Supreme Court Strikes Down Chicago’s Plan To Fix Its Pensions
The Illinois Supreme Court ruled unanimously, 5-0, Thursday to strike down a law that would overhaul two of Chicago’s financially-struggling pension systems. Two justices did not take part in the decision.
The ruling marks the second time in two years that Illinois justices have handed labor unions a major victory on the issue of pension reform. Justices have rejected plans passed by Illinois lawmakers and former Gov. Pat Quinn that were designed to address the underfunded pension accounts by reducing retirement benefits for public employees. In 2015, the Illinois justices struck down the state’s attempt to change pension benefits for state employees.
In explaining the court’s decision, Justice Mary Jane Theis lectured both the State of Illinois and the City of Chicago for not properly funding the pension accounts, even though the governments have known it was a responsibility since the Constitution was updated in 1970.
“The General Assembly and the City have been on notice since the ratification of the 1970 Constitution that the benefits of membership must be paid in full, and that they must be paid without diminishing or impairing them,” Theis wrote.
The changes to the two city funds, which were pushed by Chicago Mayor Rahm Emanuel and approved by state lawmakers in 2014, would have scaled back retirement benefits and required City Hall to pump more money into the troubled pension funds for laborers and municipal workers. In court filings, attorneys for the City of Chicago argued the municipal fund has just 37 percent of the money it will need to pay those retirement benefits in the future, while the fund for laborers will have just over half the money it will need.
Attorneys have said the funds will run out of money in 13 years. Corporation Counsel Stephen Patton told justices that if they upheld the law, they would ensure the retirement benefits for city employees would continue to exist, therefore guaranteeing employees will even have a retirement on which to rely.
But Justice Theis wrote that argument does not hold constitutional water.
“Although we recognize that fiscal soundness is important, the General Assembly may not utilize an unconstitutional method to achieve that end,” Theis wrote.
Supreme Court Justice Lloyd Karmeier wrote a similar statement in rejecting arguments from attorneys representing the State of Illinois, who tried to defend a different law that would have reduced the pension benefits of employees of the State of Illinois. “Crisis is not an excuse to abandon the rule of law. It is a summons to defend it,” Karmeier wrote in that previous decision.
The challenge for those seeking to reduce the benefits of public employees as a way of ensuring they will still exist has been a passage unique to Illinois’ state constitution. It states pension benefits “shall not be diminished or impaired.”
Attorneys for the labor unions have successfully argued that it’s the city’s fault the pension funds face such drastic debt because the city didn’t properly fund the pension accounts for years. Union attorneys told justices it’s not right to reduce benefits of employees when it was the city that didn’t plan for the financial hardships it was creating by not fully funding the pensions.
While the Supreme Court decision affects the underfunded pension accounts for Chicago’s municipal employees and laborers, the retirement funds for the city’s police and firefighters are also in financial trouble. A separate plan to address the underfunded retirement accounts of Chicago police officers and firefighters has been sitting in legislative limbo for since May 2015. Even though Democratic lawmakers approved the measure over Republican objections, Senate President John Cullerton has not yet sent it to Gov. Bruce Rauner for his approval or rejection.
Rauner has altered his position on the proposal, initially criticizing it as allowing the city to kick the can down the road and further delay fully funding the two pension funds. Rauner later said he’s fine with the bill if Democrats would agree to a deal on other policy changes that Rauner’s been pushing. The majority of Democrats have continually rejected Rauner’s proposals.
Members of Emanuel’s administration have warned that property taxes would skyrocket if no action is taken to the police and fire pension funds. Yet part of the plan approved for Chicago’s police and fire pensions calls for sending proceeds earned from a Chicago casino toward paying for the retirement benefits of police and firefighters, even though there is no casino in Chicago and lawmakers have not authorized the city to build one.
Tony Arnold is WBEZ’s Illinois politics reporter. Follow him @tonyjarnold.
Here are some statements we’ve gathered in reaction to the Supreme Court’s decision:
A coalition of unions, including AFSCME, the Chicago Teachers Union, Teamsters Local 700, and the Illinois Nurses Association released this statement:
“Today’s ruling strengthens the promise of dignity in retirement for those who serve our communities, and reinforces the Illinois Constitution, our state’s highest law.
“Politicians caused the pension debt by failing to set aside adequate contributions, in effect borrowing from future retirees to avoid raising revenue or cutting spending instead. At the same time, city workers such as librarians and truck drivers, school social workers and nurses were faithfully paying their share. They earned, contributed to and counted on a modest pension—just $32,000 on average—instead of Social Security, for which city employees are not eligible.
“Like last year’s decision that prevented pension cuts to teachers, state employees and university employees in state pension systems, this ruling makes clear again that the politicians who ran up the debt cannot run out on the bill or dump the burden on public-service workers and retirees instead.
“It’s long past time for elected officials to stop trying to end-run the constitution and shirk their duty. Pension funding challenges require funding solutions that must be constitutional and fair to all. Our unions are committed to working with anyone of good faith toward that goal.”
Matt Butler, with Moody’s Investors Service, a bond-rating agency:
“Today, the Illinois Supreme Court affirmed a lower court’s decision that found Chicago’s (rated Ba1/negative outlook) 2014 reform of its Municipal and Laborer pension plans unconstitutional. Moody’s will continue assessing Chicago’s actions to address unfunded pension liabilities, including any initiatives specifically aimed at the plans affected by today’s court decision.
“Relative to revenue, Chicago’s unfunded pension liabilities are among the highest of any municipality Moody’s rates. Absent substantial budgetary adjustments, Chicago’s pension debt will grow for many years and, along with the court invalidating the savings achieved with the city’s reform, will continue to drive the city’s fixed costs higher.
“In addition to growing leverage, we also continue to assess the role that fiscal stress of Chicago Public Schools plays in the City of Chicago’s credit challenges.”
Mayor Rahm Emanuel
“Though disappointing, this ruling does not change my commitment to ensuring employees and retirees have a secure retirement without placing the full burden on Chicago taxpayers. While I believe SB1922 was the right pension reform plan for retirees and taxpayers, my administration will continue to work with our labor partners on a shared path forward that preserves and protects the municipal and laborers’ pension funds, while continuing to be fair to Chicago taxpayers and ensuring the City’s long-term financial health.”