Arguments in Illinois Pension Lawsuit Begin Wednesday

Illinois

It’s been nearly 15 months since Illinois’ pension overhaul was passed, and 13 months since the first lawsuits began rolling in.

Now, the state and its public workers are finally squaring off in the halls of the state Supreme Court.

Arguments over the constitutionality of the law, SB-1, begin on Wednesday.

From the Chicago Tribune:

More than a year of legal wrangling over Illinois’ attempt to curb benefits in the nation’s most underfunded pension system will come down to 50 minutes of courtroom debate Wednesday…

Lawyers for public workers and retirees argue the law violates what’s known as the “pension protection clause” of the Illinois Constitution, which holds that public pensions are a “contractual” benefit and cannot “be diminished or impaired.”

But lawyers for the state argue that the government’s emergency police powers — in this case the ability to fund necessary government services — trump the constitution’s pension guarantees.

The arguments are scheduled to begin at 2:30 pm.

Audio and video of the arguments will be available in the coming days, and can be found here.

How Would Illinois’ Supreme Court Pension Ruling Affect Public Schools?

Illinois

Arguments will soon be underway in the lawsuit challenging the constitutionality of Illinois’ 2013 pension overhaul.

Many observers expect the state Supreme Court to uphold the opinions of lower courts and rule the pension law unconstitutional.

If the law were overturned, what would it mean for Chicago Public Schools?

In a column in the Chicago Tribune over the weekend, Chicago Board of Education president David Vitale talked about the implications of such a ruling for Chicago’s schools.

Vitale writes:

You may not realize that if the Supreme Court upholds the lower court’s approach, it will have a significant impact on Chicago Public Schools and the nearly 400,000 students we serve. These consequences are potentially catastrophic, and even under a best-case scenario, would still cripple CPS’ ability to fulfill its obligation to educate these students, many of whom are from disadvantaged backgrounds or in need of special education services. The fact is, CPS does not have the resources to both shoulder the entire burden of saving the pensions and serving its students.

In the absence of changes to pension funding, CPS will be forced to decide between funding the pensions of retired employees and funding the education of Chicago students.

[…]

CPS’ projected deficit for next year is $1.1 billion, and pension costs account for approximately $700 million of that amount. While pension reform alone will not eliminate that huge deficit, it is an essential component of any solution. Without pension reform, there simply will be no alternative to implementing even deeper, more painful cuts that will directly affect the classroom; we have exhausted all other alternatives. To put these cuts into perspective, each $100 million spent on pensions translates into 1,000 fewer teachers. And a smaller number of teachers translates directly into larger class sizes and less attention and fewer educational opportunities for students.

Over the weekend, Moody’s downgraded Chicago Public School’s credit rating to Baa3, one notch above junk. The agency cited pension costs as a major driver of the downgrade.

“Phantom Savings”: Top Illinois Senator Questions Gov. Rauner’s Pension Cuts

Bruce Rauner

Illinois Gov. Bruce Rauner laid out his budget plan on Wednesday, and it included a number of pension cuts – decreasing annual COLAs, freezing benefits, and moving employees into a plan that yields fewer benefits.

(Under Rauner’s proposal, police and firefighters would be exempt from these changes.)

One lawmaker on Wednesday accused Rauner of using “fuzzy pension math” to calculate the savings the cuts would yield.

That followed the accusatory words of another top lawmaker, who claimed Rauner’s pension changes produced “phantom savings”.

Here’s Illinois Senate President John Cullerton:

The basic math still doesn’t work in his proposal. Governor Rauner leaves a $2.2 billion hole in the budget by relying on unrealistic revenues from a questionable pension proposal. Even as the courts review a significant test case, the governor’s plan banks phantom savings for a pension plan that may fail key legislative and judicial tests. When we passed pension reform last year, we took care to exclude possible savings from budget plans pending a legal resolution. The governor’s plan rejects that wisdom.

Indeed, when the state passed its pension overhaul in late 2013, it never included the savings in the budget. That’s because a legal challenge was sure to be brought against the law and Illinois didn’t want to assume savings only to get burned later.

Rauner’s proposals, if enacted, are likely to end up in court as well, depending on the outcome of the state’s current pension lawsuit.

 

Photo by Tricia Scully via Flickr CC License

Video: Lawmaker Behind Illinois Pension Reform on Why the Law is Constitutional

Here’s an interview with Illinois State Rep. Elaine Nekritz, one of the lawmakers who designed the state’s controversial pension reform law, known as SB 1.

Unions and state employees are suing Illinois over the implementation of the law, arguing that the law is unconstitutional for its paring back of benefits.

In this interview, Rep. Nekritz makes her argument for why the law should be considered constitutional.

 

Feature photo by  Mr.TinDC via Flickr CC License

Illinois Gov. Rauner Proposes Bankruptcy As Strategy for Taming Municipal Pension Debt

Illinois

Illinois Gov. Bruce Rauner didn’t touch on pensions during his State of the State address this week.

But in a list of policy proposals handed out to lawmakers, Rauner suggested giving municipalities the power to file for bankruptcy as a way to tame pension debt.

Even if towns and cities didn’t act, the threat of bankruptcy could give them leverage in pension negotiations with workers.

From the Chicago Tribune:

Gov. Bruce Rauner wants to give cities, towns and counties the authority to file for bankruptcy protection, a move that could give local governments a stronger foothold when negotiating with local police and fire officials over costly pension obligations.

[…]

Rauner aides would not elaborate on how it might work.

But the single sentence calling for the state to “extend to municipalities bankruptcy protections to help turn around struggling communities” mirrors a proposed law introduced last month by state Rep. Ron Sandack, R-Downers Grove. Sandack said his aim was to give cities more tools for getting their financial affairs in order, including a “level field” when negotiating over pensions.

Federal law only allows municipalities to file for bankruptcy with explicit permission from the state where they are located, said James Spiotto, a municipal bankruptcy expert and attorney who is managing director of Chicago-based Chapman Strategic Advisors.

Currently, only the Illinois Power Agency has been given such authority. It would take passage of a new state law to extend the authority to municipalities.

Chicago Mayor Rahm Emanuel was quick to dismiss the idea that the city would use such a tactic to lower its pension costs, according to the Tribune.

Rauner’s State of State Address Short on Pension Talk

Bruce Rauner

On Wednesday, new Illinois Gov. Bruce Rauner gave his State of the State address.

The speech wasn’t short on policy ideas – but in one area, Rauner was conspicuously mum: Pensions.

Rauner didn’t so much as say the words “pension” or “retirement” in his speech. Observers say he could be saving that talk for his budget address later this month.

More from the Chicago Tribune, including reaction from credit rating agencies:

For rating agency analysts, who routinely check the state’s pulse for signs of improving health, the assessment was simple: “Show me.”

[…]

On Wednesday, Rauner provided little detail about how he’d tackle Illinois’ largest financial troubles.

The past is littered with proposals to “right the ship, but they didn’t get there,” said Karen Krop, an analyst for Fitch. “We’re looking for an effective balanced budget and a pension solution.”

She said she will be watching closely for the governor’s coming budget proposal — a document that will provide more detail than the agenda Rauner outlined this week. The key, Krop said, would be permanent solutions to the state’s financial problems.

The state’s rating, its financial grade, has been “downgraded multiple times over the last five years because of its inability to find permanent solutions,” Krop said. There’s a “mismatch between spending and revenue,” and while temporary tax increases helped since 2011, they aren’t lasting.

“A lot has to do with the pension liability,” Moody’s analyst Ted Hampton said. “The state is still a long way off from coming to terms with its pension liabilities.”

A potential pension solution remains tied up in courts and is a major reason why rating agencies such as Moody’s have graded Illinois as the most unhealthy of states financially.

[…]

“Illinois’ long-term liabilities, particularly pension liabilities, are very high for a U.S. state and are expected to remain so even with improvement in pension funding from pension reform,” Krop said.

Read the full speech here.

 

By Steven Vance [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

Video: How Might Bruce Rauner Tackle Illinois Pensions?

How might Bruce Rauner attack the state’s pension debt? Pension360 has covered his changing views on reforms.

In this video, Illinois Policy Institute CEO John Tillman talks about the state’s pension debt and how Rauner might handle it.

 

Video credit: The Wall Street Journal

 

By Steven Vance [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

Where Does Bruce Rauner Stand on Pension Reform?

Bruce Rauner

When talking pensions on the campaign trail early in 2014, Bruce Rauner said that new hires, current workers and retirees all would need to be on the receiving end of pension benefit cuts.

But Rauner has softened that stance in recent months; the Illinois governor now says the benefits accrued by current workers and retirees need to be protected.

From NBC Chicago:

[Rauner remarked] that it’s most important to “protect what is done—don’t change history. Don’t modify or reduce anybody’s pension who has retired, or has paid into a system and they’ve accrued benefits. Those don’t need to change.”

[…]

“What we should change is the future—the future accruals, the future benefits for future work,” he said, according to the Chicago Sun-Times. “That is constitutional. It’s also fair and appropriate for the taxpayers and the workers themselves.”

“Hopefully (the state Supreme Court) will give us some feedback that will help guide the discussion for future modifications as appropriate for the pensions,” noted Rauner.

Rauner’s website has also been updated accordingly and clarifies his official stance further. He is still pushing for a switch to a 401(k)-style system, but he wants to keep current retirees insulated from any changes:

We must keep our promise to current retirees, but we put all government workers at risk by continuing to promise a pension no one can afford.

[…]

We must boldly reform our pension system. To do that, we can:

* Ensure pay and benefits do not rise faster than the rate of inflation.

* Eliminate the ability of government employees to receive massive pay raises before they retire just to increase their pension.

* Cap the current system and move towards a defined contribution system.

The change in sentiment is perhaps due to a circuit court ruling late last year that overturned the state’s pension reform law, which made it more unlikely that pension reforms can legally come in the form of benefit cuts for retirees.

The law is currently being heard in the halls of the state Supreme Court.

It could also be that Rauner, since taking office and taking the temperature of fellow lawmakers, is now more in-tune with the political realities of steep pension cuts, and doesn’t see the worth in pushing an unpopular policy if it has little chance of coming to fruition.

 

By Steven Vance [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

Judge in Illinois Pension Lawsuit Rejects Request For More Time

Illinois flagLawyers representing groups challenging Illinois’ pension reform law asked for more time to file arguments this week. The request would have extended the deadline by a month.

The judge presiding over the case rejected that request on Thursday.

From the Associated Press:

The Illinois Supreme Court has rejected a request for an extra month to file arguments by lawyers contesting the law that overhauls a state pension program that is $111 billion in debt.

Attorneys for state employees, retired teachers and others who contest the constitutionality of the law said they needed until March 16.

But the court denied the motion Thursday because it had already agreed to fast track the appeal of a lower court’s ruling. The case is scheduled to be heard in March.

The judge also rejected a request from outside groups who wanted to file additional briefs. From Pantagraph:

A lawsuit seeking to overturn changes to the state’s employee pension systems remains on a fast track.

In a decision issued Thursday, the Illinois Supreme Court denied a request from outside groups and individuals to file briefs in the case, saying the additional filings could put the court’s plan to hear the case during its March term in jeopardy.

Attorneys representing state retirees and employees who would be affected by the Legislature’s controversial 2013 pension overhaul supported the court’s decision.

Bruce Rauner Softens Stance on Pension Cuts, Calls For Protection of Vested Benefits

Bruce Rauner

When talking pensions on the campaign trail earlier this year, Bruce Rauner said that new hires, current workers and retirees all would need to be on the receiving end of pension benefit cuts.

But Rauner has softened that stance this week; the Illinois governor-elect now says the benefits accrued by current workers and retirees need to be protected.

The change is perhaps due to a recent circuit court ruling overturning the state’s pension reform law; the ruling makes it increasingly unlikely that pension reforms can legally come in the form of benefit cuts for retirees.

More on Rauner’s comments from NBC Chicago:

Gov.-Elect Bruce Rauner changed his tune to defend retired state employee’s pensions on Monday, remarking that it’s most important to “protect what is done—don’t change history. Don’t modify or reduce anybody’s pension who has retired, or has paid into a system and they’ve accrued benefits. Those don’t need to change.”

[…]

“What we should change is the future—the future accruals, the future benefits for future work,” he said, according to the Chicago Sun-Times. “That is constitutional. It’s also fair and appropriate for the taxpayers and the workers themselves.”

“Hopefully (the state Supreme Court) will give us some feedback that will help guide the discussion for future modifications as appropriate for the pensions,” noted Rauner.

[…]

The Republican investor said on the campaign trail earlier this year that he’d slash benefits to retirees and current workers and lead a transition into a corporate-esque 401(k) arrangement. But as he prepares to take over the governorship, and see his ambitious election-season statements clash with political realities, Rauner has apparently softened his views on pension reform to pardon those who’ve invested income—placing money (and trust) in a dysfunctional system.

The Illinois pension reform law, which will soon head to the Supreme Court, froze cost-of-living-increases and increased the retirement age. But a circuit court judge ruled last week that the benefits of current and retired workers are protected under the Illinois constitution.

 

By Steven Vance [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons