STUMP » Articles » Illinois Pension Round-Up: Trouble in Harvey, Small Proposal That Won't Fix Anything, and No Details from a Politician » 12 April 2018, 22:09

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Illinois Pension Round-Up: Trouble in Harvey, Small Proposal That Won't Fix Anything, and No Details from a Politician  


12 April 2018, 22:09

With all the Kentucky brou-ha-has, Illinois has gotten short shrift (by me… not necessarily in Illinois itself – and definitely not at Wirepoints).

The main reason I’ve not been writing about Illinois as frequently this year: they haven’t been dealing with their pension issues… and they can’t deal with their pension issues until they amend their state constitution.

Illinois’s pensions are in a poor state. This isn’t news. Most of the state funds are underfunded, as a result of deliberate choices to underfund; the one statewide fund where they’ve required full payments is looking okay, in terms of the pattern of funding requirements and funded ratio.

However, there are also a bunch of little-bitty pensions throughout the state (local police & fire pensions)….not to mention the big, and underfunded, Chicago pensions.

Many of the Illinois pensions are in such a hole that it at least requires slowing the growth of benefit payments (such as cutting COLAs (cost-of-living adjustments))…but the Illinois supreme court time and again says “nope, the 1970 constitution says you can’t cut the benefits.”

This is why I say the state constitution has to be amended if Illinois is to get out of its pension problems in a legal way, as opposed to a de facto defaulting way.

It’s pretty clear that many of the pensions promised are simply not ever going to be fully-funded… which, given how Illinois population keeps dropping, means that the money will eventually run out. That’s the long run.

In the short run, taxes will increase to try to fill all the holes. But there is a practical limit to how much you can try to soak the taxpayers.

And one town is hitting that limit.


Harvey, Illinois has a big problem. It lacks money. And the state of Illinois controls whether it can declare bankruptcy (NO BANKRUPTCY FOR YOU!), unlike some place like California, where the municipality can file for bankruptcy once certain conditions are met.

Let’s go to Wirepoints, where they know about this situation much better.

It’s happening: The insanity in Harvey, Illinois – Wirepoints Original:

It’s happening. We’ve written about this before. It’s not one big blowup like the subprime crisis, but it is happening, and Harvey is part of it.

Few places make the case for municipal bankruptcy in Illinois better than the city of Harvey. The city has reached such a state of dysfunction that both the state and the courts have stepped in.

Harvey has just announced that it’s firing nearly half of its public safety employees because the city can’t afford to pay both its employees and its bills at the same time – the result of a law that lets the state confiscate Harvey tax revenues if the city skips its pension payments.

Yeah, that’s a problem.

The depth of the city’s financial crisis is beyond severe. The city failed to contribute money into pensions for years. The funding levels of both its public safety funds have collapsed. The city’s finances have been under multiple investigations. And basic services are being entirely neglected.

It’s gotten so bad that higher authorities have stepped in. The courts last year ordered nearly-bankrupt Harvey to hike its sky-high property taxes – even though they are already at confiscatory levels – to pay for public safety pensions. Now the comptroller is confiscating the city’s local tax revenues to pay for those pensions.

One or both of those actions may accelerate what needs to happen in Harvey: bankruptcy.

Read the whole thing.

Now, many will argue that Harvey is an outlier and that it doesn’t indicate anything for the other municipalities in Illinois.

First: duh, Harvey is an outlier. The outlier in terms of doing bad means… yup, you’re going to go bankrupt … first. That’s the concept of the canary in a coal mine.

They won’t be the last in this situation.

Editorial: Bankruptcy ‘lite’ for Harvey and beyond

Drastic government layoffs Tuesday within the city of Harvey surprised no one who has followed the financial implosion of the troubled south suburb, once a middle-class bedrock. Citing budget constraints, the city let go roughly 40 public safety employees.

Harvey is both a unique and a standard case in budget pressures facing Illinois municipal governments. Let us explain.
But Harvey is only one among hundreds of Illinois municipalities struggling to make payments to its public safety pension funds. The state’s Commission on Government Forecasting and Accountability in December reported that the unfunded liabilities of public safety pension funds outside Chicago nearly doubled during the last decade. That’s in part why property taxes in Illinois remain among the highest nationwide. State and local governments, and especially school boards, have made expensive — and unsustainable — promises to their workers. The bill for all that generosity with taxpayers’ money is coming due.

Look – like with Detroit, there were specific facts that led to the particularity of Harvey’s downfall.

Detroit was allowed to cut off some of their past of bad actions and decisions, some people got convicted of federal crimes, and they got to cut pensions, a little.

So let’s go back to this editorial and see what they mean by “bankruptcy lite”:

What to do about Harvey? The Civic Federation, a nonpartisan research organization, backed legislation last year that would have created an oversight panel, embedded in state government, that would review the financial conditions of local governments and offer recommendations. The Local Government Protection Authority would have the power to examine financial records of local governments and suggest fixes. Consider it bankruptcy “lite.” Avoid federal bankruptcy court with an intervention of financial wizards.

Even without the ability to impose fixes, a state-sanctioned authority would be helpful in Harvey, a city notorious for its lack of transparency. Who knows what assets and debts the city faces? No one. Just ask the rogue aldermen on the Harvey City Council — political foes of Mayor Eric Kellogg — who have been begging for law enforcement agencies and state officials to intervene in the city’s financial mess. No one has.

The Civic Federation’s bill, however, died in committee. Various pieces of legislation to allow municipalities to seek bankruptcy protection have died too. The Illinois Municipal League has been pushing for consolidation of local pension boards to strengthen their overall portfolios and improve oversight. That might be a start.

Bottom line: Springfield has to act, and now. Local governments from Rockford to Decatur to Granite City and beyond are in distress in part because of actions state lawmakers have and haven’t taken. Harvey is just the omen.

Look, bankruptcy lite ain’t gonna do much with respect to their big liability: pensions.


….or, you can go to federal bankruptcy, in which pension benefits can be cut — ask the Detroit retirees about that.

I understand the various groups trying, desperately, to keep all Illinois entities out of federal bankruptcy court. The state politicians will have lost control of whatever happens once it makes it into federal court.

I think getting an auditor into Harvey would be great for starting to clean up whatever (and possibly get indictments on whoever as well).But to the extent that the pensions are untenable for them… “bankruptcy lite” won’t do anything for Harvey.

And it won’t do anything for other municipalities also squeezed for IMRF and TRS contributions, not to mention their police & fire funds.

Here is other coverage on Harvey:

Municipal leaders in Illinois: take notes. This can happen to you, too.

Why More Illinois Towns Could Follow Harvey’s Fate | Chicago Tonight | WTTW

The financially beleaguered south suburban town of Harvey shorted its police and fire pensions for years. As a result, the Illinois comptroller is holding up more than $1 million in state money the town is owed, thanks to a state law that just took effect.
But is Harvey just the first shoe to drop in a state full of municipalities with underwater pensions?
Under the law, the state can withhold tax money a town is slated to receive if the town doesn’t pay the required amount into its police and firefighter pensions. The funds withheld go right into the pension fund instead of town services.
In Harvey, that’s about $1.4 million because the town shorted its funds for years. It has now announced it will lay off nearly half of its police and fire department. Harvey’s Mayor Eric Kellogg declined to speak with us, but town attorney Bob Fioretti says residents shouldn’t fear the worst.
The pension law at issue was passed in 2010 as a way to make sure towns stopped shorting their pension funds. A judge affirmed on Monday that the Illinois comptroller was within the law to withhold the revenue.
This could just be the first shoe to drop.
The city of North Chicago is being penalized as well. And according to an analysis by Amanda Kass, a researcher at the University of Chicago, there are 74 police or fire pension funds in towns across the state that are as similarly underfunded as Harvey (you can download that list of funds here). In the Chicago area, they include Burbank, Evergreen Park, Maywood, Melrose Park and Niles – to name a few. The Civic Federation’s Laurence Msall says these towns could go the same route.
“If they ignore the law and don’t make the contribution as Harvey has, then yes, those municipalities all around the state have ability to seek an intercept of state revenues that would otherwise come to the municipality,” Msall said.
Chicago, even though it shorted many of its pensions for years, is not headed toward a similar fate. It had state law changed to allow for pension holidays. Harvey and other towns didn’t. Pension fund managers have to appeal to the comptroller’s office to have a municipality’s tax money intercepted.

Funny one should mention Chicago….


Chicago Pension Law Struck Down by Court | Chief Investment Officer

A circuit court judge has ruled that a 2014 law that altered the Park Employees’ Annuity and Benefit Fund of Chicago was unconstitutional because it reduced benefits by increasing the retirement eligibility age and lowering cost-of-living increases and disability benefits.

The judge also ordered that the Chicago Park District return the higher retirement contributions workers made between Jan. 1, 2015 through March 23, 2018.
The Illinois state constitution states that “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.”

Additionally, the Illinois Supreme Court ruled in Heaton v. Quinn in 2015 that “if something qualifies as a benefit of the enforceable contractual relationship resulting from membership in one of the state’s pension or retirement systems, it cannot be diminished or impaired.”

Cohen cited both the section of the state constitution, and the Illinois Supreme Court ruling in his decision.

As a result of the ruling, the fund has to refund all participants contributions that exceeded 9%, and active employees should see their contribution revert to 9%, according to the Service Employees International Union Local 73, which filed the lawsuit. The fund has 60 days to send to the union its calculation of back pay owed to the participants, and on completion of the union’s review, the Park District will issue reimbursements to participants.


Here are prior posts I’ve made when they said: nope, you can’t cut:

Look, the retiree healthcare ruling is an indication for everything else.

(I still don’t know what’s supposedly guaranteed re: retiree health care in Illinois. Can’t increase deductibles? Premiums paid by retirees? Heck if I know.)

If you can’t cut something that’s not all that well-defined, you’re not going to be able to cut via higher contribution amounts, no COLAs, yadda yadda yadda.

The reason for all of these is the 1970 Illinois state constitution.

Do you want to know how to deal with that? Do I have to tell you?



(you have to amend the frickin state constitution)


My comment can be seen above.

Consolidating pension funds in Illinois a smart way to sop up the red ink | Chicago Sun-Times

Illinois has far too many anemically funded pension plans and it’s time to do something about it.

The state’s five main pension funds have more than $130 billion in debt, meaning they need that much more to be considered in good health. Soon, nearly a quarter of every dollar we send to Springfield will go toward paying state retirees. That’s a problem that needs to be addressed and, so far, there’s been no wherewithal to do it.

But that’s just part of the pension story. We also have 653 separate local police and fire pension funds in communities all around the state, and many of those are in poor shape, too. Several approaches to consolidating those funds are expected to get a hearing Wednesday in Springfield.

Illinois alone is home to 43 percent of all public pension funds nationwide. According to a 2012 report by the Marquette Associates, the state with the second most pension funds is Pennsylvania. It has only 137 pension funds.

Why should you care about this? If your community’s funds are in trouble, you’re likely paying more in interest costs every time your town’s officials need to borrow money. And if your community’s funds are in trouble, you might be facing a tax or fee hike to fix it. Chicago, for example, already approved a four-year property tax increase to boost police and fire funds that, in 2016, were only 25 percent and 23 percent funded, respectively.

So… in the lowest rated state, re: credit ratings, the idea is to take a bunch of underfunded stuff and make it a big ball of underfunded stuff?


How is this supposed to fix anything?

Let’s see if it starts making more sense:

Do you know how well-funded your community’s police and fire pension funds are? You can check the financial health of your police and fire pension funds outside of Chicago with a tool at
Do you know who invests those funds and how those investment decisions are made? There are fund managers and boards of fund trustees for every one of those 653 police and fire funds. And there are fees charged by all the managers for all those investments made.
It makes little sense to have hundreds of funds with hundreds of pension board trustees and hundreds of investment managers. Consolidation will create efficiencies and economies of scale. It also should streamline processes, significantly reduce costs and boost investment returns, improving many towns’ ability to finance the retirements promised to public safety workers.

Look, extra fees aren’t helping the situation.


That’s not what is hurting these funds.

The Illinois Municipal League has been pursuing consolidation options and there are five general approaches up for debate:

1. Consolidate the funds outside of Chicago into the Illinois Municipal Retirement Fund (IMRF), with the regular IMRF pension formula applying to all new employees hired after a certain date. (SB 3426). This approach likely would drive up the debt of the IMRF fund, which is among the state’s healthiest, making it tougher to get done.

2. Merge the police and firefighter pension funds into IMRF, keep the current setup of the funds, but adopt IMRF’s management of the funds. (SB 3425).

3. Consolidate investments only by transferring assets and investment authority from the current police and firefighter pension funds into IMRF, but maintain the local pension boards for each fund. (SB 3423). Obviously, this approach keeps hundreds of board bureaucracies going.

4. Consolidate all the police pension funds outside of Chicago into one downstate police pension fund, with one pension board to carry out the fund’s management, thereby eliminating the local pension boards. (SB 3422).

5. Consolidate the firefighter funds into one downstate firefighter pension fund, with one pension board to manage the fund. (SB 3424).

So, here’s a question: how are you gonna make sure the towns that behaved well are going to get appropriate credit for funding their plans well… and how are you gonna make sure the Harveys are appropriately dinged?

I will grant that IMRF is relatively well-funded, but they’ve been able to impose contribution rates on municipalities for decades… how are you going to make sure you apply funding requirements equitably once you consolidate all these funds?

And what if they all give different benefit levels?

I’m sure there is some actuary out there salivating over the prospect of a huge contract to figure out the appropriate initial accounting of such a situation, but I don’t see that consolidation is going to work very well if all the funds provide different benefit levels.

It sounds like the concept is to pile everything into one fund, and not to make distinctions… which sounds like the recipe for a giant disaster, as opposed to a bunch of little local disasters.

I have a thought: why not let the towns go bankrupt? Or perhaps, change the state constitution, and allow benefits get cut to manageable amounts?


Let me end this one with an amusing bit. (I have a sick sense of humor)

Illinois Democratic governor nominee mum on details for his proposed pension bailout tax hike – Da Tech Guy Blog

Last summer the Democratic-dominated Illinois General Assembly, overriding a veto from Republican governor Bruce Rauner, slugged Illinoisans with a 32 percent hike in the state income tax.

The Democratic nominee for governor, billionaire JB Pritzker, favors another tax increase. This phony, in a successful ploy to decrease property taxes on his Chicago mansion, purchased a neighboring mansion, disconnected its toilets, then in an assessment appeal, received his tax cut because the palace next door was “uninhabitable.”

Welcome to ILL-inios.

Illinois is broken and broke. It might not have the worst-funded public pension system among the states, but it’s so close to the bottom it doesn’t really matter.

Illinois House speaker–“speaker for life”–Michael Madigan (D-Chicago), with some Republican help, transformed Illinois’ pension system into a generous political reward in exchange for support from public-sector unions. Illinois’ budget dedicates 25 percent of spending on state worker pensions. In Wisconsin that amount is 16 percent. Okay, that doesn’t seem like much, but Wisconsin’s pension plan is 100 percent funded, Illinois is at a paltry 35 percent.

Bad times have arrived in Illinois–with worse times coming. For the last three years Illinois has suffered from negative population growth.

It’s hard to see how Illinois won’t be able to avoid some sort of default.
Pritzker favors a “temporary” income tax increase until a graduated tax rate is put in place. But for that to get enacted the state constitution must be amended. That requires three-fifths of both houses of the General Assembly to approve it and a majority of Illinois voters to go along. Even in blue Illinois those are tall hurdles, especially since a “Prtizker amendment” will be viewed, rightly, by voters as a pension bailout amendment.

Oooh, oooh, the state constitution must be amended to get this done?


…maybe a couple different things could be amended at the same time.

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