Chicago Area Pensions at Risk without Bankruptcy
Could Bankruptcy Protect the Pensions of Small-Town Illinois Employees?
Personal bankruptcy can have a significant impact on the financial life of an individual and her family. At the same time, however, different types of bankruptcy can also have a tremendous impact upon consumers in Oak Park and other areas around Chicago. As small towns just outside this massive city find themselves unable to meet the high costs of employee pensions, bankruptcy protection seems to be the only solution, according to a recent article in Bloomberg Businessweek. Will towns like Rockford be permitted to seek court protection in order to save the pensions of police officers, firefighters, and other local government employees?
According to Larry Morrissey, the mayor of Rockford, bankruptcy “might save his city of 151,000 from ‘the slow death’ of pension costs.” He explains that “bankruptcy is designed to avert that kind of a slow, perpetual indentured servitude for individuals and corporations,” and he argues that cities shouldn’t be treated any differently. Yet, Illinois cities are in fact treated much differently from individuals when it comes to filing for bankruptcy protection.
As the Bloomberg Businessweek article explains, Illinois municipalities aren’t permitted to file for bankruptcy protection “without legislative approval.” Given the increasing “alarm over mounting shortfalls among the 650 pensions in large and small towns outside Chicago,” will the legislature sympathize with Illinois towns that are drenched in pension-related debt?
Pension Debt in Illinois
Scott Eisenhauer, the mayor of Danville, Illinois, emphasized that a number of Illinois towns soon won’t be able to borrow money due to their ever-increasing pension debts. Indeed, Eisenhauer predicted that, unless something changes, many smaller cities won’t be able to “financially recover” from their debts.
Bloomberg tracks a number of states’ borrowing rates across the country, and Illinois is one of them. According to Bloomberg, the state of Illinois “pays more to borrow than any of the 17 states tracked.” And currently, Illinois is facing “a $100 billion pension liability,” which is “the largest in the U.S.”
In short, pensions aren’t funded like they used to be in Illinois. By 2012, police pensions in towns outside Chicago were only “56 percent funded in 2012.” That’s a significant drop from 1999, a year in which those same pensions were 76 percent funded. Firefighter pensions have dropped even more significantly, from 78 percent funded in 1999 to only 55 percent funded in 2012. Morrissey insists that the only possible solutions are drastic cuts in benefits—which no one wants—or municipal bankruptcy.
Like Illinois, approximately two-thirds of all states in the country either “prohibit or place tight restrictions on municipal bankruptcy.” Indeed, only 12 states currently permit municipal bankruptcy. Some commentators believe that it’s the state’s job to address debt problems before the need for municipal bankruptcy ever arises. But if many Illinois towns in the Chicago region have reached a point of no return, can bankruptcy become a viable option to protect pensions? Only time will tell, the article insists.
Bankruptcy law is extremely complicated, and there are many different laws that apply to consumer and municipal bankruptcy. If you have questions about bankruptcy protection or your rights as an Illinois consumer, contact an experienced Chicago bankruptcy attorney at the Emerson Law Firm. We can take a look at your case and answer your questions today.
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