Illinois Pension Law Greeted with Court Skepticism
By Rick Pearson and Bob Secter and Monique Garcia
A lawyer for the state faced skeptical questioning from Illinois Supreme Court justices Wednesday as she defended a landmark pension reform law by arguing that benefit cuts to public workers were a response to a financial emergency tied to the Great Recession.
But lawyers for public employee unions reminded the court that the Illinois Constitution barred changes that "diminish or impair" pension benefits, adding that if an emergency exists it's the state's fault for decades of poor financial management.
After nearly an hour of legal arguments before the state's highest court, there was no indication of how or when the seven justices would rule. But the eventual decision will have widespread ramifications for state taxpayers as well as those in Chicago and towns throughout Illinois struggling to cope with growing pension debts that are straining government budgets.
"We do have a huge challenge before us, regardless of how this case is resolved," said state Sen. Kwame Raoul, D-Chicago, who watched the arguments unfold from the spectator section of the ornate courtroom. "But I think the indications are that ... we'll be back to the negotiation table."
At issue is a controversial law approved by the legislature and signed in December 2013 by then-Democratic Gov. Pat Quinn aimed at gradually reducing Illinois' worst-in-the-nation, near-$105 billion unfunded public employee pension liability.
The law, which has yet to be implemented pending the outcome of a legal challenge from unions and retirees, sought to curb automatic and compounded annual cost-of-living increases for retirees, extend retirement ages for current state workers and limit the amount of salary used to figure pension benefits.
In November, the law was struck down by Sangamon County Circuit Judge John Belz, who ruled that state constitutional protections to pension benefits were "absolute and without exception," prompting the state to appeal to the high court.
On Wednesday, Solicitor General Carolyn Shapiro, arguing the state's appeal, came under intense questioning from the court's three Republican justices as she argued that the government's inherent police powers to act in an emergency trump the state constitution's pension guarantees.
For decades, governors and state lawmakers failed to adequately provide the employer's share of funding for five public employee pension systems covering most state workers as well as suburban and downstate teachers. As a result, those retirement systems were already on shaky financial ground when the recession struck in 2008.
State spending on pensions amounts to almost a quarter of every tax dollar that goes into the state's general funds bank account. If the court upholds the law, savings could be factored into future budgets.
Shapiro also contended the pension systems were pushed over the edge by cost-of-living adjustments that exceeded inflation. She said it would be "a new and unheard of absolute right" to read pension protection language in the constitution as so overarching as to pre-empt any changes in an emergency.
"It is the state's solemn responsibility to protect the public interest, the public health, safety and welfare in extreme situations," Shapiro said.
Justice Robert Thomas, a Republican from Wheaton, noted the state's pension problems were "arguably" created by the state itself. He asked Shapiro whether a ruling to uphold the law would allow the state to create a financial emergency, then attempt to resolve it by invoking its police powers to change pension benefits.
Thomas also asked Shapiro if it was "incongruous" for the state to allow the Illinois income tax rate to roll back 25 percent on Jan. 1, costing the treasury more than $4 billion a year, while at the same time claiming a financial emergency.
Shapiro, however, said such a question warrants sending the case back to Belz to determine whether a true emergency existed that would justify the state invoking extraordinary powers to reduce pension costs.
Aaron Maduff, an attorney representing public workers and retirees, told justices Shapiro's position was akin to: "I killed my parents. Have mercy on me. I'm an orphan."
Former Illinois Appellate Judge Gino DiVito, another attorney for groups opposing the law, argued the pension protection language in the constitution was indeed absolute.
"This is a case about a constitutional provision -- one that is explicit, clear and unambiguous and is subject to no stated exception," DiVito said.
The sharpest questioning of Shapiro came from Thomas. At one point, he asked her why the state claimed it wanted an expedited hearing so that the court could rule before lawmakers' scheduled May 31 adjournment deadline, then asked for the case to be sent back to Belz where it would face months of hearings and another likely appeal.
A court ruling has implications on future state budgets. New Republican Gov. Bruce Rauner has vowed to seek changes that go far beyond the law that is under review by the state's highest court.
Rauner said current workers should get the benefits they have earned so far, but going forward shift into a pension plan created for newer workers that would provide lower benefits. Rauner would not force police and fire employees to the lower benefit plan, however.
Rauner has built $2.2 billion worth of savings into his 2016 budget proposal based on such a shift. But critics of Rauner's plan contend that if he were to somehow get it through the Democrat-controlled General Assembly, it undoubtedly would face lengthy litigation over its constitutionality.
Besides the impact on the state, a court decision is being anxiously awaited by local officials across Illinois, including Chicago Mayor Rahm Emanuel, who is in a re-election battle with Jesus "Chuy" Garcia, a Cook County commissioner. Garcia is backed by the Chicago Teachers Union, which opposes the pension changes.
Whether Chicago's next mayor is Emanuel or Garcia, he will face growing pension obligations that are sure to complicate the city's own budget problems. Emanuel has negotiated money-saving pension changes with some -- but not all -- city employee unions, but the legal fate of those revisions could be impacted by how the Illinois Supreme Court eventually rules in the state pension fund case.
Opponents of the pension law have expressed optimism about a court outcome since justices ruled last summer that an effort to make state retirees pay more for their state-subsidized health care violated the constitution's pension protection clause.
In that case, Justice Charles Freeman wrote that the constitutional guarantee was "aimed at protecting the right to receive the promised retirement benefits, not the adequacy of the funding to pay for them."
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