Judge Blocks Illinois’ Pension Reforms; Will Governor Block Chicago’s Reforms

Judge Blocks Illinois’ Pension Reforms; Will Governor Block Chicago’s Reforms
June 5, 2014

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)

A judge in Sangamon County Circuit Court has blocked a modest reform of Illinois’ pension system for state workers and retirees outside Chicago from taking effect June 1, giving Gov. Pat “Four Counties” Quinn the excuse he’s probably been looking for to block reforms for two of Chicago’s pension plans. (I’ll explain “Four Counties” in a moment.)

This isn’t to say Chicago’s or Illinois’ pension plans should stay as they are. If they do, we’ll probably end up with a bankrupt city and a state that is effectively bankrupt but not legally so because states cannot go into bankruptcy.

The Quinn-supported state pension reform blocked for the time being by Judge John Belz would raise the retirement age for many state workers and reduce and delay some annual cost-of-living increases. In return, the state would slightly reduce the amount of money taken from workers’ paychecks as pension contributions.

 Supporters of the reform tried to make it sound momentous, but as the Illinois Policy Institute notes, it shrinks the state’s unfunded liability only to 2011 levels, when “crisis” and “Illinois pensions” went together like ham and eggs. So the state still has a pension crisis even if the reforms take effect.

And Chicago? Mayor Rahm Emanuel hopes Quinn will sign a reform plan for the city’s pensions for city laborers and municipal workers. The plan includes a $250 million property tax increase in Chicago over five years, more money out of workers’ paychecks to cover their share of pension funding, and smaller cost-of-living increases.

Chicago’s four pension plans (including for teachers and public safety workers) are some $20 billion short. They have barely 36 cents for every dollar needed to pay benefits. Absent changes in state law, the city’s pension spending next year will nearly double to $1 billion. This year’s city budget totals $7 billion.

Moody’s Investors Service earlier this year downgraded Chicago’s debt to just three notches above junk. The only large U.S. city with a lower credit rating is bankrupt Detroit. The Northbrook-based watchdog Truth in Accounting estimates, on a per-person basis, Chicago’s state and local taxpayer burden is worse than Detroit’s. (The burden includes debt repayments and unfunded retirement promises.)

Emanuel inherited this problem, but he and the City Council worsened it earlier this year by borrowing another $1.9 billion. The City Council approved the borrowing just two days after Emanuel announced the plan, with almost no deliberation or discussion. The job description for a Chicago alderman must read “mayoral lapdog.”

Illinois, of course, has the nation’s worst credit rating among the 50 states, largely because of the many lies lawmakers have told when they’ve promised to fund pensions and then have spent the money on other things.

Quinn has made clear he opposes higher taxes in Chicago, where he won overwhelmingly in his bid for a full term as governor in 2010. Yet he’s working to make the massive “temporary” state income tax increase of 2011 permanent. Cook County was one of only four counties to support Quinn. The other three were tiny rural counties. In other words, Quinn lost 98 of the state’s 102 counties.

“Four Counties” knows if he can get another huge win in Chicago and Cook County, he can secure reelection. If he blocks higher property taxes in Chicago, he wins votes there. He cares little about winning other counties. He didn’t need them last time. 

Even if Chicago’s and the state’s pension reforms do become law, though, the city and state will be nowhere near sound financial footing.

 

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute in Chicago.

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)