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.

Chicago Pension Lawsuits Put on Hold Pending Supreme Court Ruling

chicago

Two lawsuits, both challenging the legality of recent pension reforms enacted by Chicago, have been put on hold until the Illinois Supreme Court rules on the state’s pension overhaul.

The plaintiffs filed the motion to put the lawsuit on pause, and it was approved on Thursday.

More from Reuters:

Lawsuits seeking to void a law aimed at shoring up the finances of two Chicago pension funds have been put on hold pending a ruling by the Illinois Supreme Court on a law affecting state public retirement funds, participants in the litigation said on Monday.

“Given the relative timing of the state and city cases, and because a decision upholding the (Sangamon County) circuit court in the state case could be determinative in the city case, the plaintiffs decided it is sensible to stay further proceedings until the supreme court’s ruling is received,” said Anders Lindall, a spokesman for American Federation of State, County and Municipal Employees Council 31.

[…]

During hearings on the preliminary injunction, Chicago’s attorney, Richard Prendergast, contended the 2014 law enacted for the city’s funds would not be derailed by a supreme court ruling voiding the 2013 law for state pensions because the city’s arguments go beyond the need to invoke police powers to ensure the funding of essential public services.

Chicago argues that the law does not unconstitutionally diminish pension benefits because without it the two pension funds would become insolvent in just years. The city’s attorneys have also suggested Chicago would not be responsible for retiree payments should the funds run out of money.

Chicago implemented pension reforms, effective as of Jan. 1, that limit cost-of-living increases and increase contributions from both employees and the city.

 

Photo by bitsorf via Flickr CC LIcense

Illinois Supreme Court Schedules Oral Arguments in Pension Suit

Illinois flag

The Illinois Supreme Court announced on Thursday a specific date and time for oral arguments in the state’s high-profile pension lawsuit.

The arguments will be held on March 11 at 2:30 pm, CST, according to the Associated Press.

Unions, retirees and retiree groups are suing the state over a pension overhaul passed in late 2013. The law cuts benefits for many public workers, who are suing the state over the constitutionality of the law.

Read more Pension360 coverage of the lawsuit here.

Documents: Illinois Gov. Rauner’s Budget Will Recommend Pension Cuts

Bruce Rauner

Illinois Gov. Bruce Rauner will give his budget address on Wednesday afternoon. He’ll announce a number of cost-cutting proposals, and pensions are sure to be featured.

What specifically does Rauner have in mind for the state pension system?

Greg Hinz of Crain’s Chicago Business got a hold of budget documents that hint at Rauner’s plans.

From Crain’s:

On pensions, Rauner is proposing to go substantially farther than the reforms passed a year ago by the General Assembly, reforms that now are being challenged before the Illinois Supreme Court.

Specifically, according to budget documents shared with me, Rauner intends to save $2.2 billion next year, cutting the state’s unfunded pension liability by $25 billion. He’d do that by freezing all benefits as of July 1, moving workers to a new plan in which cost-of-living hikes would be cut from the current 3 percent a year to the lesser of 3 percent or half of inflation, non-compounding; the normal retirement age would be 67, and overtime would not be counted in pension benefits.

These changes would apply to benefits earned after July 1. Benefits earned prior to that date would be paid at the previous rate. The Rauner document says that makes it constitutional as “earned benefits” are not cut. Expect a court challenge to that.

All of these changes would apply only to plans covering teachers, university employees and other state workers—not public safety employees.

Read an overview of the rest of Rauner’s probable budget proposals here.

 

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

Illinois Supreme Court Pension Ruling May Not Affect Chicago Reforms, Say Lawyers

chicago

The City of Chicago filed a brief with the state Supreme Court last week in support of the state’s pension reform law, in part because the city has its own set of pension reforms that could be impacted by the ruling.

But even a ruling overturning the state’s pension law might not affect Chicago’s own reforms, a lawyer for the city said Wednesday.

From Reuters:

Richard Prendergast, an attorney representing Chicago, told Cook County Circuit Court Associate Judge Rita Novak that the 2014 law for Chicago’s municipal and laborers’ retirement systems would not automatically be voided if the state’s high court later this year determines a 2013 law enacted for Illinois’ sagging pension system is unconstitutional.

He said the state is basing its defense on the need to invoke its police powers to ensure it can fund essential state services. The city has an additional argument that its law does not unconstitutionally diminish pension benefits because without its cost-saving elements and higher contributions the two pension funds would become insolvent within a matter of years, he explained.

“The one thing that is not contested here is these two pension funds are in the toilet,” Prendergast said at a court hearing on the unions’ request for a preliminary injunction to stop the Chicago pension law.

Chicago’s reforms mandate higher pension contributions from workers and the city, as well as reduced COLAs.

Two lawsuits have been filed challenging the constitutionality of those reforms.

 

Photo by bitsorf via Flickr CC License

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

Chicago Lawyers Predict “Catastrophic Outcome” If City’s Own Pension Reforms Are Eventually Overturned

chicago

The City of Chicago submitted a brief to the Supreme Court this month supporting the legality of the state’s pension reform law.

That’s because a court decision against the pension law wouldn’t bode well for the legal standing of the city’s own set of pension reforms. Chicago’s lawyers said in the brief that a “catastrophic outcome” should be anticipated if the city’s reforms are eventually overturned.

From the Chicago Sun-Times:

Chicago faces a $300 million deficit in 2016 with shortfalls continuing “for the forseeable future” — even before piling on $20 billion in pension liabilities that have saddled the city with the “worst credit rating of any major city other than Detroit.”

And if state legislation that saved two of four city employee pension funds is overturned, a “catastrophic outcome” awaits retirees and Chicago taxpayers alike triggered by “further downgrades.”

After putting the state case on a fast-track, the Illinois Supreme Court ruled this week that it won’t have time to hear any friend-of-the court briefs.

But the city’s filing nevertheless paints the bleakest and most accurate picture yet of the financial crisis that awaits the winner of the Feb. 24 mayoral election.

“The Chicago bill should survive, regardless of the outcome of this appeal. If it doesn’t, the city’s liabilities will increase by $2.5 million a day,” Corporation Counsel Stephen Patton wrote in the Jan. 12 filing.

“The city will suffer further [bond rating] downgrades that could materially increase the cost of borrowing money essential to funding basic operations. And it could make the city immediately liable to pay hundreds of millions of dollars as a result of default and early termination of debt-related obligations.”

Chicago’s pension reform measure ended compounded COLAs for some retirees and raised employee contributions by 29 percent.

 

Photo by bitsorf via Flickr CC LIcense

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.