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Illinois Unions Challenging Reform Law Ask Supreme Court to Slow Down

When the lawsuit against Illinois’ pension reform law went to the Supreme Court, the Court obliged the state’s request for an expedited process.

The state, win or lose, wants the court’s decision as soon as possible.

But unions and public employees fighting the law are now asking the court to slow down the process. They say they need more time to respond to arguments presented in briefs filed by nearly a dozen groups in support of the law last week.

From Northern Public Radio:

Unions and others fighting to prevent Illinois’ pension law from taking effect are asking the state Supreme Court to ease up on its accelerated timeline.A Sangamon County judge ruled the measure unconstitutional. But Attorney General Lisa Madigan filed paperwork earlier this month that says the state can use “police powers” to cut pensions.

Ten other groups filed briefs backing Madigan’s position.

John Fitzgerald is an attorney who represents retired public school teachers. He says lawyers need more time to respond to all of those additional arguments.

Fitzgerald says his side is still confident reducing benefits is illegal.

“Although we believe that the arguments raised by the amici need to be evaluated and responded to, we do not believe that any of those arguments have any merit; we do not believe that the amici have raised any arguments that should change the outcome of this case.”

The lawyers are asking for an additional month to file briefs with the court. Currently, the briefs are due Feb. 16.

State Lawyers File Arguments in Illinois Pension Lawsuit

Illinois Attorney General Lisa Madigan filed the state’s argument in favor of the sweeping pension law on Monday. Illinois is arguing that pension protections are not absolute, and the law doesn’t violate the state’s constitution.

From the Chicago Tribune:

Lawyers for the state argued that the government’s so-called emergency police powers — the ability to take action to ensure the functions of government — trump the protections of the pension clause.

State lawyers said the ability to fund necessary government services, as well as to continue paying out pensions, has been severely hampered by paying an increasing amount of the state’s checking account to fund the pension systems.

“According to the circuit court’s holding, for example, faced with an epidemic requiring the state to purchase and distribute vaccines or other costly medication, the state could not even temporarily reduce pension benefits to cover those costs,” lawyers for the state argued.

“Nor, in a period of prolonged deflation … could the state reduce pension benefits even if the corresponding rise in benefits caused by 3 percent annually compounded COLAs caused every dollar of state revenue to be spent on pension benefits,” the state filing said.

Meanwhile, business leaders and legal experts who support Illinois’ pension reform law also filed briefs with the Supreme Court Monday arguing in favor of the constitutionality of the law.

Nine briefs were filed in total in support of the state, including one from the city of Chicago.

Questions Surround Bruce Rauner’s Pension Proposal, But Rauner To Be Mum on Specifics Until Court Ruling

Illinois’ pension reform law currently sits in legal limbo. But if the Supreme Court deems it unconstitutional, all eyes will shift to Illinois Gov. Bruce Rauner, who will need to propose a new solution to the state’s pension woes.

On the campaign trail, Rauner supported a plan to shift workers into a 401(K)-style plan. He has since softened his stance a bit, but hasn’t offered much in the way of clarification as to the specifics of his plan.

From the Chicago Tribune:

With Rauner taking over, the pension debt remains unsettled. As has been the case on many issues, the Republican has offered general answers about his preferences for dealing with public pensions and how he’ll respond if the new law is struck down.

“We have some very specific thoughts on that, but we’ll be developing those with the General Assembly,” Rauner said during a postelection visit to the Capitol. “We need a comprehensive, fair overhaul of the pension system, and we’ll make that a top priority.”

[…]

Asked recently if the state should begin working on a “Plan B” while the pension law is debated by the state Supreme Court, Rauner said his “preference is probably to wait until the Supreme Court rules, so we have some ground rules for what probably works and what won’t work. I think that’s a smarter way to do it.”

Would Rauner’s 401(k) plan work? Would it be constitutional? What are the specifics? And is that still his plan? From the Chicago Tribune:

In his successful campaign, Rauner spoke generally about wanting to shift public employees from receiving a defined pension benefit into becoming members of a defined contribution plan similar to a 401(k)-style system.

Rauner has said public workers should be able to keep the benefits they have already accrued, but, moving forward, go into a defined contribution system. He also has said public safety workers should stay in the current system. And, with 80 percent of public employees not eligible to receive Social Security, Rauner has said he favors some unspecified plan to create a retirement safety net.

But it’s unclear whether Rauner’s concept is constitutional, as he maintains, or how it would address the current unfunded pension liability since payments would go into a new retirement system rather than address the shortfalls in the current system.

“Not only does it not solve the problem, but it makes it worse in the near term,” Dye said. “Whatever the solution is will cost something, and I don’t know how it would be implemented. It’s hard to add (Rauner’s concept) up as a fiscal benefit for the state.”

Illinois is expected to make $6.6 billion in pension payments in fiscal year 2015. The state is saddled with over $100 billion of pension debt.

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

Illinois Likely Faces Long Odds on Pension Reform Ruling

In 2015, the Illinois Supreme Court will decide the legality of the state’s pension overhaul that reduced benefits of public workers.

But if legal challenges to similar laws in other states are any indication, the chances of Illinois’ pension reform being upheld are slim, according to a Reuters analysis.

From Reuters:

Court rulings in Arizona show that Illinois, which has the worst funded pensions of any U.S. state, may not have much chance.

The problem is that Illinois, Arizona and New York states all provided public workers, such as police, teachers and even judges, near iron-clad pension guarantees that were embedded in their state constitutions.

Two Arizona laws enacted in 2011 to increase employees’ pension contributions, restrict certain people from receiving pensions, and institute a new formula for calculating benefit increases, floundered in the face of legal challenges. One law, challenged by teachers, was overturned by a Maricopa County judge in 2012, while another, contested by retired judges, was tossed out by the Arizona Supreme Court in February this year. The courts tied their rulings to constitutional language that membership in public pension systems is a contractual relationship, and retirement benefits cannot be “diminished or impaired.”

Illinois and its Republican Governor-elect Bruce Rauner are likely to find themselves in similar bind to Arizona where the only answer appears to be a long-shot effort to amend the state constitution.

“There aren’t many options at this point,” said Jean-Pierre Aubry, assistant director of state and local research at the Center for Retirement Research at Boston College, referring to both states. “The (pension) payments need to be made or the constitution needs to be changed.”

Altering the constitution, however, isn’t a practical option. From Reuters:

Altering the Illinois Constitution’s 1970 pension provision would be a massive undertaking, requiring a three-fifths vote of lawmakers in the House and Senate to get it on the ballot. It would then need approval from three-fifths of voters or a majority of individuals actually voting in a general election — not an easy proposition as people often don’t vote on every item on the ballot and given Illinois is a largely Democratic state with activist public unions.

Illinois’ state-level pension systems were collectively 42.9 percent funded as of June 30, 2014.

Illinois Gov. Signs Law Allowing Felons To Be Stripped of Pensions

Illinois Gov. Pat Quinn has signed into law a measure that allows the Illinois Attorney General to strip pension benefits from public officials who have been convicted of felonies related to their job.

The bill was passed unanimously by the state Senate earlier this month.

From the Associated Press:

A new state law will make it tougher for felons to receive a public pension.

Gov. Pat Quinn signed legislation Monday giving Illinois’ attorney general more power to stop pension payments to convicted felons.

[…]

The Illinois Supreme Court in July upheld a lower court ruling that Attorney General Lisa Madigan couldn’t challenge a Chicago police pension board decision allowing Burge to keep his taxpayer-supported pension.

State Sen. Kwame Raoul is a Chicago Democrat. He says it’s “unconscionable” that Burge receives a pension and the law allows “taxpayers a way to fight back.”

The bill came about after former Chicago policeman Jon Burge was allowed to keep his pension even after being convicted of a serious felony. From the Sun-Times:

In July, the Illinois Supreme Court ruled a Cook County court was correct in not allowing Madigan to intervene in a police pension matter. The decision allowed disgraced former Chicago Police Cmdr. Jon Burge, who was convicted in 2010 for lying about the torture of police suspects, to keep his public pension of about $54,000 a year.

The police pension board deadlocked 4-4 on a motion to strip Burge of his pension. Some argued his conviction was not related to his police work, since he was convicted on perjury and obstruction of justice from a civil suit filed after he left the force.

Under the law, the state attorney general will be able to petition the court to strip pension benefits from public officials. Previously, the attorney general wasn’t allowed to intervene in the decision, which was left to pension boards.

Photo credit: “Gfp-illinois-springfield-capitol-and-sky” by Yinan Chen. Via Wikimedia Commons

Bruce Rauner Named Most Important Player in U.S. Pensions

Institutional Investor magazine has released its list of the 40 most influential people in U.S. pensions. Topping the list is the man who now governs a state with one of the worst pension problems in the country: Bruce Rauner.

From Institutional Investor:

Republican Bruce Rauner, the victor over Democratic incumbent Pat Quinn in the recent Illinois gubernatorial race, may regret he ever wished to win elective office. Rauner, onetime chairman of Chicago private equity firm GTCR, has had no real profile on retirement policy but finds himself staring at what may be the most serious pension mess among the states.

As of June 30, 2014, Illinois’s pension debt had reached $111 billion; Moody’s Investors Service reported in September that the state’s three-year average pension liability over revenue was 258 percent, five times the median percentage for all 50 states.

In 2013, Quinn persuaded the legislature to pass a bill raising the retirement age and cutting cost-of-living increases for beneficiaries. But the Illinois constitution holds that pensions cannot be “diminished,” and a coalition of public employee unions sued. And on November 21, Sangamon County Circuit Judge John Belz found the law unconstitutional, declaring, “Protection against the diminishment or impairment of pension benefits is absolute and without exception.”

Depending on various appeals, Rauner, 57, could try to implement his campaign agenda for pensions, which includes capping the current program and shifting members to a defined contribution plan — though he has begun to talk of just shifting new employees to avoid legal problems. Rauner has said he’d seek to keep benefits from rising faster than inflation and would eliminate employees’ ability to receive large pay hikes before retirement to beef up their pensions.

The odds of pushing these reforms through a Democratic-controlled state senate remain long, made worse by allegations that Rauner (and separately, Chicago mayor Rahm Emanuel [No. 4]) accepted contributions from executives affiliated with firms that manage Illinois pension plans. Rauner has not publicly responded to the allegations.

The ranking clearly reflects not what Rauner has already done, but the power he will have in the coming years. If the Illinois Supreme Court strikes down the state’s pension reform law, lawmakers will have to start from scratch – and Rauner will be at the helm.

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

Chicago Prepares For Pension Payment Spike, Creates Account to Set Aside Funds

Chicago must pay an additional $565 million in payments to its police and fire pension fund by 2016 – a fiscal strain that hasn’t yet been budgeted for.

But the city has now taken a step towards acknowledging the looming payments, by opening up a separate account in which money will be set aside for the pension contributions.

From Crain’s Chicago:

The Emanuel administration will start setting set aside money next year in a newly segregated account for increased pension contributions for municipal employees and laborers who agreed to reforms enacted earlier this year.

The city’s increased contribution from general revenues will be set aside in the new account even though the pension payment isn’t due until 2016, according to an Emanuel spokeswoman. However, increased payments required for its police and fire pensions next year aren’t even in the budget as negotiations continue with union leaders.

[…]

While it’s largely symbolic—the city must make the payments with or without a special fund setting them aside—it’s meant to highlight that the reforms are real and going into effect soon, even as the Illinois Supreme Court agreed Dec. 10 to expedite a case testing whether public worker pensions are totally protected by the Illinois Constitution.

While a segregated fund is a responsible thing to do, “it completely ignores the fiscal irresponsibility of not budgeting for police and fire pensions,” said Amanda Kass, research director at the Center for Tax and Budget Accountability in Chicago. “It sets up the potential for a huge fiscal nightmare” when about $565 million in additional payments for next year’s police and fire pension contributions are due in 2016.

Money for the fund will come from sources other than property taxes, including money freed up by an increased surcharge for 911 calls and miscellaneous small budget cuts, the spokeswoman said. Emanuel was forced to back off his original plan to finance the city’s increased contribution with a big hike in property taxes when Gov. Pat Quinn objected.

It was originally thought that a property tax hike would be the go-to method of revenue generation to raise money for the pension payments. But Emanuel has been adamant that property taxes won’t be raised.

For Bond Buyers, Illinois is “Problem State” Until Pension Limbo Resolved

Illinois has been in a state of pension limbo since July, when a state Supreme Court ruling on healthcare premiums hinted that the state’s pension reform law would be struck down by the courts.

Now, bond buyers are watching closely how the Supreme Court rules on the state’s pension reform law – but until then, investors are marred in “uncertainty” and are calling Illinois a “problem state”.

From The Street:

Municipal debt investors are watching the appeals process that will decide whether or not the State of Illinois’ pension reform bill ends up in the wastebasket, which would send the Land of Lincoln back to square one in its attempts to battle its pension funding crisis.

“There’s so much uncertainty there,” Daniel Solender, the lead portfolio manager for municipal bonds at investment manager Lord Abbett & Co., said by phone Wednesday. “It’s hard to know what the right valuation is [for the state’s bonds].”

So far, investors are waiting and watching. Solender noted that there hasn’t been much trading in Illinois’ bonds in response to a Nov. 21 Circuit Court decision that said the reform bill was unconstitutional. If the Illinois Supreme Court upholds that decision, Solender expects a negative effect on the state’s bond values.

“For investors to get comfortable, there has to be some idea of a plan [for pension reform], and there doesn’t seem to be one [now],” he said.

Still, he is confident that Illinois has time to work out its pension issues one way or another.

Solender and other sources are looking optimistically to Governor-elect Bruce Rauner, a Republican, to address the issue. Rauner will replace Pat Quinn, a Democrat, on Jan. 12.

Illinois’ unfunded pension liability has ballooned to $111.2 billion, according to a November report by the Illinois Commission on Government Forecasting and Accountability. The Teachers’ Retirement System accounts for about half of that at $61.6 billion, the report said.

A June 24 report by Standard & Poor’s revealed that Illinois has, by far, the lowest level of pension funding in the country at 40.4% funded, followed by Connecticut (49.1%).

As part of a Dec. 1 panel in New York City that discussed municipal debt restructuring, William A. Brandt Jr., president and CEO of Development Specialists Inc., said that Illinois holds 43% of the public pensions in the U.S. According to Brandt, who is also the chair of the Illinois Finance Authority, those amount to some 652 public pensions.

“Illinois is your problem state,” he warned.

Moody’s gives Illinois’ credit an A3 rating – the lowest of any state.

Fast-Tracking of Illinois Pension Case Could Be Blocked

Last week, Illinois asked the state Supreme Court to expedite the hearing over the state’s pension reform law.

But on Sunday, attorneys representing the state workers and retirees said they could block the attempt to fast track the case. Such a move could drastically change the timeline for the lawsuit’s hearing.

From the Southern Illinoisan:

In a move that could play a significant role in how Gov.-elect Bruce Rauner crafts his first budget this spring, the lawyers say Illinois Attorney General Lisa Madigan’s bid to put the case on a fast track is unwarranted.

“We do not believe there is any need to impose an emergency schedule,” said attorney John Fitzgerald, who is among a team of lawyers representing retirees. “We see no need to depart from the rules.”

On Thursday, Madigan asked the high court to move quickly in hearing the case because of the financial ramifications the pension changes will have on the state budget.

[…]

Madigan suggested the court schedule oral arguments for as early as Jan. 22 or no later than mid-March.

Attorneys for the retirees, who say the expedited schedule is unnecessary, have until Tuesday to file their objections to the motion.

Without the expedited schedule, the deadline for filing the first significant set of records in the case wouldn’t occur until the final week of January.

After that, the typical court schedule calls for both sides in the lawsuit to trade paperwork for nearly three months. Once that is completed, the high court would then schedule oral arguments.

Under that scenario, the court could hear the case as early as May. If they miss the May docket, the next time the judges are scheduled to hear oral arguments is September.

Following the argument phase, the court could take months to issue a ruling. In a similar case regarding health insurance costs, the court took nearly 10 months to overturn the state’s attempt to force retirees to pay a portion of their pensions toward that expense.

Sangamon County Circuit Judge John Belz ruled last month that the law was unconstitutional.

Illinois Senate Passes Bill That Allows Felons To Be Stripped of Pensions

A bill that would allow the Illinois Attorney General to strip pension benefits from felons passed through the state Senate unanimously last week.

From the Chicago Sun-Times:

The House bill, co-sponsored in the Senate by Sen. Kwame Raoul, D-Chicago, Jacqueline Collins, D-Chicago, and Daniel Biss, D-Evanston, passed the Senate 51-0 without debate.

“What we did in this bill is to clarify the language to make sure that it authorizes the attorney general to petition the court to enjoin the payment of pension funds where somebody’s convicted of a felony in connection to their duty,” Raoul said.

[…]

The bill was debated in committee with some Republicans worried the attorney general could abuse the authority. But Raoul said the attorney general could file a petition to the court, then to the appellate court and ultimately to the Illinois Supreme Court.

“It’s unlikely that you would have an attorney general who could have a conspiracy with the Appellate Court and the Supreme Court,” Raoul said.

A Madigan spokeswoman said the bill will give the attorney general an important new role in pension board cases.

“A public employee convicted of a felony related to their service should not be allowed to receive a taxpayer-funded pension,” state attorney general’s office spokeswoman Maura Possley said. “This bill provides the attorney general with an important watchdog role to ensure taxpayers are not left to foot the bill for a convicted felon.”

The bill came about after former Chicago policeman Jon Burge was allowed to keep his pension even after being convicted of a serious felony. From the Sun-Times:

In July, the Illinois Supreme Court ruled a Cook County court was correct in not allowing Madigan to intervene in a police pension matter. The decision allowed disgraced former Chicago Police Cmdr. Jon Burge, who was convicted in 2010 for lying about the torture of police suspects, to keep his public pension of about $54,000 a year.

The police pension board deadlocked 4-4 on a motion to strip Burge of his pension. Some argued his conviction was not related to his police work, since he was convicted on perjury and obstruction of justice from a civil suit filed after he left the force.

The bill now goes to Gov. Quinn’s desk.

Photo credit: “Gfp-illinois-springfield-capitol-and-sky” by Yinan Chen – www.goodfreephotos.com (gallery, image). Via Wikimedia Commons

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