Amend the Illinois Constitution
What Emanuel should say:
The average Chicago firefighter hired before January 2011 can retire at age 50 with just 20 years on the job. If that firefighter lives to full life expectancy, he or she will receive pension compensation worth more than $1.3 million.
That firefighter will have contributed a small fraction of that total. Taxpayer money and investment returns make up the rest of the pension formula.
The pension rules for Chicago teachers and police, and to a lesser extent municipal workers and laborers, create similar imbalance. The amount they invest into the system isn’t commensurate with the benefits they receive.
That research from the Civic Committee of the Commercial Club of Chicago eight years ago connected the dots on pension inputs and outputs in a way that hadn’t been done before. It demonstrated then and now why the city struggles with rising unfunded liabilities in its employee retirement accounts. The math doesn’t work. The city underfunded the system. Pension boards inflated expected investment returns. And workers didn’t pay enough up front.
Not even a reformed Squeezy the Pension Python, former Gov. Pat Quinn’s cartoon mascot of pension constraints on budgets, could fix this mess.
The political opportunity
Mayor Rahm Emanuel on Dec. 12 is scheduled to address the city’s rising pension costs. Even with more money (courtesy of higher taxes) flowing into city worker retirement funds, they remain alarmingly underfunded.
Here’s what we hope Emanuel will say: With a new governor, a veto-proof state legislature, a soon-to-be new Chicago mayor — and with mayors statewide struggling to meet pension obligations — it’s time to row together toward the only comprehensive solution. Amend the Illinois Constitution.
Unlock the handcuffs of Article 13, Section 5: “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.”
That language — drafted at the 1970 Illinois Constitutional Convention and strictly interpreted in 2015 by the Illinois Supreme Court — has been described by critics as a suicide pact. Eventually the inability to reduce benefits will drive the city of Chicago, the state of Illinois and hundreds of municipalities statewide, and their pension funds, into insolvency. The alternative? A tax burden so onerous, residents and businesses will continue to flee.
Reworking that amendment and giving elected officials the ability to adjust pension benefits going forward is the only transformative solution for Illinois. It is the most pro-growth, pro-taxpayer, projobs pathway the state’s leaders could embrace. But it will require them to stand up to public employee unions.
It also is the most honest fix for the workers relying on that money. Arizona taxpayers, suffocating under a similar pension clause, loosened their constitution’s language in 2016 and this year, tying retiree automatic pay increases to a regional cost-of-living index, capped at 2 percent. Arizona Democrats and Republicans in the legislature overwhelmingly supported putting the measures on the ballot, and organized labor pushed for passage as a way to stabilize retirement funds.
Illinois grants most of its retired public workers raises of 3 percent, compounded annually. The raises far outpace federal cost-of-living adjustments and what is offered in the private sector.
That Madigan-Cullerton moment
Remember, Democrats in Illinois who will have veto-proof majorities in the House and Senate come January already are on record supporting pension reform. The 2013 legislation that curbed the growth of pensions and pushed up age requirements was shepherded through the legislature by House Speaker Michael Madigan and Senate President John Cullerton. The bill targeted those 3 percent compounded COLAs that are crushing taxpayers. So adjusting the constitution to permit those changes, which the high court rejected, doesn’t have to be a knock-down, drag-out battle. It’s a restatement of what they already are on record supporting. It should be enshrined as an amendment.
That’s what we hope Emanuel will say. Here’s what we’re afraid he’ll say: Borrow.
Emanuel in midsummer floated the idea of selling $10 billion in pension bonds to bolster the city’s funds. They’re only 26 percent funded, despite the largest property tax hike in modern history and increased city fees that were supposed to shore them up.
‘A risky, speculative gamble’
But borrowing would put taxpayers at greater risk. The idea is a gamble — hoping that interest payments to investors don’t outrun the return on investment of the $10 billion they lend to the city. It’s a proposition most industry groups view as perilous with taxpayer money. The Bond Buyer, an industry publication, reports that the Government Finance Officers Association views pension bonds as “a risky and speculative gamble.” Why would aldermen put their constituents, already burdened with high taxes, at additional risk?
Borrowing would be wrong. It would be more of the same. It’s what got us into this mess. It is not the answer.
Giving elected officials more flexibility to manage government finances shouldn’t be a scary proposition, or so we’re told. Illinois Democrats including Gov.-elect J.B. Pritzker are asking for flexibility in another section of the constitution, the flat tax. They want to amend the constitution and implement graduated tax rates that could be altered by the legislature at will.
Isn’t it only fair, then, to dial back the limitless burden that pension obligations place on taxpayers? Put both amendments on the ballot for voters to decide. Is giving voters the option to ease the rigid pension clause a fair trade for asking them to adopt a graduated income tax?
Emanuel’s ‘two roads’
When he was first elected, Emanuel wrote a letter to Springfield leaders about the need for pension reform.
“If our pension system is not reformed, Chicago has two roads to take: We can watch each of our funds go bankrupt ... and be unable to pay the hardworking people who have paid into their retirement funds, or we will be forced to raise property taxes by $1.4 billion per year, triple what we now pay toward pension costs,” he wrote.
He should abide his own warning. The city can’t tax its way out of this mess. It can’t borrow its way out. With the limited political capital the outgoing Emanuel has left, he should apply it toward real change. Amend the constitution. Gather leaders from around the state. Start the movement on Dec. 12.