“Anyone following the pension-reform debate knows
Illinois has long diverted the money needed to properly fund its pension
systems to avoid tax increases, cuts in public services or both. Some may not
admit it, but they know it. They also know this practice is the primary reason
why the systems are under water.
“Because much of my time the past three years has been
spent on the state’s pension problem, I wanted to find out how long it’s been
that way and how long we have known about it. As chronicled in an article I
wrote that was published by Chicago-Kent College of Law, I have an answer:
1917.
“That’s not a typo.
“In 1917, the Illinois Pension Laws Commission warned
leaders that the retirement systems were nearing ‘insolvency’ and ‘moving
toward crisis’ because of the state’s failure to properly fund the systems. It
also recommended action so that the pension obligations of that generation
would not be passed on to future generations.
“The warning and funding recommendation went unheeded, as
did similar warnings and recommendations found in decades of public pension
reports issued before and after the pension clause was added to the Illinois
Constitution in 1970.
“For decades, these reports consistently warned the
public and lawmakers of the dire consequences of the state’s continued
under funding and of the significant burden unfunded pension liabilities posed
for taxpayers. They advised that the pension clause bars the legislature from
unilaterally cutting pension benefits of retirees and current employees.
“Indeed, one of the clause’s purposes is to prevent the
state from reneging on its pension obligations during a fiscal crisis because
of the burden imposed by unfunded liabilities. The clause was added at a time
when the pension systems were no better than they are today.
“These reports also reveal that as early as 1979 Moody’s
and Standard and Poor’s advised Illinois that it would lose its AAA bond rating
if it did not begin tackling its increasing unfunded pension liabilities.
“In 1982, Gov. Jim Thompson succeeded in passing
legislation making pension funding far more dependent upon stock market returns
to stave off higher state pension contributions. Interestingly, that
legislation resulted from a report commissioned by Thompson that highlighted
how the pension systems should consider investing in mortgage-backed securities
to obtain higher stock market returns.
“Further, a 1985 task force report noted that Standard
and Poor’s reduced its bond rating for Illinois from AAA to AA+ because of the
state’s ‘deferral of pension obligations,’ and that another rating agency
viewed Illinois’ pension funding as a future financial ‘time bomb.’
“Finally, the much-heralded 1995 pension funding plan was
designed to increase the state’s unfunded liabilities and postpone its
actuarially sound pension contributions until 2034.
“Given this well-documented history, it’s extremely hard
to legitimately believe Illinois’ current situation is so surprising that the
state constitution can be ignored and pension benefits unilaterally cut. As
noted in my previous legal research, the pension clause does not support such a
result.
“The likelihood of that result occurring seems even more
remote given the Illinois Supreme Court’s July decision, in which it explained
that the clause was intended to ‘insulate’ benefits from ‘diminishment or impairment
by the General Assembly’ and that the court could not rewrite the clause ‘to
include restrictions and limitations that the drafters did not express and the
citizens of Illinois did not approve.’
“Make no mistake, the court’s decision strongly signals
doom for the argument that the 2013 pension-reform bill is constitutional
because the legislature can trump the pension clause when it declares a fiscal
necessity. So, too, does the state’s sordid history of failing to properly fund
its pension system.
“When it comes to Illinois’ pension-funding problem,
what’s past is prologue. Addressing this problem, however, requires the
acceptance of this history, as well as the obligations and boundaries imposed
by the pension clause.”
This summary article by Eric M. Madiar appears to be
no longer available at http://illinoissenatedemocrats.com/ However, it is still available at the State Journal-Register.
To read the complete 43-page report by Madiar, Click
Here.
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