Some Good News From Illinois On Public Pensions?

Readers, I’m pausing my writing on multi-employer pensions for just long enough to address a news item out of Illinois, as reported by the Chicago Tribune:  “Mayor Rahm Emanuel to call for legalized weed, Chicago casino and constitutional amendment to fund public pensions.”

The article reports on a speech that outgoing Mayor Emanuel is scheduled to give the City Council today.  He is set to propose not only that the state legalize marijuana and permit a casino in Chicago, but that tax revenues from those two sources be dedicated to funding the city’s deeply underfunded pension plans.  He also (this is not the “good news” part) will continue to promote the issuing of Pension Obligation Bonds (see here for background) as a way to reduce the city’s near-term pension payments.

But — and here is the good news — according to the prepared speech, he will call for recognition of the seriousness of the problem and lend his support to a constitutional amendment.

“In 2020, just around the corner, the city will need another $276 million in new revenue to pay for higher Police and Fire pension contributions. In 2022, (the need for) new revenue for the municipal and laborers’ funds is projected to increase by $310 million,” Emanuel is expected to tell aldermen, according to a copy of his planned remarks released by his office Tuesday. “These contributions must be made. There are no ifs, ands or buts about it.”

Emanuel also will call on lawmakers to amend the state’s constitution to eliminate what’s known as the pension protection clause that says public employee pension benefits are an enforceable contract that “shall not be diminished or impaired.” The Illinois Supreme Court cited that clause when striking down agreements Emanuel made with some labor unions early in his tenure to better fund their pensions in exchange for reduced benefits.

“Too many people look at our pension obligation through green eyeshade — in terms of dollars and cents. That is just one way to see it, but it is not the whole picture. The other is in terms of our principles and priorities,” according to Emanuel’s prepared speech. “That is why I am also for amending the clause added to the constitution in 1970 that caused the Supreme Court to shoot down our initial agreements with labor.”

The Tribune reports that he will highlight in particular the guaranteed 3% annual cost-of-living adjustments, adjustments which, at a time of low inflation, hardly seem deserving of the name “cost-of-living” when they outstrip, in a way that builds up dramatically over time, actual changes in the cost of living.

Do I wish that Emanuel had lent his support to this cause long before this?  Of course.  After all, he is not running for re-election, and will be leaving office in 2019, so he is not putting himself at risk in a meaningful way.  And other Illinois politicians, most importantly, incoming governor J.B. Pritzker, have stated that they see no need to make any changes to the guarantee that employees are guaranteed that not only existing accruals but future benefits will never decrease, and intends instead to push the debt off into the future.

There is one further reason (however small) to hope, and that’s that the Chicago Tribune Editorial Board has taken on this cause as well.  Back in September, columnist Kristin McQueary promoted this, including my own proposal to tie this change to an amendment the Democrats are pursuing, eliminating the restriction against a graduated income tax.  Now the Editorial Board itself has joined the cause with a series of editorials, on December 10, December 5, and November 30.

Am I calling for an outright end to future accruals for all Tier I state employees, with nothing in replacement other than participation in Social Security?  No — due to the backloading that’s inherent in traditional pension plan design, making this radical a cut wouldn’t be the right thing to do.  (Though, yes, Social Security participation should the first step in any public pension reform.)  The solution will require compromise and an acknowledgement that benefits promised are not sustainable and need to be pared back in a way that mitigates the pain rather than imagining there are pain-free solutions.

We’re a long ways from getting from here to there.  Emanuel’s speech is not a game-changer.  I don’t hold out hope that all Illinois politicians who have thus far insisted that Illinois employees have a moral right to all future pension accruals will turn on a dime.  But I’ll take what I can get.

What do you think?  Please visit JaneTheActuary.com to comment.