Illinois Supreme Court Says 2013 Pension Reform Law is Unconstitutional

The Illinois Supreme Court struck a huge blow against everyone in the state not getting a public pension. The justices ruled unanimously that a 2013 effort to reform the public pension system and get costs under control violated the state’s constitution.

The result of the decision can’t be overstated. Currently, fully one quarter of the state’s budget goes to funding the gold-plated pensions of former state workers. And the unfunded liability for that pension system — now at $104 billion — will rise by millions every day.

Voters elected a Republican last November, Bruce Rauner, to fix this mess. He has proposed a constitutional amendment to allow the state to cut benefits — something the current constitution prevents the legislature from doing. It’s really the last arrow in his quiver and the unions will fight him tooth and nail to prevent it.

Reuters:

“Crisis is not an excuse to abandon the rule of law,” the supreme court said in its ruling. “It is a summons to defend it.”

The court said that while Illinois faced significant financial challenges, it had an obligation to ensure the state constitution, which protects public worker pensions, was followed.

The state had contended the legislature was entitled to invoke police powers, in which a state has authority to make changes for the good of its citizens, to solve a fiscal emergency. However, the court called the state’s “police powers” defense “fatally flawed.”

The ruling was a victory for unions who had fought to protect pensions.

“We are thankful that the Supreme Court has unanimously upheld the will of the people, overturned this unfair and unconstitutional law, and protected the hard-earned life savings of teachers, police, fire fighters, nurses, caregivers and other public service workers and retirees,” said Michael T. Carrigan, president of Illinois AFL on behalf of the We Are One Illinois union coalition.

So, now what? A committee looked at what would happen if the 2013 law was struck down:

A state legislative commission reported in November that without the 2013 law, pension payments would jump to $7.6 billion in fiscal 2016 from $6.8 billion this year, reaching $16.3 billion in 2045. The unfunded liability would climb as well, topping out at $128.7 billion in 2029.

Governor Bruce Rauner, a critic of the 2013 law, has proposed his own pension reform plan that largely relies on a constitutional amendment that must be approved by voters.

Illinois Policy Insitute CEO John Tillman said the ruling suggested that raising taxes would be the way to pay for pensions – which he said was a flawed premise.

“Raising taxes will not fix a broken system,” said Tillman. “The pension system is beyond repair, and there will never be enough money to fund it.”

The Chicago Tribune agrees with Mr. Tillman:

If anyone doubted the truth of Gov. Bruce Rauner’s insistence that Illinois must radically restructure the costs and scope of government, Friday’s ruling settles that. The state with some 7,000 local governments, with the credit rating worse than its 49 peers, with unfunded pension liabilities above $100 billion and rising by more millions daily, with taxation at levels that already are driving businesses (and jobs) beyond its borders — that state has to overhaul its operations.

Expect to hear politicians or advocacy groups or finance experts float notions you’ve never heard in Illinois. That to preserve money for pension costs, the state workforce may have to be drastically reduced, that work contracted to private firms that don’t have to provide such benefits. That as the cost of retirement benefits continues to skyrocket, more of the obligation must be placed on the workers who will reap the benefits. That’s not to blame the workers; that’s to recognize brutal reality.

You won’t hear these and other dramatic thoughts only about state government: Friday’s ruling vastly complicates life for Chicago Mayor Rahm Emanuel, Cook County Board President Toni Preckwinkle and thousands of other local officials. They prayed that the court would uphold state attempts to curtail retiree benefits, or at least explain how future laws might be written to meet constitutional constraints. Friday’s decision offered neither. Maybe Emanuel et al. can offer the court more compelling arguments: Unlike the state, cutting benefits really is our last resort. But after Friday’s ruling, they’re running uphill.

So the huge enterprise of government in Illinois now confronts a financial challenge unlike any it has known: The new taxation necessary to satisfy all of these state and local pension demands would make this a ghost state.

Do you think the unions care? A “ghost state” would still be liable for all those pension obligations, so the prospect of state employees serving an ever dwindling number of Illinoisans doesn’t bother them a bit. Not their problem.

There’s no doubt Rauner has taken the bull by the horns on this and other fiscal issues. His first budget resulted in howls of rage from the usual government benefit recipients. They want to tax the “rich” — something tried in 2011 with predictable results:

Tillman said a 2011 temporary tax increase generated more than $31 billion, yet 90 cents out of every $1 collected from the tax increase went to pensions – “still was not enough to make the pension system whole.”

A long night is descending on Illinois and many of its villages, towns, and cities with pension problems of their own may eventually be forced into bankruptcy. Rauner’s plan may push back the day when the pension crisis comes to a head, but unless something radical and drastic is done, Illinois doesn’t have much of a future.