Friday, May 8, 2015

Illinois’s Pension Crisis Just Got Worse

Illinois’s Pension Crisis Just Got Worse

In 2013, the Illinois legislature passed a series of measures designed to save $160 billion in pension benefits over the next three decades.[1]  The reforms cut back employee benefits by eliminating cost of living adjustments, capping eligible salary, and extending the retirement age.  There was one small problem with the legislation: it violated the Illinois Constitution, which prohibits the legislature from diminishing pension benefits.  In passing the legislation, politicians had hoped that economic exigency would trump the law.  They were wrong.  For the Illinois Supreme Court this was an easy case and they invalidated the legislation.



Besides the clear words of the Illinois Constitution, the court made a point that I’ve emphasized repeatedly on this blog.  Republic Justice Lloyd Karmeier writing for a unanimous court said, “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. [emphasis added].”  If Illinois had levied slightly higher taxes and properly funded the state’s pension plans over the years, there’d be no crisis.  The other state and municipal pensions that find themselves grossly underfunded have made the same mistake.

We’ll soon hear from the New Jersey Supreme Court about Governor Chris Christie’s decision not to contribute $1.57 billion in funds to New Jersey’s public pensions even though the money was appropriated for that purpose.    While the Governor’s decision may seem arbitrary, I suspect this will be a more difficult case for pension beneficiaries to win.  I’m not sure the court will want to get in the middle of a separation of power battle between the executive and legislative branches of New Jersey government. 

Nonetheless, New Jersey and Illinois seem to be in a race to see who can create the biggest pension crisis.



[1] http://www.chicagotribune.com/news/local/politics/ct-illinois-pension-law-court-ruling-20150508-story.html

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