More on why pension bankruptcy is not an option in Illinois.

Glen Brown

-By Glen Brown

Even though the State’s liabilities continue to increase and the State of Illinois has a cash-flow problem (and we know the reasons why), bankruptcy is not an option. Why? Because bankruptcy would destroy the State of Illinois’ credit rating completely and its ability to borrow at affordable interest rates; the State’s budgets would be slashed; bond sales would plunge, and the bond market would destabilize. Most importantly, the U.S. Constitution prohibits any state from declaring bankruptcy or “impairing the obligation of contracts” (Article 1, Sec. 10).

As stated by the Center on Budget and Policy Priorities: “Various pundits [who suggest] enacting federal legislation that would allow states to declare bankruptcy, potentially enabling them to default on their bonds, pay their vendors less than they owed, and abrogate or modify union contracts [are idiots]. Such a provision could do considerable damage, and the necessity for it has not been proven.

“States suffer from ‘structural deficits’ or the failure of revenues to grow as quickly as the cost of services… Structural deficits stem largely from out-of-date tax systems, coupled with costs that rise faster than the economy in areas such as health care. Fixing these structural problems would help states and localities balance their operating budgets without resorting to [desperate measures]… It is far more constructive to focus on fixing these basics of state and local finance than to proclaim a crisis based on exaggerations of imminent threats.

“It is unwise to encourage states to abrogate their responsibilities by enacting a bankruptcy statute. States have adequate tools and means to meet their obligations… Confusion between short-term cyclical deficits and debt, pensions and retiree insurance – and the overstatement of the magnitude of the latter set of problems – draw attention away from the need to modernize state and local budget and revenue systems and address structural problems that have built up over time in these systems.”

Glen’s post of Eric Madiar discussing bankruptcy is on his blog.

4 Replies to “More on why pension bankruptcy is not an option in Illinois.”

  1. Dear Fred,
    I was thinking about active workers losing their pension rights while walking this morning, trying to come up with a way to help them keep their benefits. I am no Constitutional scholar or contract lawyer, but perhaps some of these ideas might help the situation.

    The problem for workers, (if Mr. Madir is correct), is that the union can give away their rights. Acceptance of new terms are at the discretion of the union negotiating team and leadership, not the worker. It becomes a group choice rather than an individual choice.

    Regardless of personal feelings about the matter, the worker is considered to have accepted the negotiated agreement by virtue of membership in the union. Union leadership can sell out a worker’s individual rights any time they choose to protect their own interests and position. Their refusal to make any promise to you and Glen indicates that this thought has already crossed their minds.

    If unions (I.E.A. In particular) refuse to promise members that pension rights will not be given away, What can members do to protect themselves? I think there are a few things active members could do to turn the tables on those who would sell workers out.

    I noticed that the discussion about using contract principles to modify future benefits always discussed union members. What about employees who the union negotiates for that are not union members?

    Unions represent everyone who is employed when negotiating a new contract, not just members. If a union negotiates non-member’s pension rights away that non-member did not individually agree to or accept anything. For them it is a coerced choice not allowed according to the Illinois Supreme Court.

    Members need to tell their union leadership the following. Either you provide an iron clad promise not to negotiate any pension reductions, or we resign from the union to protect our benefits. We refuse to voluntarily pay fair share or do anything else that might indicate agreement with what you do.

    Here is the “ironclad” part: If the union wants to promise to protect pension benefits, this might be a good way to “guarantee” that promise:

    All union leadership and members of the negotiating team submit a dated conditional letter of resignation not only from their elected positions, but from the union itself. The resignation only becomes effective if pension modifications become ANY PART of formal or informal contract discussions with management.

    Not only will elected positions and union membership be forfeited by these individuals, all pay received from the union and cost of benefits provided by the union must be repaid beginning from the date of the resignation letter. Put leadership interests on the side of protecting member pension rights.

    If union leadership refuses to submit these letters, all Tier I members should immediately resign to protect their pension rights. Federal labor law is not going away, so why not use it to establish coercion that voids any contract principles argument?

    It might be a way to stop this pension theft once and for all. Any union leader or negotiator who refuses to give that resignation letter shouldn’t be speaking for the membership anyway. It is the member’s union, not the leadership’s union. Workers may well need this “poison pill” to protect themselves from their own “leadership”.

  2. I don’t know about IEA but I sure wouldn’t worry about IFT or AFSCME. I think Rauner will push the raise thing and it will get slapped down. Then worry about a union. My guess it would be Rahm and SEIU 73 as a test case……Glen is spot on here.On medical I would ask Durbin why Texas gets 60 % rate on Medicaid why Illinois gets just 50.There is a billion right there.

    1. Agreed. Truth is, I doubt the We Are One coalition would bargain, but the fact that they won’t promise not to is troublesome. SEIU? You are right as rain.

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