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AG Madigan files pension appeal brief

Wednesday, Jan 14, 2015

* Metro News Service

State officials are still trying to convince judges that the pension law doesn’t violate the Illinois constitution.

Attorney General Lisa Madigan filed an opening brief with the Illinois Supreme Court this week, arguing lawmakers can make changes to pension benefits in an emergency situation.

* Tribune

I(L)awyers for the state argued that the government’s so-called emergency police powers — the ability to take action to ensure the functions of government — trump the protections of the pension clause.

State lawyers said the ability to fund necessary government services, as well as to continue paying out pensions, has been severely hampered by paying an increasing amount of the state’s checking account to fund the pension systems.

“According to the circuit court’s holding, for example, faced with an epidemic requiring the state to purchase and distribute vaccines or other costly medication, the state could not even temporarily reduce pension benefits to cover those costs,” lawyers for the state argued.

“Nor, in a period of prolonged deflation … could the state reduce pension benefits even if the corresponding rise in benefits caused by 3 percent annually compounded COLAs caused every dollar of state revenue to be spent on pension benefits,” the state filing said.

* The full filing is here, so go have a look-see.

* The AG’s office also sent several amicus briefs which have not yet been filed…

(1) City of Chicago

In its brief, the City of Chicago discusses the massive pension crisis that it faces, with liabilities that are growing by millions of dollars a day and explains why it cannot solve the problem without reform that could be threatened if the circuit court’s absolute rule were upheld. The first part of the brief in particular includes specific information about the scope of the City’s pension crisis, including that the annual underfunding for just two of the City’s pension funds ($900 million) exceeds the total projected property tax receipts for 2015 ($830 million) and that the City has the lowest credit rating of any major city other than Detroit.

(2) Illinois Municipal League

The Illinois Municipal League is a not-for-profit association of 1,121 Illinois municipalities. Its brief explains that many municipalities in Illinois are in financial crisis and will face a choice between paying full pension benefits and maintaining public safety. Pages 8-16 of the brief provide examples, including examples of municipalities whose police and/or fire pension funds are less than 30% funded.

(3) The Civic Committee of the Commercial Club of Chicago

This brief focuses primarily on the importance of upholding the pension reform law for the economy of the State.

(4) Will-Grundy Center for Independent Living, Transitions Mental Health Services, Mental Health Centers of Illinois, Youth Network Council (D/B/A Illinois Collaboration on Youth), and Omni Youth Services

This brief addresses the consequences of the pension crisis for social services in the State. It points out that currently one out of every five budget dollars is spent on pension obligations and that since 2000, the State has cut spending on human services by $2 billion in real, inflation-adjusted dollars, and it talks about some of the specific consequences of these cuts. Page 9 of the brief shows pie charts of the portion of the State’s revenue that have been and will have to be spent on pensions.

(5) Chicago Public Schools, Chicago Park District, and Chicago Transit Authority

This brief describes the reforms that the CPD and the CTA have already undertaken, in cooperation with the unions that represent their employees, and it explains why a categorical rule that the police powers can never apply to pension contracts could threaten those otherwise successful reforms. Similarly, it explains why the CPS desperately needs to enact some form of pension reform.

There are four other amicus briefs that focus in different ways on the fact that the contractual rights in the Pension Clause are not intended to be absolute. They are:

(6) Contracts Professors Katharine Baker, Wendy Epstein, and Adrian Walters

These contracts professors explain that all contracts incorporate implied terms and that therefore no contract is absolute.

(7) Constitutional Law Professors Tom Ginsburg, Tonja Jacobi, Zoë Robinson, Mark D. Rosen and Christopher W. Schmidt

The constitutional law professors explain in this brief that constitutional rights are not absolute, even when they are couched in absolute language, as they often are.

(8) International Municipal Lawyers Association

This brief argues that the federal Constitution prohibits a state from surrendering its core police powers and the court should give deference to the General Assembly’s understanding of the Pension Clause.

(9) Illinois Policy Institute

This brief describes the purpose of the Pension Clause, which was to elevate public pensions to contractual rights from their previous status as gratuities that could be changed at any time by the legislature. It argues that such contractual rights are not absolute, and it discusses cases from other States interpreting similar constitutional provisions.

- Posted by Rich Miller        

82 Comments
  1. - Norseman - Wednesday, Jan 14, 15 @ 11:17 am:

    Having read all the previous briefs from the AG, I’m not expecting anything original. I do find the sources of the future amicus filings to be interesting. Not necessarily unexpected, but interesting. I love it when a lawyer tells me that a contract is not a contract and the constitution is not a constitution. These folks are so WRONG - MORALLY AND LEGALLY.


  2. - DeKalb Guy - Wednesday, Jan 14, 15 @ 11:19 am:

    “faced with an epidemic requiring the state to purchase and distribute vaccines or other costly medication, the state could not even temporarily reduce pension benefits to cover those costs”

    I suppose if the pensions completely ran out of money and the state was paying pensions directly this scenario might be plausible. As far as I know, that is not expected to happen any time soon and the state still has the ability to raise revenue through new taxes and to cut discretionary spending in other areas to offset these “emergency vaccination” costs. [And didn’t the state under Blago buy a bunch of vaccinations from Canada that went bad? How did the state pay for that?]


  3. - Sir Reel - Wednesday, Jan 14, 15 @ 11:20 am:

    Excuse me if I find the AG argument wanting. At a 5% personal income tax rate, the State’s pension payments were made, other State services were provided and the sky didn’t fall. What’s the “emergency?”


  4. - Wordslinger - Wednesday, Jan 14, 15 @ 11:21 am:

    I’m confused here — is the “moral crisis” that state workers rule the Capitol, or that lawmakers are trying to stick it to them and skip out on paying what is owed for services rendered?

    I don’t think it can be both.


  5. - Mouthy - Wednesday, Jan 14, 15 @ 11:22 am:

    The ghost of Squeezy walks the earth..


  6. - Peoria Guy - Wednesday, Jan 14, 15 @ 11:22 am:

    It comes down to what my parents taught me. Work hard, pay your bills, be a man of your word.


  7. - UIC Guy - Wednesday, Jan 14, 15 @ 11:25 am:

    @Sir Reel
    I don’t think the present issue is whether the state’s financial condition justifies cutting pensions. I think it’s about whether that argument has any legal weight whatsoever. That is, there are two issues:
    1. If the state’s financial situation were dire enough, would that enable it to override the pension clause of the constitution and cut pensions?
    2. Is the state’s financial condition really that dire?

    Only 1. is currently before the ILSC. Presumably if the court said Yes to 1., the matter would then go back to Judge Belz to decide on 2. For the sort of reason that you give, an affirmative answer on 2. would be hard to argue for.

    In other words: even if the pro-pension side loses on this issue, all is not lost!


  8. - Formerly Known As... - Wednesday, Jan 14, 15 @ 11:25 am:

    == no contract is absolute == == constitutional rights are not absolute ==

    Your pension is now optional for your employer to pay, even as they spend millions of dollars on necessities like the privately owned Uptown Theater and decline additional revenue.

    This is why people hate lawyers.


  9. - Mouthy - Wednesday, Jan 14, 15 @ 11:26 am:

    As long as state government can raise taxes and decide where to spend it’s funds there can be no emergency. It’s a “Hail Mary” and there are no receivers in the end zone.


  10. - Very Fed Up - Wednesday, Jan 14, 15 @ 11:28 am:

    This is just a losing battle at this point and should be dropped.

    Just need to take the lumps and make the longer term structural changes to bring benefits in line with the private sector even if there is not a short-term payoff.


  11. - Jasper - Wednesday, Jan 14, 15 @ 11:29 am:

    I believe the Court has already said that the State of Illinois cannot suspend the constitution in response to an emergency that the legislature and governors created themselves.


  12. - Norseman - Wednesday, Jan 14, 15 @ 11:33 am:

    Let’s have a contest to dream up the most horrific scenario to justify ripping people off. What’s happened is that politicians for political reasons failed to properly fund the systems. Now they want to penalize retired people and public sector workers for their self-serving actions.


  13. - Anonymous - Wednesday, Jan 14, 15 @ 11:33 am:

    You know you have a weak argument when you turn to the Illinois Policy Institute for support.


  14. - Weltschmerz - Wednesday, Jan 14, 15 @ 11:41 am:

    “These contracts professors explain that all contracts incorporate implied terms and that therefore no contract is absolute.” Not according to Judge Judy. I don’t think any of these “experts” has their own TV show with the highest salary of any TV personality. Ridiculous.


  15. - Bob Hicks - Wednesday, Jan 14, 15 @ 11:45 am:

    Maybe the AG should have applied those “police powers” when past Governors and General Assembly chose to skip pension payments. The money was there it was not a priority and now it is a problem.


  16. - PublicServant - Wednesday, Jan 14, 15 @ 11:45 am:

    @UIC Guy - A state financial situation is only dire, if no remedies exist to resolve the financial condition. Quite legal remedies for those financial issues do exist. It is therefore not reasonable or necessary to impair or diminish pensions to serve an important public purpose.

    If the important public purposes being referred to are health, public safety, and public education, none of the programs supporting those state interests need be cut at all. The remedy is to raise taxes to the level necessary to fund those important public purposes, not the least of which would be the reputation of the state in fulfilling its contractual obligations.


  17. - UIC Guy - Wednesday, Jan 14, 15 @ 11:48 am:

    @Public Servant
    I don’t disagree with what you say at all (I thought I had implied that). My point was that those issues–how bad the state’s financial condition is, how it could be remedied–are not before the court at the moment.


  18. - Joe M - Wednesday, Jan 14, 15 @ 11:49 am:

    When we have tried the following for several years, and still can’t balance the Illinois budget, then we can start talking about an emergency.

    - Illinois individual tax rates equal or exceeded Wisconsin’s top rate of 7.75% - and Iowa’s top rate of 8.98%
    - other sources of revenue have been enacted, such as more taxes on services, taxing retirement income, taxing board of trade transactions, taxing internet sales to Illinois residents, etc.
    - bond holders and vendors are included in those the State wished to renege on


  19. - Arizona Bob - Wednesday, Jan 14, 15 @ 11:56 am:

    This case has “loser” all over it, and just about everybody involved knows it.

    Pursuing this is just a delaying tactic to avoid making real, constitutional changes to public pensions that will prevent new employees from getting pensions disproportionate from their contributions (as in end of career “spiking” and those people working in a job for few days at overpaid rates to increase their pensions by massive amounts) and legislate for fair cost shifting to public employers who set these ridiculously high salaries and spikes just to shift compensation from themselves to the state through the pension programs.

    Time to get working on REAL solutions, GA and Guv, and get past this diversionary tactic that’s a sure loser!


  20. - archimedes - Wednesday, Jan 14, 15 @ 12:03 pm:

    Good point by UIC Guy. Would the Supremes send it back to the circuit court - ruling that Police Power can be used to diminish and impair the pension contract if it meets the higher standard set by precedent when a State alters its own contract.

    Of note, if it is sent back, Lisa argues the savings of SB1 to be $1.3 billion a year. That is equal to .25 cents on the income tax (using estimated income tax receipts for FY2016). We could go from 3.75% to 4.00% and offset any cost of SB1 being thrown out.


  21. - Tibicen - Wednesday, Jan 14, 15 @ 12:10 pm:

    If the State of Illinois can prove that specific individual retired public employees or all retired public employees as a group deliberately caused an epidemic, the State of Illinois is within its rights to sue the unidentified responsible parties to recover the costs of combating the epidemic. Holding retired public employees financially responsible for combating an epidemic just because epidemics are bad is wrong.


  22. - Very Fed Up - Wednesday, Jan 14, 15 @ 12:14 pm:

    Agree 100% ArizonaBob. The idea of allowing people to retire in their 50’s while contributing in some cases less than 10% of what they will eventually take out from the system is absurd but those contracts were agreed on by previous governors brought and paid for with campaign contributions.

    Time to get to work on the real long-term fixes needed and drop these lawsuits.


  23. - Federalist - Wednesday, Jan 14, 15 @ 12:15 pm:

    Does anyone know those (law firm? unions? etc)who are representing the state employees in this case?


  24. - Six Degrees of Separation - Wednesday, Jan 14, 15 @ 12:21 pm:

    Hmmm…by mid-day, Lisa’s brief can find no defenders here. Usually one or two would show up by now.


  25. - anon. - Wednesday, Jan 14, 15 @ 12:24 pm:

    Kanerva was clear. The IL Supreme Court will not reverse itself.


  26. - Norseman - Wednesday, Jan 14, 15 @ 12:25 pm:

    === Pursuing this is just a delaying tactic to avoid making real, constitutional changes to public pensions that will prevent new employees from getting pensions … ===

    People keep forgetting that change has already been made to fix the so-called system problems. Benefits have been changed for new hires. This will significantly bring down the normal cost of the system.

    What has not been addressed is the debt and the crowding out it has caused.


  27. - Spidad60 - Wednesday, Jan 14, 15 @ 12:28 pm:

    Does the AG believe that the State can also use its police powers to confiscate State employees deferred compensation accounts?


  28. - Sue - Wednesday, Jan 14, 15 @ 12:34 pm:

    Even if the supreme court rules in favor of the plaintiffs, the court will never order the legislature to raise taxes. The end result could be that the funds eventually will be exhausted and the beneficiaries can bring a case in the court of claims and eons later they will end up getting stiffed. Absent a revamping of the current programs either through agreement or some court approved legislative fix- beneficiaries will never get 100 percent of what they believe the funds owe them


  29. - PublicServant - Wednesday, Jan 14, 15 @ 12:43 pm:

    Sure they will Sue. You’re just blowing smoke.


  30. - Sue - Wednesday, Jan 14, 15 @ 12:46 pm:

    Public Serant- the Court in an earlier funding case ruled that beneficiaries have no constitutional claim to adequate funding


  31. - PublicServant - Wednesday, Jan 14, 15 @ 12:49 pm:

    The courts said they must be funded, whether through timely state contributions and the investment income that those contributions earn at the historic average rate of over 8%, or directly out of the GRF, which would be the foolish way to do it.

    As for your proclamation that “beneficiaries will never get 100 percent of what they believe the funds owe them.”

    Sure they will.


  32. - Arizona Bob - Wednesday, Jan 14, 15 @ 12:58 pm:

    @norseman

    =People keep forgetting that change has already been made to fix the so-called system problems. Benefits have been changed for new hires. This will significantly bring down the normal cost of the system=

    We’re not forgetting that, Norseman, and I’m aware of the tier systems that were initiated. Does the new Tier 2 cost still work out less than transferring all new employees into the Social Security system? I believe that’s the minimum that’s allowed by Federal law.

    The GA has still refused to address the pension spiking issues that increase pension costs by as much as 16% while not providing for commensurate contributions from employees and employers to compensate for these costs. Obviously, such costs should be COMPLETELY shifted to employers by statute, since they are the ones spiking the pension basis. Why hasn’t that been done?

    They also need to take statutory action to fairly shift the expense for public employers giving salary escalations that result in above average pension benefits. This is the case in many schools where teachers are low paid for the first part of their careers, but their salaries skyrocket towards the end when they finally decide to get the generally outcome valuless extra ed hours to increase their salaries, and years of service that don’t bring better instruction (as in after 7 years) still bring higher step increases.

    What needs to be done is to establish some limit as to what the state will subsidize as far as pension basis salaries, and with pensions funding shifting to the public employers it will require shifting funds from salaries to pension contributions.

    This is a necessary part of pension reform that is clearly constitutional. I believe Madigan generally supports it. The question now is whether Madigan and Rauner will get on Board. My guess is that Radogno and Durkin will oppose it because the IEA and IFT and CTU will oppose anything that produces downward pressure on their salary demands, and R &D are reliable lapdogs for the IEA, IFT and CTU.

    The cost shifting and pension basis minimizing are necessary steps in pension reform. When this begins, you’ll know that Springfield is serious about addressing the problems.


  33. - Anon - Wednesday, Jan 14, 15 @ 1:10 pm:

    It’s sad to see the Attorney General swearing to uphold the IL Constitution while arguing to suspend it.
    I hope she never gets another ethics award.


  34. - VanillaMan - Wednesday, Jan 14, 15 @ 1:36 pm:

    You don’t suspend our constitution and grant emergency police powers to the very people who needed to follow our constitution and be policed.


  35. - ZC - Wednesday, Jan 14, 15 @ 1:39 pm:

    Norseman 11:17
    >> Having read all the previous briefs from the AG, I’m not expecting anything original. I do find the sources of the future amicus filings to be interesting. Not necessarily unexpected, but interesting. I love it when a lawyer tells me that a contract is not a contract and the constitution is not a constitution. These folks are so WRONG - MORALLY AND LEGALLY.

    OK, I’ll push back here, and join UIC Guy…

    Whether the specific -application- of emergency police powers is correct here … and we’ve discussed this a lot … the basic idea behind it, applied at some point, isn’t immoral or illegal. In fact I would go so far as to say it’s vital and responsible and essential.

    I mean, take the slippery slope. If future legislators had legislated to pay every single public employee retiree today $100,000 per year, with 3% compounding COLA, every year of their retirement - meaning presumably that the state swiftly runs out of revenue and there’s a full-on political mashup - it’s only MORAL and LEGAL that elected officials raise taxes through the roof, and watch Illinoisans leave in droves, which in turn means the promises still don’t get paid?

    I know the immediate response is, “Please, come on, the state finances aren’t that bad,” and I stress, fair enough. But if you use that qualification, it seems to me you are implicitly accepting the hypothetical that they -could- be that bad, and thus you are accepting that emergency police powers, implemented at some point, could be a justification for reneging on pension obligations.

    My final point on this is my own pet peeve so I’ll keep it brief, but I do wish all those intone so strongly about the morality of following the IL Constitution paid as much attention to the document’s education clause, namely that the state of Illinois “has the primary responsibility for financing the system of public education.” (and here I stress I’m not singling out Norseman)

    But apparently that’s just rhetorical fluff? No way we’re ever going to find the funds in the near future to fulfill that constitutional PROMISE, anyways, if we obey the clear meaning of the pension clause.


  36. - JS Mill - Wednesday, Jan 14, 15 @ 1:41 pm:

    The greatest driver of increasing annual pension cost is compounding COLA. The single greatest cause of the long term debt is recurrent underfunding by the legislature. Add in investment “misses” and you have approximately 80% of the pension debt accounted for.

    Cost shift does not answer that, the annual cost is not the problem. It is the $4 to $5 Billion in annual debt payments that has the greatest. Cost shift? No problem. The money will get where it is supposed to go every year. It will not impact salaries significantly but it may impact unemployment.


  37. - Anonymous - Wednesday, Jan 14, 15 @ 1:53 pm:

    ==bring pensions in line with the private sector=

    So what happens when the private sector springs back to life? For all the years I worked, we made peanuts compared to the private sector. The private sector hit a few bumps in 2008 and is still recovering. They will recover. In the meantime, public pensioners should take a serious hit so the private pensioners shouldn’t feel bad? Or jealous that they didn’t make low salaries their whole life? Not my problem you didn’t save for your retirement when you were making 5X what I made all along! Be a grown up and deal with it. We all make choices. For anyone who is in mid career in the private sector………..give it up and go into public work if it’s so great!


  38. - Anonymous - Wednesday, Jan 14, 15 @ 1:56 pm:

    - PublicServant - Wednesday, Jan 14, 15 @ 12:49 pm

    Thank you


  39. - Anonymous - Wednesday, Jan 14, 15 @ 1:57 pm:

    - VanillaMan - Wednesday, Jan 14, 15 @ 1:36 pm:

    Thank you


  40. - anon - Wednesday, Jan 14, 15 @ 1:58 pm:

    “Even if the supreme court rules in favor of the plaintiffs, the court will never order the legislature to raise taxes. The end result could be that the funds eventually will be exhausted and the beneficiaries can bring a case in the court of claims and eons later they will end up getting stiffed. Absent a revamping of the current programs either through agreement or some court approved legislative fix- beneficiaries will never get 100 percent of what they believe the funds owe them.”

    The flaw in this argument is the assumption that employees have no right to get paid if the pension fund is exhausted. I would refer you to the recent case involving payment of a stipend to county treasurers where the State tried to use the excuse that “the fund ran dry” and the court clearly held that it has the power to order an appropriation out of the general fund for payments protected by the constitution. https://www.state.il.us/court/Opinions/AppellateCourt/2014/4thDistrict/4130286.pdf Most of the amici briefs here waste a lot of ink on moaning that the pensions are underfunded. As with the treasurer stipend, failure to appropriate enough money into the designated fund is not a crisis and does not reduce the obligation to pay. this holding is consistent with the prior pension cases which have refused to mandate payments into a pension fund but still have required pensions to be paid.


  41. - AC - Wednesday, Jan 14, 15 @ 1:58 pm:

    The 3% COLA is less than CPI over any lengthy period of time, but was selected because it reasonably approximated CPI. Moving to a straight CPI probably wouldn’t be viewed as diminishment but it might cost the state more money in the long run and would make it more difficult to budget.


  42. - UIC Guy - Wednesday, Jan 14, 15 @ 2:04 pm:

    @ZC, 1:39 p.m.
    You say you’ll join me, but I do not agree with what you say. All I was trying to do in my comment was to point out that there are two separate issues, only one of which is currently before the ILSC; and that the state would have to win on both for SB1 to be upheld.

    My own views and preferences are not yours. I hope the state loses on 1. and think that legally it probably should, though I’m not qualified to go beyond ‘probably’ here. I’m actually more confident that the state would lose on 2. because, as other people have pointed out, the pensions can in fact be paid without drastic peril to the citizenry of the state. (Perhaps they can’t be paid without incurring the displeasure of the citizenry, and a corresponding political price. But that’s another matter.)


  43. - Cook County Commoner - Wednesday, Jan 14, 15 @ 2:11 pm:

    UIC Guy at 11:25am seems to have it. Has a court ruled on whether the state is in a fiscal emergency in the event the alleged police power exists?
    The more interesting question is can a court force the state or other government entity to fund pension plans when they chose to use limited funds to instead fund police and fire salaries, Medicaid and other core functions? And a related question:Can a court force a government unit to raise taxes to fund pensions?
    Seems we’re heading towards a constitutional showdown on how equal and separate branches of state government are?


  44. - Soccertease - Wednesday, Jan 14, 15 @ 2:17 pm:

    Note: Think twice about hiring lawyers from Chicago-Kent or DePaul law schools. So a contract isn’t enforceable? Still think Lisa will get humbled by an angry judge.


  45. - anon - Wednesday, Jan 14, 15 @ 2:19 pm:

    @ cook county commoner. Check out the treasurer stipend case at the link I posted. It discusses the separation of powers issues. Bottom line is that the court cannot tell the legislature to raise taxes or to put money into a particular fund. HOWEVER, when the constitution demands that a payment be made, it does NOT violate separation of powers for a court to order the legislative branch to pay the amount owed. This means that the legislative branch cannot stiff people on a constitutionally required payment by deciding they’d rather spend the money on something else.


  46. - UIC Guy - Wednesday, Jan 14, 15 @ 2:21 pm:

    @CCC 2:11 p.m.
    ==Has a court ruled on whether the state is in a fiscal emergency in the event the alleged police power exists?==
    Judge Belz (blessings be upon him) had originally planned to settle this question (as well as the other question).His court actually scheduled briefs and hearings on the fiscal condition of the state.

    After Kanerva, the plaintiffs (i.e. those opposing SB1) asked him to reconsider, and rule on the purely legal question first, and he did so. In other words, the factual question–whether the fiscal condition of the state is bad enough to justify invoking ‘police powers’, if they can be invoked in such a case–was not settled. That’s why I think that if the ILSC ruled against the plaintiffs on the present issue then the whole case would go back to Judge Belz, who would then presumably hold hearings on just how bad the fiscal condition of the state is, etc.

    I’m less confident about your other question because I don’t know what would happen if the state simply refused to do what the constitution (as interpreted by the ILSC) had said it must do. Presumably the Federal justice system would be involved. But it’s very hard to imagine that it would come to that: we do have the rule of law, thank goodness.


  47. - ZC - Wednesday, Jan 14, 15 @ 2:26 pm:

    UIC Guy, fair enough. I don’t know enough frankly to know whether the state’s finances are secure, but the bulk of the evidence presented to me suggests this will be tough but we can do it, fiscally. The fiscal sky is -not- falling.

    I do feel however it’s a bit odd, that in effect the judiciary is being asked to rule about the long-term fiscal impact of this on the state of IL. This is not their specialty or their field of expertise. But I do also see the arguments why it’s dicey to entrust it to the legislators.


  48. - Skeptic - Wednesday, Jan 14, 15 @ 2:36 pm:

    “failure to appropriate enough money into the designated fund is not a crisis and does not reduce the obligation to pay.” What’s the sign you see up in places? “Lack of planning on your part does not constitute and emergency on my part.”


  49. - Cook County Commoner - Wednesday, Jan 14, 15 @ 2:51 pm:

    @UIC Guy 2:21pm. Thanks.

    I’d buy tickets to sit it in on court hearings with adversaries arguing on the state of Illinois finances, stripped of all the legislative subterfuge and budgetary camouflage. Oh, the cross examinations would be a delight.


  50. - Norseman - Wednesday, Jan 14, 15 @ 2:58 pm:

    ZC, I appreciate the cordial argument and hope you take my response the same way. You misread what UIC was saying and he’s responded accordingly. Regarding morality, I’ve said before that morality is in the eye of the beholder. Our eyes may behold this issue differently. When you have a situation where you renege on your obligations to retirees for political reasons (by not making the actuarial required payments to fund other services without raising taxes so you can get re-elected), that is immoral in my eyes. You and others are free to judge as you see fit.
    I understand the state of State finances and if I thought it was a onetime problem I would be more considerate of some minor adjustments in my benefits. However, this is going to be a continuing problem. Given the green light, the governor and legislators will use this ability to reduce pensions repeatedly to prevent the adverse political ramifications of raising taxes. It is for that reason that the 1970 Constitution included a clause to protect public workers from political games.
    I’m convinced that this is illegal because of the numerous Supreme Court rulings that address this and other similar issues. The Kanerva case being the most recent and on point decision.


  51. - Anonymous - Wednesday, Jan 14, 15 @ 3:05 pm:

    For the state to prevail, the court must agree that all the state must do is underfund the pension system until they have a large liability and then claim a crisis so the state can diminish pensions. If this were true, then there would be no purpose in having a pension clause to protect pensions….just underfund it until you have a crisis and go ahead and diminish it. Before the court is not a situation where we have a real crisis of biblical proportion, and I don’t think the court will entertain something that is not before them and hopefully never will be.


  52. - No Raise - Wednesday, Jan 14, 15 @ 3:16 pm:

    I find it quite interesting that our AG refused to defend the gay marriage ban because she felt it was unconstitutional and yet, when the ILSC tells the world that pension reform is unconstitutional, our AG suddenly has no problem using legal gymnastics to continue defending the law.


  53. - Norseman - Wednesday, Jan 14, 15 @ 3:17 pm:

    === I do feel however it’s a bit odd, that in effect the judiciary is being asked to rule about the long-term fiscal impact of this on the state of IL. ===

    That’s not what is happening. They’re considering whether clear language of the constitution can be ignored because of a financial emergency.

    They already ruled in previous cases that it cannot.


  54. - anotherretiree - Wednesday, Jan 14, 15 @ 3:17 pm:

    Could a better legal mind pls explain what is wrong with this view. We don’t have s pension crisis. That is spin. We have a state debt crisis caused by a revenue shortfall in funding pensions. A pension fund is just the checking account the state uses for that debt. The state has just concentrated all of its shortfall in one area.Calling it a pension crisis assumes that pension debt is different from other debts (bonds). The state is a single entity. I don’t see how you can single out one class of creditors from another. equal protection and all that.


  55. - walker - Wednesday, Jan 14, 15 @ 3:25 pm:

    They all at least make an argument, except the IPI whose statement is absurd on its face.


  56. - archimedes - Wednesday, Jan 14, 15 @ 3:29 pm:

    Most of the AG argument, and the amicus briefs, rest on the concept that the pension clause defines pensions as contracts - and all contracts are subject to police power of the State.
    The second part of the pension clause - “the benefits of which shall not be diminished or impaired” - is simply an adjective of that contract and not intended to imply further security to the contract.

    The logical argument is that the Pension Clause is two parts - pensions are defined as contracts AND the benefits cannot be diminished or impaired. If the second part was simply descriptive of the first - they would have left out “the benefits of which.”

    In other words - the State can indeed use it’s Police Power to modify the pension contract, as long as that modification does not diminish or impair the benefits to the member. The Supremes may allow contract modification (using Police Power) absent any reduction in benefits.
    Of course, the whole point is to reduce benefits.


  57. - anon - Wednesday, Jan 14, 15 @ 3:45 pm:

    As I recall, when Blago tried to stiff the judges of their annual raises, the Supreme Court ordered Topinka to pay the raises.


  58. - Anonymous - Wednesday, Jan 14, 15 @ 3:47 pm:

    I don’t think the ISC will be persuaded with the “what if” scenarios the AG is throwing at them. Before the court are none of these things other then the fact that the state underfunded the pension system and now does not want to put the dollars back. The very purpose of the pension clause was to protect workers and retires from this exact moment. This is the day the framers of the pension clause envisioned.


  59. - Grandson of Man - Wednesday, Jan 14, 15 @ 3:48 pm:

    I think the state’s case validates the intent of the pension clause, that pension funding should be guaranteed because of decades of mismanagement and underfunding.

    The state was largely responsible for the problem. Now it is seeking to be exempted from following the law that was put in place because of what the state was doing all along.


  60. - RNUG - Wednesday, Jan 14, 15 @ 3:49 pm:

    - Federalist - Wednesday, Jan 14, 15 @ 12:15 pm:

    Several of them are the same lawyers as the Kanerva case. For a full list of lawyers and plaintiffs, go the The Sangamon County Circuit Clerk’s web site, select records, and search for case 2014-MR-00001 (the consolidated case number, initially filed by John Myer on behalf of RSEA). The Case Management information will list all the other attorneys.

    - Spidad60 - Wednesday, Jan 14, 15 @ 12:28 pm:

    Probably. At one time when Deferred Comp first started, there was language in the contract (partly federal requirement, since changed) that made all monies on deposit in the program were considered property of the State and they could manage the real money any way they wanted to as long as they kept “notational entries” showing what the employee would have earned under their investment choices … this language was the main reason I did not participate in Deferred Comp until it was changed to where the individual had an actual ownership interest like in a 401K.

    - Sue - Wednesday, Jan 14, 15 @ 12:46 pm:

    … but they did say in the same case the pensions had to be paid when due; they never specified where the money would come from, just that it had to be paid.

    - JS Mill - Wednesday, Jan 14, 15 @ 1:41 pm:

    You do realize there is a specific portion of each employee’s pension contribution that is earmarked to pay for the COLA and that the rate was found to be sufficient to fund that benefit IF the State made their contribution?


  61. - Anonymous - Wednesday, Jan 14, 15 @ 3:52 pm:

    I think the ISC will say that as they look around they are not aware of an “end times’ crises and ask if they have missed something? They are going to say that they were under the impression that what was before them was rather the pension clause of the constitution means what it says. I think they will answer in the affirmative.


  62. - RNUG - Wednesday, Jan 14, 15 @ 3:53 pm:

    - anotherretiree - Wednesday, Jan 14, 15 @ 3:17 pm:

    Exactly … that is one of the arguments against SB-1’s attempted use of police powers; selectively negating only one category of the State’s debts.


  63. - Anyone Remember - Wednesday, Jan 14, 15 @ 4:00 pm:

    Very Fed Up - “bring benefits in line with the private sector even if there is not a short-term payoff.”

    If Illinois pension systems had been brought into line with the private sector, prior to 1950 people would have been put in jail / pension plans would have to taken over and handed to professional administrators who could compel payment (a la IMRF).


  64. - Wordslinger - Wednesday, Jan 14, 15 @ 4:02 pm:

    Sue, what’s your ETA on those court of claims cases?

    The sky has been falling on pensions for decades. Yet never a missed check. Go figure.

    SB1 was the result of of a long and windy tantrum by Ty and the Tribbies to try and weasel out of paying back borrowed money. The GA and Quinn snookered them to get them off their back before the election with a law that is obviously unconstitutional.

    The fact that Ty and the Tribbies bought it tells you all you need to know about those guys.


  65. - Anonymous - Wednesday, Jan 14, 15 @ 4:04 pm:

    I think the court will rule that the state must pay the pensions and that the constitution means what it says. I don’t think the court is going to want to entertain a great big “what if” that is not really before it. What is before the court is whether SB 1 is unconstitutional and I believe the court will rule that it is. They may invite the AG back when we are deep in locus or once fertile ground is now dessert.


  66. - Ghost - Wednesday, Jan 14, 15 @ 4:08 pm:

    If the ag is correct, then any part of the constitution can be thrown out by the general assembly. This subverts the process for modifying the constitution.

    I would argue that there exists a process to modify the State constitution, and this isnt it. If such extreme emergency exists, then modify the constitution the propper way.

    Also the desire not to raise taxes is not an emergency.


  67. - JS Mill - Wednesday, Jan 14, 15 @ 4:10 pm:

    @ RNUG- Not saying it was not, just saying that the single greatest driver of the annual cost is the compounding COLA. Not a value statement just the numbers as presented by Eric Madair. He conducted the single most comprehensive research on the factors that led to the unfunded liability.


  68. - RNUG - Wednesday, Jan 14, 15 @ 4:10 pm:

    And let us not forget that, to the best of my knowledge, only once in the last 100+ years has the Federal Court system actually allowed a State to use their “reserved powers” to negate debt (Arkansas, Great Depression, applied to pretty much all classes of state debt).

    That’s part of the reason, when Judge Belz asked for Illinois precedent, the State’s attorneys didn’t have an answer.

    Lisa’s arguments aren’t going to prevail … either because the IL Constitution says the pensions are protected (likely ruling after Kanerva) or, eventually, because there is no fiscal emergency (the fall-back ruling).

    With hindsight, we can argue about whether or not the ISC got the original IFT case right in 1975 when they left the funding loophole. But I’m guessing the current ISC will want to close this door once and for all, and the cleanest / simplest way would be for the court to read the IL Constitution as not allowing any diminishment, period, end of discussion.

    Win, lose, or draw, I’m looking forward to reading the ISC decision.


  69. - RNUG - Wednesday, Jan 14, 15 @ 4:14 pm:

    - JS Mill - Wednesday, Jan 14, 15 @ 4:10 pm:

    Yes, Eric did. But compounding also works in favor of sustainability IF the money was actually invested when it should have been.


  70. - ZC - Wednesday, Jan 14, 15 @ 4:22 pm:

    Norseman, I do get that response and there is certainly the argument that the Courts are saying, in emphatically clear language, “We are not going to bail out here; finish what you started.”

    Maybe going forward we will learn our lesson, and Illinois will course-correct. So, a rocky next five years or so, but in the long run a more stable state financial system.

    It’s a new year and Rauner hasn’t presented his budget yet, so I will close on this optimistic thought …


  71. - Norseman - Wednesday, Jan 14, 15 @ 4:23 pm:

    === just saying that the single greatest driver of the annual cost is the compounding COLA. ===

    RNUG may correct me, but I believe you’re talking about the normal cost for the benefits. That’s not the amount that is being appropriated and the source of the complaints. That is high because of the need to repay the debt. Underfunding was the biggest cause of that debt.


  72. - Norseman - Wednesday, Jan 14, 15 @ 4:25 pm:

    ZC, we are in agreement.


  73. - Anonymous - Wednesday, Jan 14, 15 @ 5:17 pm:

    The Illinois Constitution says that public pensions are contractual relationships whose benefits cannot be diminished or impaired.

    The U.S. Constitution’s contract protection clause says that no state shall pass a law that impairs the obligations of contracts. The Illinois Constitution also has has a clause that states that Illinois can not pass a law that impairs the obligations of contracts.

    Basically, AG Madigan is counting on his bill passing Constitutional muster because of financial emergency necessitating police powers that can over-ride the Illinois and U.S. Constitution,

    According to Westlaw, the most cited case about the U.S. Constitution’s contract protection clause and states police powers is the case, U.S. Trust Co. of New York v. New Jersey, 97 S.Ct. 1505. In that case, the U.S. Supreme Court stated:

    “Contract Clause of [U.S.] Constitution limits otherwise legitimate exercise of state legislative authority, and existence of important public interest is not always sufficient to overcome that limitation……..”.

    also:

    “If a State could reduce its financial obligations whenever it wanted to spend the money for what it regarded as an important public purpose, the Contract Clause would provide no protection at all.”.

    Additionally, the Illinois Supreme Court’s ruling from Jorgensen v. Blagojevich stated, “No principle of law permits us to suspend [Illinois] constitutional requirements for economic reasons, no matter how compelling those reasons may seem.


  74. - Gabe - Wednesday, Jan 14, 15 @ 5:22 pm:

    Not having funds to pay for vaccines is equivalent to the overused cheap theatrics, the what-about-the-children lament whenever the purpose is to shield self interest such as the desire to use tax funds to subsidize banker and business projects. And the Civic Committee, really? Does anyone still believe these corporate and financial groups are authentically public interest representatives? Ha!

    Whenever public workers were set to leave the system because of years of low pay and “raises” that did not even meet inflation, we were told “But you will have a pension that gives you security.” The politicians and their elite buddies used pension money to subsidize their pet projects that often benefitted the elite.

    Is there some pension abuse, yes. Look at the politicians who collect pensions like gumdrops, a state pension here, a city one as well and maybe a county pension or another across state lines. Anyone for a judges pension?

    Tax those who should be taxed, those at the highest incomes, and direct the monies to projects that benefit all citizens not just the self-serving projects of the wealthy and the wired.


  75. - Anonymous - Wednesday, Jan 14, 15 @ 6:13 pm:

    Amen, Gabe!


  76. - PublicServant - Wednesday, Jan 14, 15 @ 6:54 pm:

    Frankly, I think the biggest factor compelling the state to repay the debt is the recent GASB rules regarding pension reporting. The state will need to properly report its pension debt going forward. The response by the state is that we will pay the debt. No problem. How we plan to do that is to use the monies that would otherwise be used to actually fulfill our contracts with our employees in the future to instead repay the debt. In other words, the state proposes that the employees themselves repay the debt though the loss of future COLAs, which money’s the state will use to “repay” it’s debt.

    That will not stand in our country of laws.


  77. - jcg - Wednesday, Jan 14, 15 @ 7:40 pm:

    The bottom line here as I see it is that the IL Supreme Court needs to tell the IL government to uphold the entire IL Constitution rather than pick-and-choose which parts they’d like to uphold and which parts they’d prefer to ignore. To allow SB1 to stand as law gives the IL government tacit permission to continue the shoddy financial management practices that brought us to this place here its been reported that something in the range of 80% of the monies paid for the pension systems simply goes toward debt repayment rather than being used for paying current retirees their pensions. This slip-shod mismanagement must stop, and an overturn of SB1 will drive that point home!


  78. - Anonymous - Wednesday, Jan 14, 15 @ 8:02 pm:

    - PublicServant - Wednesday, Jan 14, 15 @ 6:54 pm:

    Thanks


  79. - Illinois Manufacturer - Wednesday, Jan 14, 15 @ 8:47 pm:

    RNUG Made a good point about the “fiscal emergency” Thanks to the Klonsky blog which published the TRS report ,its Director Ingram said the following
    If Tier II is left alone, it will accomplish its mission. The $61.6 billion TRS unfunded liability will shrink over several decades and eventually be eliminated because the state will pay less to the ever-growing number of Tier II members. In fact, at some point in the future, we estimate that Tier II members actually will help create a surplus of funds for TRS that effectively could eliminate the need for any state government contribution to the System

    Looks like there is no emergency and thus no argument


  80. - Mama - Wednesday, Jan 14, 15 @ 8:48 pm:

    Can the legislature pass a law that changes the pension clause? Madigan does not have a chance of winning with the ISC.


  81. - Norseman - Wednesday, Jan 14, 15 @ 9:07 pm:

    Mama, if the Supreme Court rules as expected - based upon previous rulings - the General Assembly couldn’t pass legislation to change benefits for current employees or retirees.

    Some have suggested that the GA should pass a proposal to amend the constitution to permit changes to current employee or retiree benefits. Such proposal would require voter approval. The lawyers I’ve talked to indicated that such an amendment still couldn’t be retroactively applied to current employees or retirees.


  82. - Mama - Wednesday, Jan 14, 15 @ 10:30 pm:

    Thanks Norseman


Sorry, comments for this post are now closed.


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