The Illinois Supreme Court has struck down a 2013 law that attempted to fix the pension crisis in teh state, finding it unconstitutional on the grounds that it diminished state employees’ earned benefits.
The ruling criticized how the General Assembly handled the public pension fund, noting that the law was clear that the promised benefits must be paid, and that the state’s share of the funding was the responsibility of the legislature.
The court also noted that the funding problems were foreseeable, and that the General Assembly is in a crisis of its own making, and one that other public pension systems have managed to avoid, and it can’t legislate its way out of its commitments.
The General Assembly had the option of looking for additional tax revenue to deal with the pension crisis, and while lawmakers did pass a temporary income tax increase, it allowed that rate to lapse even as pension funding was under debate.
The fact that Illinois lawmakers didn’t seek a more conservative approach to dealing with its own financial difficulties rather than trying to blow up and start fresh played into the decision. The court noted that the Illinois Constitution “expressly provides” that the benefits from a public retirement system shouldn’t be diminished or impaired.
However, the General Assembly has attempted to find ways to circumvent the “clear and unambiguous prohibition” outlined in the constitution against going after benefits, the court wrote, adding that if constitutional rights could be nullified due to economic pressures, then more than just pension benefits would be in trouble, but also all rights and property would be at risk from the state.
As a result, the ruling is meant to protect the people of Illinois from unjust loss of rights from the state’s failure to manage its own problems, the court stated.
Taxpayers around the nation face public pension problems totaling $1 trillion, and that includes the $105 billion pension liability in the state of Illinois. The court unanimously tossed the law that was designed to fix that liability, arguing in a 38-page opinion that the state constitution bars pension benefits from being touched.
The ruling will have a major impact on Illinois — especially on the city of Chicago which is facing grave pension problems of its own, and it could have ripple effects on other states. However, Illinois is special in that this particular decision was expected, and therefore the effect is relatively muted and won’t have as big of an effect on the other states as if it had gone the other way.
The contraction of the economy since 2008 caused generous public pensions that were negotiated in good times to become major political headaches a few years later, as payments to the pension systems began to eat up municipal budgets, resulting in painful cuts in other areas, such as public services like the police and roads.
State pension plans are funded at about 72 percent nationwide, and about 6 percent of the entire municipal budget typically goes to pension systems, leaving a total shortfall nationwide amounting to $1 trillion. Illinois is in particularly bad shape at over $100 billion.
Lawmakers tried to fix this by passing a law at the end of 2013 that would have saved an estimated $160 billion in 30 years by altering the rules for employees, lowering the future cost-of-living estimations and increasing the age at which employees could retire. It also capped payments to employees at the higher end of the scale, according to reports.
It was controversial deal in a state where unions rule, but state officials said it was their only hope to fix the budget crisis. Now, it’s back to the drawing board as the court struck down the law.
