It's Time to End the Inflated Pension Payments Robbing Illinois Taxpayers

July 22, 2019
By Jacob Huebert

Illinois’s government finances are in notoriously bad shape. The state has well over $200 billion in unfunded pension liabilities, some $73 billion in unfunded state retiree health insurance benefits, and billions in unpaid bills, and it hasn’t had a balanced budget since 2001. Meanwhile, an increasing tax and regulatory burden is driving people and businesses elsewhere, making it even harder for the state to dig itself out of the hole it’s in.

Despite all of that, Illinois’s political leaders recently authorized increases in costly “pension spiking,” under which school district employees receive sharply increased salaries in their last working years, and may cash in unused sick days just before retiring, to give themselves bigger pension payouts.  

In 2018, the Illinois legislature tried to rein in this practice by eliminating state funding for pension increases resulting from late-career salary spikes of more than three percent per year. But a provision in the 1091-page budget bill that Governor J.B. Pritzker signed into law this year raised the limit to six percent.

The unions that lobbied for this change are sure to take full advantage of it. For example, as Wirepoints has reported, a union-negotiated contract with the wealthy New Trier High School District gives that district’s teachers, who are already among the state’s best-paid, a six-percent annual salary increase in each of their last four years before retirement.

Making matters worse, the cost of the resulting inflated pension payments won’t be borne primarily by residents of the district, who might hold local officials accountable if they considered the payments excessive and were personally responsible for paying them. Instead, as with all school district pension obligations in Illinois, the costs will be spread to taxpayers across the state, who have no say over—and receive no benefits from—New Trier’s lavish spending. 

What to do about this abuse?

One might hope that Illinois voters, tired of being looted to pay for other people’s privileges, would demand reforms. But achieving change through the democratic process is especially difficult in Illinois. That’s because, among other reasons, the state stifles political competition with unconstitutional campaign finance rules, gerrymandering, and other dubious practices and laws designed to keep the state’s longtime political establishment in power and keep tax dollars flowing to favored interest groups, including government unions.

Illinois taxpayers might consider seeking relief in court by asserting their rights under the Illinois Constitution’s guarantee that “[p]ublic funds, property or credit shall be used only for public purposes.” To be sure, paying teachers—and paying them well—is a “public purpose.” But some courts that have applied similar provisions in other states’ constitutions have said that, to serve a public purpose, expenditures must be proportionate to the benefit the public receives, and they can’t be a mere gratuity to people who would have provided the same public benefits even without the payment. 

Unfortunately, the Illinois Supreme Court’s willingness to protect taxpayers’ rights is far from certain. In 2015, it ruled that public-sector employees’ right to receive pension benefits—and to continue to accrue them at current rates—is absolute, stronger than virtually any other constitutional right, even if that means fiscal and economic disaster for the state.

And recent cases on the Illinois Constitution’s anti-subsidy clause seem to have drastically weakened it. For example, a 2008 Illinois Supreme Court decision approved a law under which the state taxed riverboat casinos and gave the revenue directly to the owners of racetracks for the admitted purpose of benefiting the (private) horse racing industry. If the court thinks that’s okay—even though it’s precisely what the clause exists to prohibit—it’s not clear what it wouldn’t allow. (Arizona Supreme Court Justice, and former Goldwater Institute litigator, Clint Bolick wrote a book chapter on the sad state of Illinois’s anti-subsidy clause.)

Still, there’s no reason why the court can’t correct its course, and it should. A Goldwater Institute report has explained why pension spiking (as well as union release time, under which union members are paid a government salary to work for their union, not the government) violates the Arizona Constitution’s gift clause, and similar arguments should apply to pension spiking in Illinois and other states with anti-subsidy constitutional provisions.

And, of course, the state legislature should follow the state constitution whether the courts enforce it or not, and in any event, lawmakers should end pension spiking on the grounds of fair, fiscally responsible public policy.   

If neither the legislature nor the courts will enforce Illinois’s current anti-subsidy clause as written, taxpayers should demand that the state amend it, as Bolick’s book chapter recommends, to be more specific and harder to evade.

Better for Illinois to be disciplined by the state constitution sooner than to be inevitably disciplined by harsh financial reality—potentially including an unprecedented state bankruptcy—later.

Jacob Huebert is a Senior Attorney at the Goldwater Institute.