State Supreme Court strikes down state’s pension-reform law

From Illinois Business Journal news services

CHICAGO – The Illinois Supreme Court today struck down Senate Bill 1, the pension reform law enacted in 2013 by former Gov. Pat Quinn, prompting questions and concerns from state leaders who now must figure out how to fix a budget problem that has grown exponentially worse.

The court essentially said that a plan to reduce retirement benefits for teachers and state workers is unconstitutional.

Gov. Bruce Rauner’s spokesman Lance Trover issued a statement indicating that a constitutional amendment is in order.

“The Supreme Court’s decision confirms that benefits earned cannot be reduced. 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.”

The State Universities Annuitants Association filed the case on behalf of retired and current public university and community college employees across Illinois.

“SURS member Henry Green introduced the Pension Clause to the 1970 Constitution to ‘guarantee (pension) rights.’ We are grateful that the Supreme Court recognized and affirmed those Constitutional protections,” said Linda Brookhart, executive director of the association. She released a statement in response to the 7-0 ruling declaring Public Act 98-599 unconstitutional.

“This is a victory for retired and current members of the State Universities Retirement System and the other public employee retirement systems. But, it is more than that. It is a victory for anyone to whom the State of Illinois owes a debt. As the Court noted in paragraph 85, ‘Today, it is nullification of the right to retirement benefits. Tomorrow it could be a renunciation of the duty to repay state obligations.’ Indeed, in oral argument we specifically noted that Illinois’ $50 billion general revenue bond market could be put in jeopardy. And the court took it a step further, ‘If financial markets were rational, this prospect would not buoy our economy, it would ruin it,'” the statement said.

“As the court noted, 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 pursuing 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.

“Our attorney stated in oral argument that this was akin to the Lizzie Borden defense – ‘I killed my parents. Have mercy on me. I’m an orphan,’ a defense which every grade school child recognizes as preposterous. We are grateful that the Supreme Court did not buy into this defense,” the statement said.

SUAA is the only advocacy organization that focuses solely on preserving pension and health-care benefits for the public universities’ and community colleges’ employees – both active and retirees – their spouses and survivors and SURS members who live out of state.

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Reaction to the ruling came throughout the day Friday.

Said Illinois Policy Institute CEO John Tillman:

“Illinois’ political elite have devised a pension scheme that is excessive, bloated, corrupted and was never affordable for Illinois taxpayers. While Senate Bill 1 did not solve the pension crisis, the legislation at least took a first step toward achieving parity between government workers who receive pensions, and the taxpayers who fund them.

“But with today’s ruling, the state’s high court says that state government’s No. 1 financial responsibility is paying the retirement of people who no longer work for state government. Pension costs are first in line, ahead of funding for public safety, education, helping the poor and disadvantaged, and all core services provided by state government.

“The court’s ruling suggested that raising taxes is a way to pay for pensions. Raising taxes will not fix a broken system. The pension system is beyond repair, and there will never be enough money to fund it. Case in point: The 2011 tax increase. That tax increase generated more than $31 billion, and 90 cents out of every $1 collected from the tax increase went to pensions. Yet it still was not enough to make the pension system whole.

“Ultimately, the only way Illinois can break the cycle of siphoning more and more tax dollars and sacrificing more and more state programs to pay for pensions is to follow the lead of the private sector and move new employees to a 401(k)-style system. In the short term, it will not be surprising to see calls to change the state constitution or allow Illinois to file for bankruptcy.”

Here are some other reactions from around the state:

– State Sen. Bill Haine, D-Alton: “The court struck a blow in protecting workers and upholding our constitution. The plan it rightfully deemed unconstitutional clearly violated the plain language of the Illinois Constitution while also breaking our promise to retirees. I opposed this unilaterally unfair proposal from the beginning. Maybe now we can start over and negotiate in a way that respects both our constitution and our workers and retirees.”

– Jim Durkin, House Republican Leader: “I respect the Illinois Supreme Court, but disagree with the ruling. I am prepared to continue working on meaningful legislative reforms to save our public pension systems.”

– Ty Fahner, president, Civic Committee of The Commercial Club of Chicago: “There are no winners today. If there’s any good news, it’s that Chicago and Illinois are resilient, and we’ve responded to great challenges before. The Civic Committee stands ready to work with Governor Rauner and the General Assembly to craft a bipartisan solution to rescue the state from financial collapse and restore Illinois as a compassionate and competitive state.”

– State Sen. Kwame Raoul, D-Chicago 13th: “Today, the state’s highest court affirmed that, as in all matters, we are bound by the plain language of the Illinois Constitution on the question of public employee benefits. This is not surprising news, nor is it an unwelcome reminder; constitutional limits protect us all – especially in times of fiscal crisis. It is, instead, a call to go back to the negotiating table and get serious about the range of options available to us to repair the state’s finances and meet its obligations in ways consistent with the constitution, sustainable for the future and fair to all concerned. A number of approaches remain open to us, but the Court has made clear that the constitution’s prohibition on unilateral modifications applies to the lifetime of the contract, not merely to benefits already accrued.”

– State Sen. Gary Forby, D-Benton: “I made a promise to the thousands of union members in my district that I would not support a pension reform plan that punishes working families. We anticipated the Supreme Court’s decision. Now is the time to give labor a seat at the negotiating table so we can strike a fair balance between finding financial solvency and honoring our promises to workers.”

– State Rep. Elaine Nekritz, D-Northbrook: “Our goal from the beginning of our work on pension reform has been to strike a very careful, very important balance between protecting the hard-earned investments of state workers and retirees and the equally important investments of all taxpayers in education, human and social services, health care and other vital state priorities. In its ruling today, the Supreme Court struck down not only the law but the core of that balance. Now our already dire pension problem will get that much worse and our options in striking that balance are limited. Our path forward from here is now much more difficult, and every direction will be more painful than the balance we struck in Senate Bill 1.”

 

 

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