Editorial: Get beyond wishful thinking to solve pension mess

Brilliant legal reasoning or wishful thinking?

We’d like to believe the first, but the courts and bond rating agencies keep smelling out the second, so maybe it’s time Chicago and Illinois did a better job of hedging their bets.

On Wednesday, Moody’s Investor Service dropped the Chicago Public Schools and Chicago Park District’s bond ratings to junk status, one day after doing the same for the City of Chicago.

Government services, grants and programs must be cut. No getting around it now. And new revenue must be raised by means of higher taxes — that despised last resort — unless somebody’s got a better idea. We haven’t heard one yet.

Serious consideration also should be given, as Gov. Bruce Rauner has urged, to that ultimate hedger of bets, a state law allowing municipalities in the worst financial shape to declare bankruptcy.

What Chicago and Illinois can’t continue to do is sit tight and allow pension debt to mount while putting most of their chips on long-term solutions that may not pass constitutional muster. In the 2½ years since the Legislature passed the 2013 pension reform bill that the Illinois Supreme Court shot down Friday, the state’s pension debt has grown from $97.5 billion to more than $104 billion.

State budget-makers should assume no pension reform savings for fiscal year 2016 and make the state’s full scheduled payment of $6 billion to $7 billion, just as they did for 2015.

Any new pension funding bills should be debt-neutral. If, for instance, the state, city or Chicago Public Schools seek to re-amortize their debt, stretching out payments over many more years, a reliable revenue source should be attached. For that matter, let’s have no more backloading of new pension funding schedules, pushing the biggest annual payments far off into the future.

The future, we have learned, has a way of becoming the present.

On the state level, Senate President John Cullerton again is pushing a plan to shrink Illinois’ unfunded pension burden in a way that he believes would win approval from the Illinois Supreme Court. Essentially, his plan would offer workers slightly lower annual cost-of-living raises if they wanted those pay bumps to continue to count toward their retirement benefits.

Cullerton’s plan, based on legal precedents that say employers have reasonable leeway in setting pay raises, could be brilliant. But it will surely be challenged in court, just as the 2013 pension reform law was, and if upheld it will be a partial solution at best. Cullerton estimates his plan would save the state about $1 billion a year.

Far more shaky is Gov. Rauner’s proposal that veteran state workers be moved into a lower-paying pension plan created for new workers, though keeping whatever benefits they had already earned. Rauner insists the state has authority to do this now, but he’s pushing for a constitutional amendment to eliminate any doubt.

Few experts outside Rauner’s own camp, however, believe this scheme would be held constitutional, especially after Friday’s Supreme Court ruling that pension benefits cannot be “diminished or impaired.” And there is little chance such a constitutional amendment would be approved by the Legislature.

We’re told, though, that Rauner also is looking at a clever scheme that has bounced around Springfield for a few years to offer workers partial “voluntary buyouts” of their pensions as a way of reducing the state’s pension debt, at least marginally. An employee would be offered a chance to take an early lump sum from his future pension in return for agreeing to lower cost-of-living increases in his benefit.

Take, for example, a 45-year-old state worker who has a child going off to college and needs a way to pay for it. The same employee, as it happens, could save the State of Illinois $200,000 over time if he were to agree to accept lower cost-of-living increases to his future pension benefits. The state, under a voluntary buyout program, might offer the employee half of that projected savings, $100,000, if he took the deal. The employee could send his kid to college and the state would save $100,000.

One obvious weakness of this plan is that nobody can say how many employees would take advantage of it and, consequently, how much money would be saved.

But it is a creative solution. It is almost certainly constitutional — nobody is putting a gun to anybody’s head. And it is something lawmakers could set up rather quickly.

The road to pension reform, both in Springfield and locally, may not be one constitutionally untested grand solution. It likely will also include many practical smaller solutions.