A challenge to the pension-protection clause


Two years ago, I wrote of Illinois, “The state’s deepening fiscal crisis will end when an ordinary citizen, who is not a public employee, successfully challenges the Illinois constitution’s ‘pension-protection clause’ in a federal court.”  Curiously, something along these lines is happening.  The U.S. Court of Appeals for the Seventh Circuit will soon consider the case of Bargo v. Bruce Rauner, et.al. which argues that the state’s ironclad protection of public-employee pensions is unfair to the other residents of Illinois.

The petitioner, Michael E. Bargo, Jr., is appealing the decision of a district court, which dismissed his case in May.  The brief Bargo filed in the lower court argued that the Illinois constitution’s pension-protection clause violates the equal protection clause of the US Constitution.  A single sentence makes up Article 13, Section 5, of the state constitution (the pension-protection clause), which reads: “PENSION AND RETIREMENT RIGHTS: Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”

This provision inviolably protects the the pensions of every public employee, setting up a privileged class of Illinoisans with a “retirement right” that no one else in Illinois enjoys.  The arrangement appears to violate the Fourteenth Amendment of the Constitution, which declares: “No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the Unites States . . . nor deny to any person within its jurisdiction the equal protection of the laws.”

Much of Bargo’s brief concerns how the pension-protection clause affects Illinois taxpayers and the governments within Illinois.  Collectively, state and local governments are groaning under the weight of unfunded pension obligations totaling some $250 billion.  Meanwhile, Illinois sanctions several funding mechanisms that benefit the Illinois Municipal Retirement Fund (IMRF, the state’s largest pension fund) without regard to the needs and wishes of local populations.  These mechanisms allow the IMRF to seize state grants allocated to communities throughout the state without restriction and to seize revenue from county treasuries.  They empower IMRF to sue in circuit courts throughout the State.

Bargo seeks to demonstrate how the obligation to fund public pensions goes hand-in-hand with taxation that fails to benefit taxepayers, diverting funds away from public purposes.  As taxes are levied and engrossed for the sake of public employees, the general welfare of Illinois is suffering.  Pensions claim an ever larger share of the tuition that students pay at Illinois’ public universities.  School systems and social services throughout the state are suffering as a larger share of taxes must go to pension obligations.  As Illinois faces mounting financial embarrassment, its citizens must acquiesce in a system that transfers wealth from the general population and the State itself to one class of people, thanks to the superior protection the Illinois constitution affords public employees.

The pension-protection clause, which stipulates that a benefit once given to a public worker can never be reduced or taken away, robs government of the discretion to curb or modify pension provisions that are being abused or that are unduly generous to the point of being unaffordable.  The state’s courts have repeatedly cited the pension-protection clause in striking down pension-reform proposals, including several that the unions themselves have agreed to.  Unfortunately, Article 13, section 5, creates a class interest within the public sector that stacks the deck against ordinary Illinois citizens, making an appeal to the federal courts necessary.

Bargo v. Rauner, et. al., puts the pressure on the state’s most powerful officials to defend a principle gradually strangling once-vigorous Illinois.

Graphic by the Illinois Policy Institute.

Master the CPS Pension Crisis in 5 Easy Steps

Playing Teacher (Prang Co. lithograph), Courtesy Library of Congress.

Should we sympathize with the Chicago Teachers Union (CTU)?  On Friday, the teachers walked off the job and took to the streets, ostensibly on a crusade, not principally for their own benefit, but for the sake of increasing education funding more generally.  Union boss Karen Lewis, looking jaunty, proclaimed, ‘We’re dying a death of a 1,000 cuts,’ implying that teachers were among Governor Bruce Rauner’s victims, and that all would be well if only the union could squeeze more money out of the state and its taxpayers.

Yet, if a report of the Illinois Policy Institute is correct, the financial woes of the Chicago school system and its teachers are largely internal and have been brought on by themselves.  The Chicago Teachers Union has been complicit in the ruin of the pension system established to provide retirement security, allowing money to be diverted from the fund while accepting overly generous increases in working teachers’ salaries.  Meanwhile, the Chicago Public Schools (CPS) leadership has so mismanaged its finances that a pension system that was fully funded in 1999 now represents a $9.5 billion liability, despite the fact that, over the same period, public funding for CPS has increased at 150% of the rate of inflation, when calculated on a per-student basis.

The IPI’s report, published in late 2015, analyzes the funding of teachers’ pay and pensions over several decades.  It explains the arrangements that have created the pension crisis while debunking some leading claims about where the solution lies.

1. Pension pick-ups:  In 1981, when Ruth Love was CPS superintendent, the district and teachers agreed that the district would pay the part of the teachers’ pension contributions.  Instead of pension contributions coming out of teachers’ pay, a part of their share would come out of the schools’ general operating funds.  These pension “pick-ups,” which continue today, amount to a loss of operating revenue of $1.266 billion over the last decade.  Meanwhile, the pick-up has not been counted as part of the CPS’s mandated contribution to the pension fund.

2. Pension holidays: On two occasions, in 1995 and again in 2010, the General Assembly allowed the CPS to forego paying in to the teachers’ pension fund as mandated.  The first of these ‘pension holidays’ lasted from 1995 to 2006.  During this period, the school system diverted all the money that should have gone for pensions (amounting to $1.5 billion) into its general operating funds.  During the second pension holiday, from 2011 to 2013, the CPS diverted another $1.3 billion from the pension fund.

3. Colossally bad management: While the public is constantly being told that the schools’ problems stem from under-funding, the IPI claims that ‘Tax-payer provided revenues for the Chicago Public Schools have more than doubled‘ between 1997 and 2014, rising from $2.6 to $5.3 billion annually.  Meanwhile, the size of the student population has dropped by about 7 percent, from a high of roughly 383,000 students in 2003 to 355,634 students in 2014.  In 2014, the CPS received revenue of $15,011 for each child enrolled.

4. Unwise salary increases: The lifetime compensation of CPS teachers is the highest in the nation, relative to other major urban school systems.  A beginning teacher with a BA earns $51,092 a year.  Salaries increase rapidly during the first decade of service, so that teachers with 10-14 years of service earn an average pay of over $84,000 per year.  The salary structure increases the pension benefits of teachers earlier in their careers, enhancing the payout to younger ‘retirees.’  In 2014, over 72% of teachers in the Chicago schools had less than 14 years’ seniority.  The pension fund’s pool of beneficiaries is increasing, while the number of teachers paying into it is declining, another factor pushing it toward insolvency.

5. Reckless borrowing: It’s hard to escape concluding that the Chicago schools have been terribly mismanaged. Between 1998 and 2014, despite enjoying many years of pension ‘holidays,’ the CPS sank ever more deeply into the red, borrowing instead of confronting its true fiscal constraints.  CPS indebtedness totaled $6.2 billion in 2014.  Its bond offerings have been floated at ever higher rates of interest, even as its bond rating tanks.  Today, nearly eight percent of the CPS budget goes right to debt payments.  Another 68 percent goes to compensation costs, leaving just 24 percent for all the other expenses of running the schools.

Image: “Playing Teacher”
(1890 Prang Company lithograph)
from this source.

The Teachers’ Example

Winslow Homer, The Noon Recess (Courtesy Library of Congress)

Today, children enrolled in the Chicago Public Schools are learning to do without their teachers.  The teachers are not in the schools today because they, as union members, decided to teach us all a lesson by not showing up to do their jobs.  Instead of teaching, they chose today, April Fools Day, to stage what they ironically refer to as a Day of Action.  Yes, this day, when they do not show up to do their jobs.

No doubt the teachers have legitimate grievances, but so do taxpayers.  The teachers want the school district and the state government to bend heaven and earth to give them an agreeable contract.  The school district is teetering on bankruptcy.  Teachers’ unfunded pensions are an underlying cause.  The teachers deserve pensions and rightly fault the politicians for failing to invest in and protect the pension funds, as obligated.  But the funds that should be there simply aren’t.

Taxation is increasing to help cover ballooning pension obligations.   Meanwhile, the school budget is being cut.  Education in the present is being sacrificed to preserve the benefits of retired and retiring teachers.  The teachers’ union doesn’t speak to this issue.  Yet, to all appearances, Peter is being robbed in order to pay Paul.  The teachers are going to squeeze Peter and everyone around him, hoping that enough money can miraculously be conjured to go around.

The Day of Action is a farce, because it does not solve the problem.  It doesn’t bring antagonistic parties any closer to agreeing on what to do about a desperate lack of money.  Instead it diminishes the public’s sympathy and respect for teachers and the difficult work they do.  How not to behave: this is all Chicago teachers have taught on this April Fools.

The Biggest Worries of 2016

An empty dining room decorated in an opulent European style.

Optimism is to be cherished, but, given the state of the world, it may be a foolish indulgence.  The times call for levelheaded engagement, not the dreamy complacency that optimism breeds.  Faith in our political system, in the American people, or in the capacities of elected leaders: faith like that has yielded small rewards lately.  The glue of trust that valorizes American government is disintegrating.

That the US has fallen into troughs of mediocrity before (think of the Gilded Age culture Mark Twain pilloried) is one of the few thoughts that consoles me.

Our national capacities matter more then ever, given the dire condition of the world, our institutions, and many of our communities.  What can we bring to 2016’s daunting prospect, a prospect defined by several cosmic and worrisome possibilities?

1. World War Three?

If it breaks out, it will be a war like no other, as was also true of World Wars One and Two.  In fact, it may already be underway.  We may not know it, simply because we are in the same situation as those who lived through other world wars. We watch as an unconventional conflict erupts and spreads in a fashion that the world order is unprepared to protect itself against.  In Syria and with the Islamic State, aggressors are working with playbooks that defy borders and prevailing conceptions of war and nationality.  As in previous wars, the Middle East’s war-within-a war has geographic and strategic traits that have already begun enmeshing a widening set of parties, both psychologically and militarily.

2. The decline of national sovereignty

World order as we know it is based on the concept of the nation-state: that states and powers have boundaries, and that, within those boundaries, all are subject to a nation’s laws.  The international order and our concepts of war are built on the notion that nations are sovereign.  In the many parts of the world, the concept of the nation-state has allowed humans to live peacefully under the rule of law.

These days, the integrity of the nation-state and the inviolable nature of national sovereignty are losing salience.  A host of contributing forces, both economic and geopolitical, was strikingly evident in 2015.  While Greece’s economic crisis exposed the mutual discontents inherent in the great experiment known as the European Union, its member-states are increasingly fractious, as the incidence of terrorism and a massive influx of refugees from war-torn and dysfunctional parts of the world have highlighted their loss of internal control.

Global mobility has increasingly challenged the static bulwark of the nation state, but the world’s leading powers have also rained insults on its integrity. Whether it’s Russia in the Ukraine, or the US in Syria, the superpowers frequently allow their desires to override their respect for the sovereignty of nations that they dislike.  Their increasing resort to overt and covert interventionism mocks the concept of national sovereignty.  Even changes in technology–such as the increasing sophistication of air-to-ground warfare–have made it easier to ignore and violate the clear boundaries that formerly protected nations from one another and impeded a general descent into war.

3. Witchy weather

Climate change, global warming—call it what you will, it’s a major worry.  Unbreathable air; murderous landslides; droughts and forest fires; glaciers melting, oceans rising.  Whether you’re a scientist or a believer in the Biblical end-time, you may agree (while wearing shorts in winter) that ‘Old Mother Nature’ is trying to tell us something.  Resource exhaustion is how a planet’s inhabitants typically do themselves in.  With omens like this, why worry about bombs?

4. The twin bankruptcies of Chicago and Illinois

Chicago and the State of Illinois are bankrupt already.  They just haven’t admitted it yet because of the shame.  The most powerful people in our state, especially the state legislators and Speaker of the Illinois House, Mike Madigan, will be remembered as the people at the helm when the ship went down.

Poor governance alone is to blame for Chicago and Illinois’s difficulties, for, ironically, both are richly endowed entities, with great human capital and masses of valuable resources and assets, including some of the world’s most productive farmland.  Illinois has one of the largest GDPs in the country, but it is saddled with a growing and inescapable debt load consisting chiefly of unmet pension obligations, the legacy of decades of corrupt and self-interested leadership.

The collapse of a major American city and its state AT THE SAME TIME has no precedent in US history.  History will remember and damn the leading politicians who for decades have written bad laws and abused the people’s trust.  Hold on to your hats, all Illinois!  2016’s going to be a bumpy ride.

5. A Donald Trump presidency

Beyond the well-aired controversies that Donald Trump inflames, his ascendancy portends chaos in the political realm.  Not only does Trump’s unwelcome prominence prove that the Republican National Committee has lost control of the party; it also shows the degree to which both parties and their personnel have lost touch with the sentiments of the electorate.  Whether Trump can convert viewers into votes remains to be seen, but if he polls well, we’re going to find out what happens when a candidate upends an entrenched national party.

Image: Carol M. Highsmith, Marble House, Newport, Rhode Island,
from this source.

Another Illinois politico goes down

Cameramen waiting for Hastert, © 2015 Susan Barsy

June 9.  The cameramen shooting the breeze near the entry to the Dirksen Federal Courthouse meant that something big was happening.  It turned out to be the arraignment of former House Speaker Dennis Hastert. Continue reading