An Illinois State University Political Scientist says the Detroit Bankruptcy has implications for the Illinois Pension crisis. Both states have constitutional provisions supposedly preventing cuts to pension benefits. Professor Lane Crothers says Detroit efforts to appeal to the Federal Pension Benefit Guarantee Corporation as part of the bankruptcy could be attractive to other states with pension funding problems.
"I think the first principle that one needs to recognize is that all politicians in this situation are seeking someone else to handle the problem for them."
Crothers also says the struggle over state or federal control of the pension question for the Motor City could delay resolution of Illinois's pension situation.
"It looks like a giant pile of free money that you can dedicate to pensions and then focus on your own other state issues. And so, if in fact there is the possibility of shifting that pension burden elsewhere, I am quite certain that most states would seek to avail themselves of it as quickly as possible."
Crothers says at the very least, the Detroit situation complicates Illinois scenarios.
"Well there is lots of different reasons that processes get slowed down and delayed. For example the recent story that came out where the Civic Club of Chicago admits to have lobbied the ratings agents for the state bonds to try to get those rates to be higher, suggests there is enough shenanigans going on that everyone is using it as a lever and everybody is using whatever particular wedge they can."
Until now, the guaranty corporation, a federal agency has been used only for corporate pension systems that have gone belly up. But, legal wrangling has begun over whether Detroit's pension system should be a state or federal responsibility.
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