STUMP » Articles » Public Pensions Watch: Illinois Pension Reform Lawsuits » 27 January 2015, 07:58

Last July, there was a ruling from the Illinois Supreme Court that retiree health benefits could not be cut. Here was my reaction:

The upshot of the ruling was that retiree health benefits could not be cut back, and what they meant by that was that a specific percentage of health insurance premiums would be covered by the particular pension system.

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Let’s think through the results here, and what is likely to happen.

Most obviously: the various pension reforms tried on various levels in Illinois are dead.

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So if the state cannot cut a benefit that can fluctuate wildly from year-to-year, if the state cannot change a percentage of coverage, even if they’re paying more every year in absolute or inflation-adjusted dollars, then there’s no way the pensions, which are less variable, will be allowed to be cut.

I want to note that for years, one of the reasons given for not pre-funding public employee retirement health benefits was that, of course, they could be cut whenever the state wanted to. That was a nice theory while it lasted, at least in Illinois.

Now there have been lawsuits working its way through the Illinois system re: their last attempt at pension reform. Back in November, I commented on the circuit court result:

You start working at the age of 25 for the state of Illinois, your pension benefits are baked in for life, even if there’s deflation instead of inflation, even if a medical miracle cure comes through and life expectancy is 100 years old, and even if we end up having a negative interest rate environment. The only changes allowed are ratcheting the benefits higher.

Until the money runs out.

And don’t doubt that the money can run out.

But it hadn’t hit the state Supreme Court, and now it’s there. Let’s look at recent actions, working backwards.

A bunch of interested parties asked for the right to file amicus briefs. The court said no, that would take too long:

The Illinois Supreme Court said Thursday that it is sticking to its schedule to hear arguments in the pension reform case in March.

The court rejected a request by nearly two dozen outside parties to file paperwork in support of the pension reform law and the state’s position that extraordinary circumstances allow it to reduce pension benefits.

Consequently, the court said there is no reason to grant lawyers representing state workers and retirees more time to file a response to the state’s arguments.

“In light of the court’s granting of defendants’ motion to hear this appeal on an expedited basis at the March 2015 term, all motions for leave to file briefs as amici curiae (or friends of the court) are denied,” the court said.

It seems to me, given the precedent from 2014, it’s futile for parties to file amicus briefs in this case (in that it will not change the outcome).

But let’s take a look at the delays that were being requested, and why:

It’s a case that’s supposed to be on the fast track: After a Sangamon County judge in November found Illinois’ pension law unconstitutional, the Attorney General appealed straight to the state supreme court — which agreed to hear it on an expedited basis.

That quick timeline had Attorney General Lisa Madigan turning in a brief earlier this month, arguing the state can use its “police powers” to reduce benefits. It was accompanied by ten other “friend of the court” amicus briefs boosting her position, from groups ranging from the City of Chicago to the Civic Federation. In, all, 315 pages in support of the law.

“There are some new arguments and these briefs are somewhat voluminous, and so of course we need a reasonable amount of time to evaluate these briefs,” said John Fitzgerald, a lawyer who represents retired teachers.“Although we believe that the arguments raised by the amici need to be evaluated and responded to, we do not believe that any of those arguments have any merit; we do not believe that the amici have raised any arguments that should change the outcome of this case.”

Obviously, the court doesn’t feel like wasting time. And, of course, the judges have a direct interest – they’d be hit by the reform, too, if it went through.

This is what the Illinois Attorney General is arguing:

SPRINGFIELD — Attorney General Lisa Madigan is arguing a trial court went off course when it found the state’s 2013 rewrite of public pension laws unconstitutional.

In her appeal now before the Illinois Supreme Court, the attorney general says the state, under extraordinary circumstances, has the power to modify contracts.

Central to her argument are police powers, also known as reserve sovereign powers. The concept lets the state step outside normal contract law when its actions are meant to ensure it can continue to provide for society’s health, safety and welfare.

You will see that parts of Madigan’s argument are in the amicus briefs I link below. I think that the court may not be all that interested in the same argument being made over and over again by third parties.

Chicago is predicting cats and dogs living together if the court strikes down reform:

But the city’s filing nevertheless paints the bleakest and most accurate picture yet of the financial crisis that awaits the winner of the Feb. 24 mayoral election.

“The Chicago bill should survive, regardless of the outcome of this appeal. If it doesn’t, the city’s liabilities will increase by $2.5 million a day,” Corporation Counsel Stephen Patton wrote in the Jan. 12 filing.

“The city will suffer further [bond rating] downgrades that could materially increase the cost of borrowing money essential to funding basic operations. And it could make the city immediately liable to pay hundreds of millions of dollars as a result of default and early termination of debt-related obligations.”

Couldn’t happen to a nicer guy. There are separate lawsuits covering Chicago-specific pension reform, but I’ll leave that for now.

Before I link to the amicus briefs below, I will give you a little video interlude courtesy of Khan Academy, injecting a bit of reality.

These amicus briefs were a nice idea, but the law isn’t going to fix this problem. My prediction on this case is that the Illinois Supreme Court will say “Nice try, but no pension reform for current employees (much less retirees). EVER.”

And then the Illinois politicians will have to decide whether they have the guts to take this on directly with constitutional changes, or if they’ll let the system fail catastrophically.

It is a choice.

ADDITIONAL MATERIAL:

Amicus Brief from Illinois Policy Institute:

ARGUMENT

I. THE CLEAR PURPOSE OF THE PENSION CLAUSE WAS TO ELEVATE PENSIONS TO CONTRACTUAL RIGHTS, OVERTURNING THE COMMON-LAW RULE THAT THEY WERE MERE GRATUITIES

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II. THE PROTECTION OF PENSION BENEFITS AS CONTRACTUAL RIGHTS IS NOT ABSOLUTE
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III. SIMILAR PENSION PROVISIONS IN OTHER STATE CONSTITUTIONS CONFIRM THAT THE PENSION CLAUSE IS NOT ABSOLUTE

For these briefs, I’m just extracting the high-level arguments. There is some useful history in there, and I will be revisiting the Illinois Policy Institute argument later.

Amicus brief from Illinois Municipal League

ARGUMENT
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I. The State Retains Its Police Power, Even In Pension-Related Matters, Provided The State Can Make The Required Factual Showings
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II. The Municipal Experience Illustrates The Need For Some Police Power Exception.
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A. Many Police And Fire Funds Are Grossly underfunded, With No Way To Replenish Them.
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B. Illinois Municipalities Are Doing What They Can, But Some Are Already Reducing Police And Fire Protections Because Of Pension Obligations
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C. Some Municipalities Are Already Unable To Meet Their Pension Obligations

It’s nice to see some reality injected, but this is irrelevant to the legal argument, alas.

Compilation of Illinois posts