Candidates need to address pensions
By Christopher Z. Mooney
You may not have noticed, but on July 3, the Illinois State Supreme Court dealt a body blow to the state's body politic.
The case was Kanerva vs. Weems. You can be forgiven if it escaped your attention — most of the mainstream media missed it or buried it (although The News-Gazette had excellent coverage of it). But Kanerva vs. Weems will have a major impact on the state's finances for a generation. As such, it should also have a major impact on the fall's gubernatorial campaign debates. That is, if the candidates can get past their watches, personal income tax strategies, and minor professional peccadillos.
As you know, decades of underfunding and overpromising by state policymakers has threatened the solvency of Illinois' state public pension systems. It is underfunded by probably more than $100 billion. That's a big number — by far the biggest in the nation. It is approximately enough money to operate the entire state government — prisons, parks, state police, and everything else — for three years. Public pension debt has contributed heavily to the recent bankruptcy of Detroit and other local governments, so policymakers and the bond rating agencies (who determine how much the state pays to borrow money for new roads, bridges, and schools) are very concerned with this.
But as Bruce Springsteen once wrote, this is "a debt that no honest man can pay."
So in 2012 and 2013, after much political angst and drama, the General Assembly and Gov. Pat Quinn adopted two measures designed to address the problem. To simplify, they eliminated free health insurance for retirees, and they made major changes in the retirees' annuity payouts. They argued that these reforms solved the pension problem, and Gov. Quinn touted pension reform as one of the central accomplishments of his administration.
The only problem was the Illinois State Constitution. And in Kanerva vs. Weems, the state Supreme Court just reminded the governor and General Assembly of that.
Article VIII, section 5 of the State Constitution states that:
Membership in any pension or retirement system of the State shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.
But didn't the two pension reform bills effectively "diminish or impair" pension benefits? A common-sense answer from reading this section would be, "yes." But the General Assembly and governor pushed a different reading, one that was so continually repeated by them that the media and most commentators bought into it.
It was up to the state Supreme Court to say that the emperor had no clothes.
Kanerva vs. Weems dealt with the more minor of the pension reforms — making retirees pay health insurance premiums. Many policymakers argued that certainly this was somehow separable from "pension benefits" to the extent that the court would allow it to be cut, even if it disallowed cuts to the annuities. In fact, the argument was made that if the court threw out the annuity changes, these premiums might be to barter with retirees for other cuts.
But the state Supreme Court had different ideas. They read the Article XIII, section 5 plainly, taking the words at face value. No impairment, no diminishment. Health insurance is a benefit in the contract with retirees, and it can't be reduced. Period. Just because it is politically or financially hard to fulfill that contract does not eliminate the state's obligation to do so.
And if policymakers can't cut retirees' health insurance premiums unilaterally, then they surely can't cut retirees' annuities. That makes the major reform of 2013 a complete dead letter.
Kanerva vs. Weems sends the governor and the General Assembly back to square one on dealing with the public pension issue. What can be done about it? This is exactly the sort of major policy question that the gubernatorial candidates should be debating this fall. Voters and the media have the responsibility to demand that the candidates articulate clear and feasible strategies for dealing with this major problem. Voters can then make their choice of strategy at the ballot box in November.
Christopher Z. Mooney is the director of the Institute of Government and Public Affairs at the University of Illinois.