The Wall Street Journal editorial page this morning explores why Chicago’s debt has been downgraded to “junk” status, reviewing the unsustainable structure of its public school teacher pensions, which are only the one small aspect of Illinois’s public sector pension crisis. But the precipitating event that caused Moody’s to downgrade Chicago’s debt to junk was the decision of the Illinois Supreme Court last week that the state may not alter terms of public pensions because it violates the Constitution’s “contracts clause.”
The contracts clause says that “No State shall . . . pass any Law impairing the Obligation of Contracts,” and state pension promises are contracts. Easy case—even original intent, no? Not so fast.
Anyone remember Home Building and Loan v. Blaisdell from 1934? That was the U.S. Supreme Court case that blessed the moves of the Minnesota state legislature to grant relief to distressed farmers by changing the terms of their mortgage contracts. It was one of the key New Deal era cases that eroded protection of individual rights (what about the rights and interests of the bank depositors—often many of them the same kind of people who had distressed loans—to get their money back from a bank that would now likely fail in the aftermath of Blaisdell?) The Supreme Court had to do some fancy footwork to get around the obvious reading of the contracts clause in that case. In particular, this:
The economic interests of the State may justify the exercise of its continuing and dominant protective power notwithstanding interference with contracts. . . But it does not follow that conditions may not arise in which a temporary restraint of enforcement may be consistent with the spirit and purpose of the constitutional provision, and thus be found to be within the range of the reserved power of the State to protect the vital interests of the community. It cannot be maintained that the constitutional prohibition should be so construed as to prevent limited and temporary interpositions with respect to the enforcement of contracts if made necessary by a great public calamity such as fire, flood, or earthquake.
Well, rapacious public employee unions and the compliant politicians who gave away the store to them in Illinois certainly qualify as a “great public calamity” like a flood or earthquake, and certainly the fiscal health of Illinois and Chicago is a “vital interest of the community.”
I just knew those old New Deal cases might come in handy some day! It will be interesting to see how liberals respond if a federal court overrules the Illinois Supreme Court on appeal, pointing to the “enlightened” precedents of the New Deal era. Funny thing when you expand state power: it can be used against liberal interests too! If not, another solution would be for Chicago to merge with Detroit, and for Illinois to have a “sister-state” relationship with Greece. Just remember the maxim: promises that can’t be kept, won’t be kept.
Of course, the federal courts could (but won’t) rule that Blaisdell was incorrectly decided. There was a lot of nonsense and bad reasoning in that opinion.