Illinois Justices Overturn State’s Landmark 2013 Pension Law

(Audio: An interview with Jeffrey Brown, University of Illinois Finance Professor and Director of the Center for Business & Public Policy.)

(Latest update Friday 5/8/15 5:45 PM)

The Illinois Supreme Court has thrown out a 2013 law that sought to fix the nation's worst government-employee pension crisis.  

The court decreed Friday that the measure former Gov. Pat Quinn signed into law violates the Illinois Constitution. It prohibits pension benefits from being "diminished or impaired.''  

Retired employees, labor unions and other groups had sought invalidation of the law adopted in response to a $111 billion shortfall in the amount of state money needed to cover all pension promises.  

Government lawyers argued that a financial emergency meant those protections could be disregarded, and that the state could exercise "police powers''.

The court rejected that argument, seven to zero. Justice Lloyd Karmeier writes there are plenty of less drastic solutions — like raising taxes or changing the repayment schedule for pension debt.

Karmeier writes that the law "was in no sense a last resort. Rather, it was an expedient to break a political stalemate."

The decision puts new Gov. Bruce Rauner and majority Democrats in the Legislature in a bind. They must now start from the beginning in crafting a workable pension-savings plan.

Impact and Next Steps

Jeffrey Brown, a University of Illinois Finance Professor and Director of the Center for Business & Public Policy, says that today’s pension ruling puts lawmakers back at square one.

“This decision is terrific news for pensioners, it is terrible news for tax payers, and it’s actually highly uncertain what it means for the university,” said Brown

The ruling means the state must fulfill its current pension promises and to do so Brown says that he doesn’t see any way for the government to avoid some sort of revenue increase.

Brown also says that the impact for the University of Illinois is mixed. While he expects the ruling to help with faculty recruitment and retention, he says the University may have to either pick up some employee pension costs or face further cuts in state funding. 

Senate President Praises Ruling

Illinois' Senate president says the state must act to adopt "true reforms'' now that the state Supreme Court threw out the pension overhaul.

Chicago Democrat John Cullerton called the court ruling a "victory'' for retirees and public employees who would have lost benefits under the law. But he says the victory must be "balanced against the grave  financial realities we will continue to face.''

Cullerton previously had expressed concern that the plan was unconstitutional.

Governor Calls For Constitutional Amendment

Gov. Bruce Rauner issued a statement Friday afternoon.  “The Supreme Court’s decision confirms that benefits earned cannot be reduced," he said.  "That’s fair and right, and why the governor long maintained that SB 1 is unconstitutional. What is now clear is that a Constitutional Amendment clarifying the distinction between currently earned benefits and future benefits not yet earned, which would allow the state to move forward on common-sense pension reforms, should be part of any solution.”

House Speaker Reaction

Democratic House Speaker Michael Madigan's spokesman says the speaker will consider the court's ruling as the General Assembly continues to work on a solution to the state's pension crisis.

U of I President Voices Concern

U of I President Robert Easter issued a statement of his own.  "Adequate funding of Illinois’ public pensions is of great concern to University of Illinois employees and annuitants," he said.  "Pensions are a key element in a competitive compensation program that is critical in recruiting and retaining faculty and staff. The U of I will continue to track this important issue and provide its input and expertise to those who must chart a new path to a sustainable pension system.

A coalition of public employee unions says it's ready to work with lawmakers to develop a "fair and constitutional solution."

Reaction from State University Pensioners and Pension Funds

A group representing current and retired state university and community college employees welcomed the Supreme Court's ruling against the pension reform law.

Linda Brookhart, Executive Director of the State University Annuitants Association said the ruling was a victory for everyone covered by a state pension, but also "a victory for anyone to whom the State of Illinois owes a debt".

"As the court noted", said Brookhart in a statement, "the underfunding of pension benefits has a long history that goes back well before the pension protection clause was adopted. The clause was intended to apply pressure on the legislature to meet its financial obligations to fund retirement benefits for employees who have spent their lives working for the state. That the State insisted on pursuring its policy of under-funding in the 44 years since the clause was adopted cannot now serve as an excuse for the State to renege on its obligation to pay pensions".

The administrator of the State University Retirement System (SURS) says they're reviewing the Supreme Court decision. But SURS executive director W. Bryan Lewis says they do not plan any changes in their administration of the pension fund.

"The decision today will not alter the administration of SURS as no changes had been implemented from the pension reform law, due to the stay ordered by Judge Belz of the Sangamon County Circuit Court", said Lewis in a statement.

Union Reaction
 
Illinois AFL-CIO president Michael Carrigan issued a statement on behalf of a coalition of unions after the state Supreme Court ruling Friday.

The unions were among those who challenged the legislation in court.  Carrigan says the group is thankful for the court's decision to protect the "hard-earned life savings'' of retirees.

Reaction from State Lawmakers

Senate democrats had previously worked to create a pension overhaul that involved major negotiations with public employee unions, whose pensions were at stake. But in the end, the plan that passed was not negotiated by unions, but bitterly fought.

New senator Scott Bennett was just appointed to office in January, but he says he'd like to go back to the negotiating table for the next pension overhaul.

"The goal would be, I think, that you get everybody that would be affected in the room to bring their suggestions in," said Bennett. “We all recognize we have to save the state money, but you also have to keep the promises you made to retirees.”

Bennett's district encompasses thousands of public employees, including the University of Illinois, a couple community colleges and the Danville prison.

Representative Carol Ammons also wants to revisit negotiations.

“We must look at how we are funding our pensions, we need to look at fair ways to work with our unions and other interested parties, and we have to protect very vital community services in this budget cycle and future ones,” said Ammons.  

Ammons says does not believe there is a fair way to address the pension obligations without discussing raising revenues.  

Democratic leaders have long favored a so-called "cost shift," saying downstate school districts are getting a "free lunch" because Chicago taxpayers pay into both local and state pension plans.

Republican Representative David McSweeney, of Barrington Hills, says that he worries House Speaker Michael Madigan will propose a cost shift again. McSweeney supports Governor Bruce Rauner's calls for a two-year property tax freeze statewide.

"The Speaker obviously is a very serious person and knows how to get things done. My view is that we need to stop the cost shift. It's the wrong answer that will result in higher property taxes. ... That's why I'm going to continue to lead the fight against it because I think it's the wrong thing for Illinois taxpayers," said McSweeney. 

Reaction from the Campus Faculty Association

Bruce Rosenstock, President of the University’s Campus Faculty Association supports the decision. The Campus Faculty Association lobbied hard against the passing of the 2013 pension law. 

“We’re thrilled, we’re totally thrilled. And we welcome the ruling and we believe it is the best ruling and the fairest ruling that they could’ve advanced. This is a victory for the faculty here, it’s a victory for all state employees,” said Rosenstock