Making Sausage No One Wants to Eat: Options for Restructuring Illinois’s Pension Debt

The State of Illinois currently owes nearly $100 billion in unfunded public pension liabilities, and it is projected that nearly twenty percent of the State’s spending in the current fiscal year will go to pension obligations. While the funding shortfalls are primarily attributable to decades of the General Assembly’s irresponsibility, the cause of the problem is secondary. Illinois’s public pension systems as currently structured are unsustainable.This Note analyzes three proposals for restructuring Illinois’s pension debt and offers a recommendation for the best method of approaching the problem. First, the Note examines proposals to amend the federal bankruptcy code to allow states to file bankruptcy and concludes that the costs of state bankruptcy outweigh the benefits. Second, it analyzes the political solutions available under current Illinois law and explains the potential constitutional barriers to reform. Third, it presents a novel approach that involves establishing a State Public Pension Funding Commission to work out state pension debts. The Commission, created at the federal level, would be able to navigate state and federal constitutional difficulties while preventing the State’s default or a federal bailout. Ultimately, this Note recommends a combination of state legislative reform—including increasing the retirement age and decreasing cost-of-living adjustments—and implementation of a federal public pension funding commission to take over if state reforms are not enacted or are unsuccessful.

The full text of this Note is available to download as a PDF.