on page 40). Illinois was one of the worst-funded pensions even then, but back then the unfunded liability was a mere $35 billion. How times have changed. The report predicted that Illinois pension costs would reach $4 billion a year by 2010. Illinois did indeed contribute $4 billion to the state's pension fund in 2010. But the retirement systems also paid out $7 billion that same year. It's not just an issue of revenue, as Karmeier would attempt to suggest. The state didn't just underfund the pensions; it has dramatically increased government employee benefits over time. And now, thanks to the state's constitution, these benefits cannot be scaled back, no matter how ill-advised they might have been.
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