Invoking the Nuclear Option on Pensions

NuclearThe head of the Chicago Teachers’ Union pension fund, Charles Burbridge, was on “Chicago Tonight” on Tuesday, and he held up 7 checks totaling $643 million, which was the amount needed to fully fund this year’s required contribution. When Phil Ponce, the show’s host, asked him where the money came from, Burbridge said he didn’t know and that he didn’t ask. He just ran to the bank and deposited the funds, hoping the checks wouldn’t bounce.

This morning, we found out that the money was borrowed. Jesse Ruiz, the head of the Chicago Public Schools, said the system would have to implement $200 million in cuts to the budget for the upcoming school year as a result. He and Mayor Emanuel pointed straight to Springfield as the source of the problem:

“Because of the structural inequity and because of the system, Chicago Public Schools now are questioned about whether they make a pension payment, not whether they hit a graduation rate.”

The “structural inequity” he’s talking about is the fact that while the State funds the “employer’s” share of pensions for every other district, Chicago’s teacher pensions are paid completely by Chicago taxpayers. Of course, that hasn’t stopped CPS using the pension fund as a slush fund to pay for programs, just as has happened in Springfield. I have to wonder why CPS would want to take the solution for its problem out of its own hands and pass it on to the clown car that is the Illinois General Assembly.

For the upcoming year, the State is on the hook for $6.8 billion in pension contributions, or about 18% of the budget. The overwhelming percentage of that contribution is to fund prior shortfalls. As a result, every other program and department in the State is being cut. Without substantive reform, and not just the Governor’s “Turnaround Agenda”, we’ll be in this hole for years to come. It’s time to go nuclear.

As I pointed out in a previous post, while benefits are guaranteed under the Illinois Constitution, the State is under no legal or constitutional imperative to make payments to its public pension plans.

Governor Rauner was elected with a mandate to change the way things are done in this state. The clock is ticking on his 4-year term, and he’s got to fish or cut bait. He has to use what weapons he has to solve the pension crisis, and since the unions and the Democrat majority in the General Assembly (but I repeat myself) don’t seem inclined to want to bargain, it’s time to use those weapons.

  • The first weapon is the veto pen. The Governor recently vetoed the entire budget passed by the Legislature, except for education. If the Legislature doesn’t override his veto, the next budget that’s sent to him should be subject to the line item veto rather than a wholesale rejection. This will put legislators on the hook to become more serious about the process as their pet programs go to the block.
  • Then, he needs to point out that since there’s no constitutional requirement to fund the pension plan, he’ll fund every program to the extent it hasn’t been vetoed, and then what’s left, up to the amount of expected state revenue, will be used to fund prior shortfalls. Voila, a balanced budget.
  • Finally, he goes to the unions and tells them that they have the first 2 choices below, or he’ll push for the third:
    • They can sue him and hope that their claims for full funding are upheld in the face of the Supreme Court’s decisions in Sklodowski and McNamee. While the Supreme Court rejected the State’s “police powers” argument in its recent Heaton decision, I’m not so sure the power wouldn’t be upheld if it isn’t confronted with a constitutional prerogative.
    • They can come to the table and negotiate a complete overhaul of the pension system that provides for a realistic way of getting us out of this mess.
    • The ultimate nuclear threat is to amend the Constitution to remove the pension guarantee. While it should be the last option, it must remain on the table, otherwise the other options won’t go anywhere.

Chicago’s decision to borrow its pension contribution shows that nothing has changed. Unless Governor Rauner is willing to go completely nuclear on the pension issue, nothing will change. If he’s rejected by the courts, then we’ll at least know where we stand.

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