CHICAGO — The Illinois attorney general has made her pitch to the state Supreme Court on behalf of legislation designed to restructure the state employee pension system.
Illinois' need to protect the public welfare under its sovereign "police powers" trumps the contractual rights granted to public pension benefits by the state constitution, Attorney General Lisa Madigan
The state needed to act to fix the faltering system saddled with a $111 billion tab of unfunded liabilities due to its own "dire" financial condition, the brief argues.
The state's struggles are underscored by its battered credit rating and a backlog of unpaid bills measuring in the billions of dollars.
The defense of the pension legislation came Monday in the first major filing the state submitted to the Illinois Supreme Court.
The state's high court has agreed to expedite the state's appeal of a November ruling by Sangamon County Circuit Court Judge John Belz. The judge found the benefit cuts in the pension legislation to be unconstitutional and voided the legislation in its entirety.
Madigan doesn't dispute the state constitutional language that grants membership in a public pension system is "an enforceable contractual relationship, the benefits of which shall not be diminished or impaired."
Her brief counters that those rights are not absolute in consideration above all else including the state's police powers to alter a contract.
The state argues that the U.S. Supreme Court has long held that a state can't enter into binding contracts that would preclude it from exercising its police power in the future.
"The police power is an essential attribute of sovereignty that the state must always maintain to provide for the welfare of its citizens," the brief argues.
"Accordingly, the contractual rights protected by the pension clause are subject to the state's authority to modify contracts under certain conditions, often referred to as the state's 'police powers.' Not only does the plain meaning of the pension clause compel this result, but it is explicit in the clause's history and has been recognized" by the state's high court, the brief argues.
The unions, employees, and retirees who have challenged the law cutting benefits will file their brief by Feb. 16.
Oral arguments before the justices are set for the court's March term. Several organizations, including the Illinois Policy Institute, the Civic Committee of the Commercial Club of Chicago, the International Municipal Lawyers Association and the city of Chicago, have filed amicus briefs this week in support of the state arguments.
If the high court upholds the lower court decision, state lawmakers and Gov. Bruce Rauner must go back to the drawing board to craft a fix for a system just 39% funded with payments of more than $7 billion due in the next fiscal year.
The state's A-minus level bond ratings, the weakest among states, are also at risk.
The state faces a $2 billion drop in revenue in the next budget due to the partial expiration of a 2011 income tax hike.
The Madigan filing contends Belz' ruling ignored the police powers argument and "adopted plaintiffs' unprecedented claim that the pension clause abrogates that limitation entirely."
It asserts that "if the pension clause really bars the state's exercise of its police powers under every possible circumstance, no matter how dire the consequences, then the 'contractual relationship' the clause creates is unlike any other contractual relationship ever recognized in American law."
Madigan accuses Belz of erring as his ruling included "virtually no discussion or analysis of the police-powers limitation."
In his ruling, Belz gave little credence to the state's defense that it acted within its police and sovereign powers to alter its contract with retirees due to the state's fiscal emergency. Belz said the state did not make the case that such powers were sufficient — or that they even existed — to ignore the "plain language" of the pension clause protecting annuities.
Belz cited language in state Supreme Court rulings that assert the plain language of the constitution cannot be rewritten.
Madigan also argues that Belz erred in overturning the legislation in its entirety without consideration given to upholding some pieces.
The brief challenges the plaintiffs' assertion that the Illinois Supreme Court's opinion last year finding the pension clause protections extend to retiree healthcare benefits applies in the pension benefit case. Some believe the opinion provided a harbinger on the pension case even though the courts did not consider arguments for whether the state's overhaul of the retiree healthcare subsidies violated the constitution.
"The only question presented in [the healthcare case] was whether retiree health care subsidies are benefits within the scope of the protection provided by the pension clause," Madigan argues. "In holding that they are protected by the clause, this court had no occasion to consider the extent of that protection and, specifically, whether they are immune from the state's exercise of its police power."
The opinion "therefore cannot be deemed precedent on an issue it did not discuss or decide, and that it had no basis to decide," the brief continues.
The pension reforms remain on hold during the review because Belz made permanent a temporary injunction banning the state from implementing the changes.
Some of the Madigan arguments echo ones laid out recently
"The terms of the constitution must be interpreted to give meaning to each provision," Spiotto argued. "Accordingly, unsustainable and unaffordable pension obligations, which crowd out the funding of essential governmental services and infrastructure necessary for the health, safety and welfare of the state's citizens, cannot alter or override the mandate for the existence of the government."
Employees, retirees, and their unions argue the state has shorted the pension system while employees paid their mandated share and so the state must shoulder the burden for making good on a constitutionally protected commitment.
"We will make our case that the constitutional pension clause is absolute and that the circuit court's ruling should be upheld," Anders Lindall, a spokesman for the union coalition We Are One, said in a recent statement.
The pension changes are aimed at shaving about $145 billion off state payments in the coming decades, including $1.1 billion in fiscal 2016, while bringing the system to full funding in 30 years. About $21 billion would be pared from the unfunded obligations' tab.
The legislation would limit cost-of-living increases, cap pensionable salaries and raise the retirement age for some, while cutting employee contributions by 1%, shifting contribution calculations to a more actuarially sound method, and giving the pension funds enforcement rights over state payments. Much of the expected savings from the pension overhaul stems from the COLA increases annuitants now receive.
Under the package, the state would shift to an actuarially based method that moves the state's system to full funding by 2044. State contributions are guaranteed and pension funds could ask the courts to compel the state to make the payments although lawmakers can vote to change them.
