* The decision is here. This was totally expected…
* Press release…
Affirming a lower court ruling, the Illinois Supreme Court today struck down Public Act 98-0641, legislation that cut the modest pensions of retired City of Chicago employees and required active employees to pay more only to receive a diminished benefit when they retire.
The successful challenge was brought by several active and retired City of Chicago employees and their four unions—the American Federation of State, County and Municipal Employees (AFSCME) Council 31, the Chicago Teachers Union, the Illinois Nurses Association and Teamsters Local 700.
The four unions issued this joint 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.”
* Background from the opinion…
Defendants argued that the Act does not diminish or impair benefits because it results in a “net benefit” for the Funds’ participants and will save the Funds from an otherwise inevitable insolvency. The City additionally maintained that any payment of benefits owed prior to the Act was not the obligation of any government entity but, rather, was the obligation solely of the Funds themselves, and that under the Pension Code “participants’ benefits [were] limited to sums on hand in the funds.” Therefore, under the Act, the pension funds will be saved from insolvency and put on a path to full actuarial funding, making the Funds’ participants “better off” than without the Act. Additionally, defendants argued that the modification of benefits under the Act is permissible as the product of a bargained-for exchange between the City and the labor unions.
* From the opinion…
These modifications to pension benefits unquestionably diminish the value of the retirement annuities the members of MEABF and LABF were promised when they joined the pension system. Accordingly, based on the plain language of the Act, these annuity reducing provisions contravene the pension protection clause’s absolute prohibition against diminishment of pension benefits, and exceed the General Assembly’s authority
In other words, the various ideas floated by Gov. Rauner and others to change pension benefits going forward for current employees ain’t gonna hold up.
Defendants argue that the Act provides an offsetting benefit to members because it rescues the Funds from insolvency and guarantees that the pensions will be paid, by imposing an enhanced statutory funding obligation on the City, by moving to a new method of actuarial based funding, and by providing statutory enforcement mechanisms. Distilled to its essence, defendants’ argument is that the Act’s new promise of financial stability offsets the diminishment of benefits, thereby conferring a benefit when viewed as a whole.
The argument starts from the flawed premise that the provisions of the Act that enhance the City’s funding obligation or change the method of funding to fully fund the pensions are “benefits” entitled to constitutional protection. This notion conflicts with settled precedent. As we explained in Kanerva, the benefits protected by the pension protection clause include those benefits that are “attendant to membership in the State’s retirement systems” (2014 IL 115811, ¶ 41), including “subsidized health care, disability and life insurance coverage, eligibility to receive a retirement annuity and survivor benefits.” Id. ¶ 39. Legislative funding choices, however, remain outside the protections of article XIII, section 5, as consistently explained by this court over the past 40 years […]
Thus, consistent with Lindberg, McNamee and Sklodowski, passing a funding statute that aims to provide full funding by increasing the multiplier used to determine the City’s contribution, or by changing the method of funding to an actuarially based funding requirement to ensure the Funds reach 90% funding by 2055 and beyond does not create a “benefit” protected by the pension protection clause.
The City’s contention [that the funding provisions in the Act must be regarded as a “benefit” because they replace an illusory set of unfunded statutory promises], if adopted by this court, would be inconsistent with the plain meaning of the pension protection clause, would undermine our holding in Heaton, and would lead to an absurd and unjust result. Rather, as we have explained, the Illinois Constitution mandates that members of the Funds have “a legally enforceable right to receive the benefits they have been promised”—not merely to receive whatever happens to remain in the Funds. […]
To put it simply, in 10 years, the members of the Funds will be no less entitled to the benefits they were promised. Thus, the “guaranty” that the benefits due will be paid is merely an offer to do something already constitutionally mandated by the pension protection clause. Since participants already enjoy that legal protection, we reject the notion that the promise of solvency can be “netted” against the unconstitutional diminishment of benefits.
This thing is air tight.
* Support for the reform by union leaders makes no difference, either…
In this case, it is undisputed that the unions were not acting as authorized agents within a collective bargaining process. Thus, we need not resolve whether the vote taken by union representatives as expressed in the Brandon affidavit bound members of the Funds in a collective bargaining process. Rather, we agree with the trial court that “these negotiations were no different than legislative advocacy on behalf of any interest group supporting collective interests to a lawmaking body.” The individual members of the Funds have done nothing that could be said to have unequivocally assented to the new terms or to have “bargained away” their constitutional rights. Accordingly, nothing in the legislative process that led to the enactment of the Act constituted a waiver of the Funds members’ constitutional rights under the pension protection clause.
* And the whole statute is declared void…
The parties do not dispute the circuit court’s conclusion, and we agree with the circuit court’s assessment that the Act is unenforceable in its entirety.
*** UPDATE *** The Sun-Times has the mayor’s next moves…
(T)he mayor will have no choice but to find a way to pay the added costs… he’ll try to negotiate work-rule changes, lower break-in pay for new employees, another round of health care reforms, and other cost-saving concessions, and dedicate those savings to pensions, City Hall sources said.
The remaining shortfall could come from raising the telephone tax. Chicago is legally authorized to raise its telephone tax to the highest rate charged by any municipality in the state. That means there’s room to grow.
More property tax increases are unlikely, considering the fact that Emanuel just raised property taxes by $588 million for police and fire pensions and school construction and has promised to raise them by another $170 million for teacher pensions, whether or not the state does its part to help a nearly bankrupt Chicago Public School System.