Tribune Editorial--The suicide pacts

We have such sweet dreams, here in metropolitan Chicago and across Illinois. And we have such noble plans for fulfilling them! Though the needs be many, by golly, we'll extend history's march to betterment: Through our governments and schools, we will educate our children, and care for the helpless, and expand our universities, and provide for the aged, and put people to work, and protect the public's safety, and …

And, as our public finances stand today — neck-deep in debt and future obligations we have no way to meet — we'll likely fail to deliver on those promises. Each one and a hundred more are on the bubble — a moist, overinflated bubble that is wobbling and ready to implode.

Tens of billions of dollars that might pay for these priorities already are committed to future retirement benefits of public employees. Unless we curb that burden going forward, we will bequeath to next-generation Illinoisans an infrastructure of services and facilities that is grossly inferior to what our grandparents and parents bequeathed to us.

They knew they'd be gone

Beware boring but momentous changes that catch no one's attention:

Over the past four decades, many of the folks who run our state and local governments signed suicide pacts — spectacularly unaffordable retirement deals — with public employee unions. These pacts have committed so many of today's and tomorrow's dollars to so many pension and retiree health benefits that not enough money is left to fund everything else. Hence the suicide pact analogy: Our governments — our taxpayers, that is — cannot realistically cover all of these exorbitant retirement promises. And our public workers cannot realistically expect that their too-generous benefits will survive as written on paper.

Often when these retirement deals were cut, the public officials and the union leaders were, in effect, seated on the same side of the negotiating table holding hands. The politicians essentially pledged future tax dollars in return for the cooperation of public sector unions. Because those pension and health obligations didn't legally have to be funded immediately, politicians could redirect the money to other purposes. The unions don't like to admit it, but they didn't complain much about this chronic underfunding: Their members benefited from the higher government spending that skipping payments into pension systems enabled.

The Republicans and Democrats who cut these deals were playing with other people's money. The pols knew they were creating somebody else's problem. When the devastating costs came due, they would be gone, out of office, retired.

Expect courts eventually to decide whether, in the words of New York University law professor Richard Epstein, officials "violated all their duties of loyalty to the public at large when they entered into deals from which union pension funds got all the upside and everyone else got the downside." If judges find what constitutes the fiduciary breach known as self-dealing, they could undo the suicide pacts.

For now Illinois is stuck with metastasizing pension and retiree health costs. In the future those costs will even more boldly crowd out spending on education and other needs. Note that no state's retirement system is as underfunded — as unready to face that future — as is Illinois'. The city of Chicago and many other locales also are in desperate shape.

Today, then, Illinois government is a massive retirement system that, during work hours, also delivers services.

Right in front of us

In 1986, state budget director Robert Mandeville told the Tribune that fully funding the pension system "doesn't make sense" because earnings on assets would more than cover any shortfall in government contributions. That thinking justified several pension holidays and invited the present funding debacle.

This page complained when then-Gov. James Thompson, his successors and state legislators gave pension sweeteners to public workers. One 1991 editorial reported that after years of pension fund erosion, Thompson and lawmakers had agreed to a new funding formula to put the retirement plans on firmer footing. Then they simply ignored the plan, failed to appropriate enough money to back up their pledge — and also increased benefits for retired state workers. To quote the editorial: "Thompson, meanwhile, got a deal that doubled his own pension."

To imagine the future of an Illinois caught between today's rising indebtedness and tomorrow's unmeetable obligations, look east to the self-inflicted debt crises of governments in Europe. Predicaments vary, but as a group they overspent and overpromised. Northwestern University finance specialist Joshua Rauh warns that Illinois pension funds could pay out their last dollar in eight years.

In Chicago, this year's candidates for mayor won't be able to dodge the deterioration of city pension funds on Mayor Richard M. Daley's watch. In a powerful two-part series that appeared Nov. 17-18, the Tribune's Jason Grotto explained how shortsighted political decisions have drained billions of dollars, threatened the retirements of workers by the tens of thousands — and left taxpayers at risk.

Let's have it out

We'll soon know whether Illinois House Speaker Michael Madigan and Senate President John Cullerton want to rescue the pension system or preside over its collapse. If it's the former, they'll immediately reject Gov. Pat Quinn's insistence that they approve yet another $4 billion in borrowing — compounding debt with still more debt — to cover this year's routine pension contribution.

Earlier this year, lawmakers voted to reduce benefits for future state and municipal employees. They may vote this week to include future police and firefighters in those curbs. But reducing benefits only for employees who have not yet been hired won't be enough.

Madigan, Cullerton and Quinn need to unwind the unsustainable retirement deals for current employees. Some Democratic leaders still believe — against the advice of five world-class Chicago law firms — that cutting retirement benefits that today's employees earn going forward would violate the state constitution. Illinois is too broke to keep hiding from that fight. Let's cut future benefits and have it out in court.

Yesterday's state and local officials never should have signed these suicide pacts. Today's officials have to be the life-savers — for taxpayers and imperiled public employees alike. If Illinois governments don't rein in retirement promises, that monster will devour them.

http://www.chicagotribune.com/news/opinion/editorials/ct-edit-pension-20101127,0,4277227.story