Illinois Supremes Throw Out Pension Reform Law

By John Iekel • May 11, 2015 • 0 Comments
The Illinois Supreme Court was of one mind on May 8, unanimously ruling in In re Pension Reform Litigation v. Quinn (No. 118585, May 8, 2015), that the state’s 2013 pension reform law that went into effect on June 1, 2014 violates the state constitution.

Lawmakers approved the overhaul to address what’s become a pension shortfall of more than $100 billion. The law attempted to reduce the gap in a variety of ways, including reducing cost-of-living increases for retirees and raising the age at which state workers can retire with full pensions.

Labor unions and retirees who challenged the law argued that the Illinois constitution contains a provision that says state pensions are a contract right that can't be “diminished or impaired.” Sangamon County Circuit Court Judge John Belz on Nov. 21, 2014 rejected the law as unconstitutional. The state appealed to the Illinois Supreme Court.

The measure’s successful backers intended that to mean controlling government spending. The state Supreme Court recognized that, saying that “the purpose of the law was to shore up State finances, improve its credit rating and free up resources for other purposes.” But it did not consider that a worthy goal, and called it “overarching.”

The court acknowledged that government controlling itself was one of the matters at issue. But while the law’s supporters saw that as fiscal restraint, the court had a very different take. Said the court in its ruling, “Obliging the government to control itself is what we are called upon to do today. The Constitution of Illinois and the precedent of our court admit of only one conclusion: the annuity reduction provisions of Public Act 98-599 enacted by the legislature and signed into law by the Governor violate article XIII, section 5’s express prohibition against the diminishment of the benefits of membership in public retirement systems. The circuit court was therefore entirely correct when it declared those provisions void and unenforceable.”

The court also said that the law unfairly placed the burden of addressing the state’s fiscal shortfall on state retirees. In the summary of the ruling, the court said, “Even vendors to whom the State owes money because of the financial crisis are entitled to interest on their unpaid bills. What the General Assembly has done is to force retirees, alone, to bear public burdens which, in all fairness and justice, should be borne by the public as a whole. No effort was made to distribute this financial burden evenly among Illinoisans. A temporary increase in the rate of income tax, allowing for additional revenue, was recently allowed by the legislature to lapse. It cannot be said that there are no alternative remedies available to address these financial difficulties.”

The court further said that invalidating those provisions so gutted the law that it had to be struck down in its entirety. Said the ruling, “The annuity reduction provisions are therefore not merely central to the statute, they are its very reason for being. Without them, the legislature would not have enacted the law at all. To leave those remaining provisions standing once the core sections are stripped away would, under these circumstances, yield a legislation package that no longer reflects the legislature’s intent. The circuit court was therefore correct when it concluded that Public Act 98-599 is void and unenforceable in its entirety.”

The ruling piles on to the fiscal challenges facing the Land of Lincoln. Last September, Moody’s said that that Illinois’ pension debt amounted to 318% of its revenue in 2012. And Gov. Bruce Rauner’s (R) proposed 2016 budget, which includes a provision that would halve the local income tax allotment, could add to the pressures the state’s cities face in meeting their pension obligations.