STUMP » Articles » Public Pensions Watch: Illinois Law v. Reality » 6 July 2014, 16:00

Where Stu & MP spout off about everything.

Public Pensions Watch: Illinois Law v. Reality  

by

6 July 2014, 16:00

Mr. Bumble from Oliver Twist would like you to know something

“That is no excuse,” replied Mr. Brownlow. “You were present on the occasion of the destruction of these trinkets, and indeed are the more guilty of the two, in the eye of the law; for the law supposes that your wife acts under your direction.”

“If the law supposes that,” said Mr. Bumble, squeezing his hat emphatically in both hands, “the law is a ass- a idiot. If that’s the eye of the law, the law is a bachelor; and the worst I wish the law is, that his eye may be opened by experience- by experience.”

I will say a bit more about Mr. Bumble and his particular situation re: the law at the end of this post.

What caused this particular famous Dickensian line to come to mind was an unfortunate ruling of the Illinois Supreme Court last week. 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.

Let us look at some coverage on the ruling, and the reactions to it.

From the Chicago Tribune right after the ruling was made

The Illinois Supreme Court ruled today that subsidized health care premiums for retired state employees are protected under the Illinois Constitution, signaling potential trouble for an overhaul of pension benefits that’s also being challenged in court.

The 6-1 decision centers around a 2012 law that allowed the state to charge retired workers for health care insurance premiums, which many did not have to pay depending on how long they worked for the state.

Retired workers sued, arguing the changes violated a provision in the state constitution that declares pension benefits “shall not be diminished or impaired.” Attorneys for the state argued the constitution did not specifically declare health care benefits were protected.

In Thursday’s ruling, the justices argued “there is nothing in the text of the Constitution that warrants such a limitation.”

Then something from Crain’s Chicago Business

Pension reform, RIP?

In a case with ominous implications for the state’s pension reform law, the Illinois Supreme Court ruled today that the state constitution prevents any diminishment of health care benefits for retired state employees.

According to the 6-1 decision, the pension protection clause — which says that retirement benefits are a contractual agreement that “cannot be diminished or impaired” — applies to other retirement benefits, not just pensions. That overrode the state’s argument that its emergency powers, in dealing with its budget crisis, justified an increase in what retirees must pay for their health benefits. (Read the opinion below.)

The decision comes while the state is defending against challenges to an overhaul in December 2013 of pensions for state workers and schoolteachers outside Chicago. It also has implications for recent cutbacks in health care retiree benefits by the city of Chicago, which filed a friend-of-the-court brief supporting the state’s position.

“This is a major victory for members of state retirement systems,” said John Fitzgerald, a partner at Chicago law firm Tabet DiVito & Rothstein LLC who represents retired state teachers and school administrators. “I expect it will have a very significant effect on pending litigation” over the state’s pension reform law. “It means that the Illinois Supreme Court is giving the pension protection clause the broad and liberal interpretation that the drafters intended.”

……
RIGHTS OF THE PENSIONER

In an opinion written Justice Charles Freeman, a Chicago Democrat, the court indicated that it would not take a deferential approach. The court said any changes to a pension statute “must be liberally construed in favor of the rights of the pensioner,” quoting one of its own opinions, written in 2013, that involved a dispute over early retirement between an electrical department supervisor and the downstate city of Peru.

“If they had intended to protect only core pension annuity benefits and to exclude the various other benefits state employees were and are entitled to receive as a result of membership in the state’s pensions systems, the drafters could have so specified. But they did not,” according to the 20-page opinion. “We may not rewrite the pension protection clause to include restrictions and limitations that the drafters did not express and the citizens of Illinois did not approve.”

In one key paragraph, the court rejected the idea that the state’s budget crisis could justify a change in retiree benefits.

In its examination of the floor debate on the pension protection clause during the drafting of the state constitution in 1970, the opinion says: The intent of the pension protection clause was “to guarantee that retirement rights enjoyed by public employees would be afforded contractual status and insulated from diminishment or impairment by the General Assembly. In light of the constitutional debates, we have concluded that the provision was aimed at protecting the right to receive the promised retirement benefits, not the adequacy of the funding to pay for them.”

“Throughout the majority opinion, the justices seem to make abundantly clear that they read the (constitutional) language to read exactly what it said,” former state budget director Steve Schnorf said. “If they can read the pension clause to protect health benefits . . . they certainly would use it to protect pension benefits.”

……
BURKE’S DISSENT

In a 10-page dissenting opinion, Justice Anne Burke tried to narrow the impact of the majority opinion, possibly with an eye toward the bigger pension cases to come.

The plaintiffs, representing retired state employees and teachers, were challenging a 2012 law that repealed a previous statute requiring the state to pay the full cost of health care benefits.

While ruling that health coverage is covered by the pension protection clause, the majority did not address whether the 2012 law actually violated the constitution, according to Ms. Burke, a Chicago Democrat and wife of Alderman Edward Burke.

The trial court did not decide whether the 2012 law “‘would be an unconstitutional diminishment or impairment of those rights, or whether they were subject to a justifiable exercise of a power to adjust private contractual rights, including in contracts with the government itself,‘” Ms. Burke says, quoting the attorney general’s brief.

Yet Mr. Freeman made clear the 2012 changes were not minimal. He distinguished a decision by New York’s highest court, which held that health care benefits are not covered by that state’s pension protection clause, by saying it involved a “mere increase in contribution levels.”

Okay, enough reportage.

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.

Nobody is arguing that new entrants’ pensions/benefits cannot be changed. But that’s not where the trouble is coming from. It’s from an ever-ratcheting upward set of benefits for those who have been working for Illinois governmental bodies for decades and for those who are already retired.

I am not digging into the details here, but the way I am interpreting the ruling is that the benefit in question is having 50% of one’s health insurance premiums covered. Not a specific dollar amount (inflation-indexed, even). Health care cost inflation has been higher than general inflation rates for decades:

And that’s just the total costs. This is not the insurance bit. And given required coverages in Obamacare, I wouldn’t be surprised of the health insurance inflation rates are much higher than the health costs inflation rates.

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.

So, what now?

First, for those who are net taxpayers in Illinois: GET OUT

Iowahawk is moving to Texas, but he’s not the only one. Lots of people have already taken a hint and left Illinois. If you decide to stay, remember choices have consequences.

For the politicians en masse, I guess they can try to amend the Illinois state constitution. That’s the only way you can get around a ruling like this, in a legal way. But I saw how long it took them to get even mild reforms through the legislature. And all the tricks that Madigan and Rahm had to try.

For specific politicians — Madigan, just retire already. You’re 72 years old., the fun money is gone, take a page out of Daley’s book. Let your daughter deal with this crap on her own.

Rahm, you should’ve taken that Daley hint. Chicago is screwed.

Employees of Illinois: save as much cash up as you can, and follow the taxpayers out of Illinois as well. The blogger at Second City Cop and his commenters are delusional that this ruling is at all good for them. All it means is that the end of your sweet benefits are just that much closer. Thinking that you’ll always get yours means that you will not make the deals that need to be made before catastrophe occurs.

The public employees of Greece thought they had theirs. The public employees of Prichard, Alabama thought they had theirs. The employees of Rhode Island thought they had theirs.

The law is doing you no favors by making you unable to cut any sort of deal. I do realize a lot of public employees do not see it that way, but feeling really strongly about what one does or does not deserve does not make it so.

And this comes back to the law being an ass in general. In Mr. Bumble’s case, his wife was not under his control, but he was definitely complicit in the particular crime, and both Mr. and Mrs. Bumble got what they deserved. It may have been a stupid assumption that a man controls his wife’s actions, but Bumble chose to marry her and knew what he was getting into when he did so.

The people who wrote that constitutional amendment knew what they were doing

“Hey, don’t blame us. Blame the people who wrote such broad pension protection wording into the 1970 Constitution that if back-scratchers were a freebie benefit for public retirees, taxpayers would have to keep supplying those, too. And blame the lawmakers of both parties who in succeeding decades cut sweetheart deals that enormously expanded pension and other retirement obligations. Who did they think would pay for all this? Oh, and for those legislators who thought they could promise to pay public workers’ retiree medical premiums as a trade-off or “consideration” for reducing future pensions, fuhgeddaboudit: Those retiree medical premiums are already guaranteed to retirees.”

This was done on purpose. Both the politicians and the public employee unions made this deal before I was born. They would not at all have been shocked by this legal result. That is what they intended, after all.

Current Illinois politicians see the consequences of that result far heavier than the public union employees, because they are seeing credit ratings erode underneath them, and they may have issues meeting operating expenses (remember that the actuarially required contribution to the pension fund is an operating expense, which I will explain another time.) They will have to ask for higher taxes from an electorate already fed up with the high taxes for low return that they’re getting.

The unions think they’ll always get theirs.

And they will.

Right up until they don’t.

Compilation of Illinois posts


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