Greising: There's No Getting Around It - We Need a Pension Amendment
BGA President David Greising writes a regular column for Crain's Chicago Business.
The day after her "State of the City" address, Mayor Lori Lightfoot made the rounds of the city's editorial boards to address questions about how she plans to move forward on some of the ideas in her speech.
In the interview with Crain's editorial board, Lightfoot laid out some major components of the $838 million budget hole she faces: $277 million in pension obligations, $130 million in debt service, $90 million for settlements and judgments against the city, $100 million in miscellaneous costs.
Notice the top-line item: pension obligations. And then take into account that the pension challenge the mayor faces in her 2020 budget will only grow over time. When she delivers her 2023 budget—presumably on the verge of a re-election race—the city's annual pension bill will be up by $1 billion over this year.
Such is the punishing math of cash-strapped Chicago. And such are the tough decisions facing Lightfoot as she prepares her 2020 budget, facing an October deadline that gets tighter by the day.
Lightfoot has identified the singular factor that makes the pension challenges in Illinois so daunting: the 3 percent annual cost-of-living allowance that for decades was promised to public employees across the state, Chicago included.
The mayor has not yet stated specifically how she plans to solve Chicago's pension problem. She hopes to shift costs to the state—a prospect Gov. J.B. Pritzker has rejected. She also listed a few other ideas in her speech: a possible new tax on homes that sell for $500,000 and up; taxes on the sale of cannabis; revenue from a city casino. The list went on.
"We have to put as many options as we possibly can on the table," Lightfoot explained during the next-day interview with Crain's. "We know the circumstance we find ourselves in, with the COLA compounding annually, is unsustainable."
Don't misread the statement as a signal from Lightfoot that she plans to seek an amendment to the state constitution, which prohibits any change that would cause pension benefits to be "diminished or impaired." Lightfoot has been emphatic that she opposes a constitutional fix.
Instead, the mayor told Crain's, she is putting hope in conversations she has had with union leaders who say they are willing to help. "They want to be part of a solution, and they understand that we have this moment where we can get something done," she told Crain's.
Lightfoot's staff told me the mayor will look to the unions for help with raising "progressive revenue streams" for Chicago. Helpful as that may be, it wouldn't attack the central problem she identified—the unsustainable cost of compounded pension increases.
There are two more direct ways unions could help Lightfoot address Chicago's pension problems. They could help her persuade Pritzker to step in and absorb the obligations of Chicago and dozens of other Illinois cities with pension problems. Or, most of all, they could help her seek a cure for the underlying problem of the city's chronic underpayment—and the rising bill Chicago now faces.
The idea of statewide consolidation makes financial sense. It would save costs and invite a holistic solution to a budget-busting problem facing municipalities statewide.
The unions clearly influence Pritzker, but whether they have enough sway to force a pension consolidation is an open question, at best.
Even if consolidation were to happen, that 3 percent COLA would still be a problem. And if that is where Lightfoot expects help from union leaders, she's facing a hurdle in the form of the Illinois Constitution.
The state constitution has served as an obstacle to pension reform for decades. Its restrictive pension language blocks the efforts of those who would gut pensions and stick it to retirees, which is good. But it also has blocked legitimate, less-drastic efforts. And that's where it causes trouble—and that's why the constitution's pension language should be changed.
A bill that passed both houses of the Illinois Legislature was shot down in 2015. In that one, the court ruled that if pension obligations prevented the state from protecting the health and safety of residents, pensions would trump police powers.
The Illinois Supreme Court track record indicates that even if union leaders, acting in good faith, might make concessions on the costly compounded payments, that still might not be enough.
Any pensioner who doesn't like the deal would have a right to sue. And that challenge eventually would wend its way to the same Illinois Supreme Court that has narrowly and inflexibly interpreted the constitution as prohibiting any pension fix.
There are any number of reasons Illinois needs a constitutional amendment to solve its worst-in-the-nation pension problem. If local labor leaders really are willing to help out—but the constitution stands in the way—we may have discovered yet one more.