Madigan pension plan makes guarantee taxpayers can’t afford
One of the biggest flaws in the pension “reform” proposals that have come out of Springfield has been “pension-funding guarantees” – provisions that would contractually obligate the state to fund public pension systems. The problem with any pension funding guarantee is that it commits taxpayers to spending that could lead to higher taxes, render the...
One of the biggest flaws in the pension “reform” proposals that have come out of Springfield has been “pension-funding guarantees” – provisions that would contractually obligate the state to fund public pension systems.
The problem with any pension funding guarantee is that it commits taxpayers to spending that could lead to higher taxes, render the state unable to provide core services or both.
Some defenders of House Speaker Mike Madigan’s latest pension plan have tried to suggest that it’s a “weak” guarantee that somehow isn’t as bad as earlier proposals.
They’re wrong. The Madigan plan includes a guarantee that is just as troubling as the guarantees in other plans the Illinois General Assembly has rejected.
Earlier proposals, such as the “Cross-Nekritz bill” (House Bill 3411), would have “contractually obligated” the state to fund public pension systems; under those plans, if the state didn’t make required payments on time, a pension board could have sued for a writ of mandamus to force it to do so. The Cross-Nekritz bill also said explicitly that it intended the required pension funding to be enforceable under the Illinois Constitution’s Contracts Clause.
The Madigan bill does the same thing with slightly different wording. It omits the word “contractually” and any reference to the Contracts Clause, but that difference is likely meaningless. A court won’t look to whether the bill includes the magic word “contract”; it will look to whether the Legislature made an “adequate expression of [an] actual intent” to bind itself.
And in the new bill, that intent seems clear enough. In fact, in some ways, it’s even clearer than it was in the old bills.
The Cross-Nekritz bill said that the pension systems “may” sue for a writ of mandamus; the Madigan bill, however, says that they have an “obligation” to sue. This suggests that, under the Madigan bill, if a pension board declined to sue, a union could sue for a writ of mandamus to force the board to sue.
The Cross-Nekritz bill said that to avoid “significantly imperiling the public health, safety, or welfare,” a court could establish a payment schedule for the state to meet its pension funding obligations. Apparently that bill’s authors at least had the foresight to include this provision so that core government services would not be completely sacrificed to fund pensions.
The new bill, however, has no such “safety valve.” It gives pension payments priority over all other state obligations except payments to the state’s bondholders. In the new bill, it’s clearer than ever that taxpayers and people who depend on state-funded services would come last.
Some have argued that the Madigan bill’s guarantee does not guarantee payment of any particular amounts to cover the pensions’ unfunded liability in future years; unlike earlier proposed guarantees, this one does not require full funding by any particular year. Instead, the argument goes, it merely requires the state to pay the amount of the systems’ unfunded liability required “by law” – and, they say, the amount required by law could change.
It seems doubtful, however, that the pension systems or public sector unions will share this view. They are likely to argue to a court that the guarantee requires funding at the annual levels provided elsewhere in the Madigan plan, not funding at whatever level the Legislature decides is appropriate from year to year. After all, it’s specifically labeled a “guarantee.”
Of course, we can’t know for sure what Madigan and company actually intend with their guarantee language, but it certainly appears that, at a minimum, they’re trying to contractually bind the state to make payments to pension funds that take priority over virtually all other state spending. If that’s not their intention, they should amend the bill to say so explicitly. That wouldn’t come close to solving all of the bill’s many problems, but it might at least give future legislators an opportunity to make changes – and it would avoid committing the state to a path that will lead to higher spending, higher taxes, and an even bigger fiscal and economic mess than it has now.