State Finances: In the annals of catastrophic court decisions, the one reached late last week by the Illinois Supreme Court to invalidate pension reform in the Land of Lincoln is right up there at the very top of the list.
In 2013, the Illinois legislature and then-Democratic Gov. Pat Quinn — a friend of the public employee unions — enacted a law to try to rein in the costs of a government-employee pension system that today has an unfunded liability estimated at $128 billion.
The improvements were baby steps: putting new workers in a defined contribution system, slowly raising the retirement age and making gradual changes to cost-of-living allowances. But the court ruled these modest changes were illegal and, with a stroke of the pen, added tens of billions of new liabilities onto the shoulders of Illinois residents.
This isn't just an Illinois story. This interpretation of pension law could have severe negative repercussions for up to 40 other states trying to deal with the stratospheric $2 trillion liabilities of aggregate state and local government pensions and health care benefits.
Defenders of the pension reform law made a powerful case: The legislature had an obligation and right to invoke "police powers" to save citizens from a financial emergency. But the court said the state constitution guaranteed the pension payments and thus the legislature had no authority to revise them by a single penny.
"Crisis is not an excuse to abandon the rule of law," it decided. Even the provisions of the law applying to new workers were tossed out, which effectively means the super-sized benefits must be paid into perpetuity.
The liberal court seemed unconcerned that locking in these pension guarantees means the state marches off a fiscal cliff. Interest rates on Illinois municipal bonds rose after the announcement.
Who does the court think will make up the $128 billion shortfall? Taxpayers, that's who. The court said the legislature "made no effort to distribute the burdens evenly among Illinoisans" and could "have sought additional tax revenue."
Illinoisans already absorbed a record $30 billion temporary income- and business-tax increase under Quinn, with over half of the funds used to try to plug at least the short-term holes in the pension program.
The state is already one of the most overtaxed in the country, and citizens are leaving year after year to avoid high taxes and subpar services. It already has one of the worst bond ratings of any state outside California.
This ruling will almost surely require sharp cuts in schools, prisons, libraries, roads and bridges, and other services — because retired pensioners are first in line at the public trough?
The decision makes the financial repair job of new Republican Gov. Bruce Rauner all the more daunting. Just this year alone the annual pension payments are up another 12% to $7.6 billion, as reported by Reuters. By some estimates, 1 of every 4 property tax dollars will go to meet pension obligations, not public services.
But the courts don't seem to think it's an emergency when ambulances won't show up because the fire and rescue money is flowing to pensioners living in Miami.
By the way, Illinois pensions are in many cases double what comparably skilled private workers get. Even with the reforms, the pensions will still be among the richest in the nation.
The watchdog group Open the Books reports that: "In 2014, Illinois had 5,941 educators with over $100,000 in annual retirement pension. Three years ago, only 3,500 educators had a six-figure retirement." How many private-sector workers get $100,000 pensions? These are now constitutional rights?
The Illinois pension catastrophe and the fiscally ruinous verdict by the courts should be a wake-up call for every other state to fix pensions immediately. At the very least it means bringing all new employees into fully funded 401(k) plans that don't put future taxpayers on the line for liabilities that can never be met.
Illinois, meanwhile, is now officially run by and for government employee unions and workers who are supposed to be "public servants." In fact, the citizens are now the servants and union bosses the masters.
Original Article, click here.