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 The Illinois Supreme Court unanimously ruled Nov. 29 that the
state constitution’s pension clause protects a perk granting inflated
post-retirement pay – one that only benefits government employees who work for
their unions.
The decision declares untouchable a pension-spiking provision available only to
a select few workers, and underscores the need for a constitutional amendment
and comprehensive pension reform in Illinois. According to one estimate, those
inflated pensions will cost taxpayers more than $50 million.
In the decision – Carmichael v. Laborers’ & Retirement Board Employees’ Annuity
& Benefit Fund of Chicago – the court held the Illinois General Assembly could
not rescind a pension- spiking perk for employees of the city of Chicago and
Chicago Board of Education who take time away from their government jobs to work
for their unions.
Pension benefits are typically calculated as a percentage of a retiree’s
government salary near the end of employment, with a higher percentage of salary
granted based on years of service. But for certain retired Chicago union
leaders, their pensions will instead be based on their union salaries, which
were higher than what they earned in their positions with their government
employers. As a result, their pensions will be nearly three times higher than
the typical retired city worker, according to a 2011 report from the Chicago
Tribune.
The Tribune estimated the cost of 23 such pensions at $56 million.
Since the city of Chicago and the Chicago Board of Education are not responsible
for setting union salaries, the resulting higher pension costs were ultimately
unpredictable for public officials and taxpayers alike. The General Assembly
effectively outsourced responsibility for setting public pension benefits to a
nongovernmental third party: unions.
The union pension-spiking perk was originally granted by the General Assembly in
1991, with no public debate and no cost estimates available, according to the
Tribune. The court notes in the opinion that the General Assembly attempted to
walk back this perk with Public Act 97-651 after receiving negative press
coverage.
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In other words, the General Assembly was caught
red-handed doling out unaffordable benefits to select special
interests. Yet when lawmakers tried to correct the mistake, the
Illinois Supreme Court said no.
Although this type of abuse is not the sole cause
of the Chicago pension systems’ poor financial condition, it is a
perfect example of politicians doling out special favors and
sticking taxpayers with the bill.
In total, the Chicago-related pension funds have more than $41
billion in pension debt.
Moody’s Investors Service currently gives the city
a junk credit rating, largely due to unfunded pension liabilities.
Chicago has struggled to make pension contributions since the last
national recession, despite massive tax hikes including a property
tax increase of $543 million over four years, new taxes on
ridesharing and e-cigarettes, tax increases on water and sewer
services and 911 calls, and hikes in fees ranging from garbage
collection to building permits.
In addition to these fee and tax hikes, outgoing Chicago Mayor Rahm
Emanuel lobbied in the past for legislation – Public Acts 99-506 and
100-23 – allowing him to make reduced pension contributions from
2015 to 2021 to ease pressure on the city budget in the short term.
Partly as a result of those artificially low contributions, the next
mayor of Chicago will inherit a pension mess with contributions set
to spike sharply in the next few years.
Illinois’ and Chicago’s only responsible long-term
option for getting out of the mess is meaningful pension reform that
starts with a constitutional amendment to allow changes to unearned,
future benefits. Changes should include raising retirement ages for
younger workers, capping maximum pensionable salary, and doing away
with guaranteed permanent benefit increases in favor of a true cost
of living adjustment pegged to inflation.
In the short term, the least state lawmakers can do is not hand out
any more special perks to well-connected special interests. The
courts won’t let them take it back and taxpayers can’t afford it.
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