* Crain’s takes a look at the Arizona Supreme Court’s ruling striking down a state law that cut pension benefits…
The Arizona case has been on the local radar because Arizona and Illinois are, along with New York, the only three states with constitutionally mandated protections for state pensions.
“My one-word comment is ‘predictable,’ ” said Ralph Martire, executive director of the Center for Tax and Budget Accountability, on today’s ruling. “All the Arizona Supreme Court did is read the plain language and said there’s no need for legal construction here: The language is plain on its face. Hence, it’s unconstitutional.”
At the same time, noting that Illinois Supreme Court justices are elected officials themselves, Laurence Msall, president of the watchdog group Civic Federation of Chicago, said, “Illinois’ financial situation by any measure is far more precarious than Arizona’s, and it is against that backdrop that the courts will eventually rule.”
* What Msall said is true, but check out this lede in the Arizona Capitol Times…
State lawmakers cannot balance the budget by limiting pension benefit increases for retired judges, the Arizona Supreme Court ruled Thursday. The justices said a voter-approved section of the state constitution makes public pension plans a contractual relationship. More to the point, that provision says benefits “shall not be diminished or impaired.”
* Our resident pension expert RNUG read the decision yesterday and weighed in…
With a few changes in case names and citations, the [Illinois Supreme Court] could use most of it pretty much as it stands.
The parallels with Illinois are amazing. Couple of things jumped out. They referenced contract law, which is what I expect most of the IL decision to turn on. They also noted that, like IL, benefits vest at hiring. In declaring the benefit formula protected, they even cited the IL Miller case as part of their reasoning.
* The full opinion is here. As RNUG notes, there are some quite interesting passages. The unanimous opinion notes that while there is strong legal precedent for allowing the impairment of contracts under certain conditions, the state’s Constitution expressly forbids any impairment or diminishment of this particular contractual obligation.
The opinion also declares that the meaning of the term “benefit” includes benefit increases and references an Illinois decision…
This definition of “benefit” also comports with the use of the term in other states that have similar constitutional provisions protecting public pension benefits. For example, construing a similar definition of “benefit,” New York and Illinois have also determined that benefit calculation formulas are entitled to constitutional protection.5 See Kleinfeldt v. New York City Emps.’ Ret. Sys., 324 N.E.2d 865, 868–69 (N.Y. 1975) (including the formula utilized in calculating an annual retirement allowance under the Pension Clause); Miller v. Ret. Bd. of Policemen’s Annuity, 771 N.E.2d 431, 444 (Ill. App. 2001) holding benefit increases to be constitutionally protected).
* Eric Zorn took a look at Arizona’s pension reform history late last year…
That state, like Illinois, is one of the handful in which public pension rights are enshrined in the state constitution as a “contractual relationship,” the benefits of which “shall not be diminished or impaired.”
Nevertheless, citing the looming burden of underfunded pensions, the Arizona legislature in April 2011 passed a series of reforms to state retirement systems that included hikes in employee contribution levels and decreases in cost-of-living adjustments.
It was different in some ways yet similar in thrust to the reforms passed this week in Springfield, and the public employees went to court.
In February 2012, Maricopa County Superior Court Judge Eileen Willett issued a stinging rebuke to the legislature, declaring a key reform element unconstitutional in an action that had been filed by a group of schoolteachers.
“When the plaintiffs were hired as teachers, they entered a contractual relationship with the state regarding the public retirement system of which they became members,” said Willett’s written opinion. “Their retirement benefits were a valuable part of the consideration offered by their employers upon which the teachers relied when accepting employment.”
The ruling neatly seconded the argument that lawyers for public employees are certain to make in Illinois: We had a deal. Our side kept up its end of the bargain and relied on your side to do the same. The constitution compels your side to keep its word.
Willett’s ruling ended up forcing the Arizona legislature not only to rescind the increase in payroll contributions, but also to reimburse employees the amounts they lost.
In May 2012, the state lost again in court, this time when Maricopa County Superior Court Judge John Buttrick used a similar constitutional rationale when ruling in favor of judicial retirees who had challenged changes in the cost-of-living formula that was part of the pension reform effort.
That case was fast-tracked to the Arizona Supreme Court on appeal, and three other legal challenges to the reforms were put on hold pending the outcome.