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Illinois Asks Supreme Court to Fast-Track Pension Reform Hearing

Illinois’ Attorney General on Thursday requested that the state supreme court hold hearings on the state’s pension reform law as soon as January and no later than March.

From Reuters:

Attorney General Lisa Madigan filed a motion to accelerate the state’s appeal of a Nov. 21 Sangamon County Circuit Court judge’s ruling that the law aimed at easing Illinois’ huge pension burden violated protections in the state constitution for public worker retirement benefits.

“A prompt resolution of those issues is critical because the state must either implement the act, or in the alternative, significantly reduce spending and/or raise taxes,” the motion stated.

At stake is an approximately $1 billion cut in Illinois’ contribution to four of its pension systems in fiscal 2016 under the law. Republican Governor-elect Bruce Rauner, who takes office next month, has a Feb. 18 deadline to present a budget to the Democrat-controlled legislature, which has until May 31 to pass the spending plan with simple majority votes. A three-fifths majority vote on bills would be needed after that date to have a budget in place by July 1, the start of fiscal 2016.

[…]

The reform law was enacted in December 2013 to help save Illinois’ sinking finances. It reduces and suspends cost-of-living increases for pensions, raises retirement ages and limits salaries on which pensions are based. Employees contribute 1 percent less of their salaries toward pensions, while contributions from the state, which has skipped or skimped on its pension payments over the years, are enforceable through the Illinois Supreme Court.

Illinois had $104 billion of unfunded pension liabilities at the end of fiscal year 2014.

How Credit Rating Agencies Reacted to Illinois Pension Ruling

None of the three major rating agencies changed their outlook on Illinois’ credit in the wake of a lower court ruling that deemed the state’s pension reform law unconstitutional.

But rating agencies are certainly keeping a close watch on the state as the reform law moves up to the Supreme Court. And all three agencies had something to say after the ruling.

Moody’s had the harshest take, calling the ruling “credit negative” that leaves the door open for a rating downgrade. Summarized by Governing:

[Moody’s] issued an analysis on Nov. 24 that said the “state’s negative outlook indicates the possibility that factors such as further growth in the state’s pension liabilities will drive the rating lower still.” The state is appealing the decision to the Illinois Supreme Court but Moody’s was wary of its chances and pointed out that the top court this summer indicated in a separate case on retiree health benefits that would adhere strictly to the pension protection clause.

A top Moody’s official commented further in a WUIS report:

“The average state from our perspective or the expected rating for a state is AA1, which is our second highest rating. And so Illinois is A3, so that’s five rating notches below that,” said Ted Hampton, a Vice President at Moody’s Investor Service. “Which is to say, it’s still an investment-grade rating. It’s still a strong rating in the context of every kind of security that we rate. But it’s far below all of the other states.”

Hampton says Moody’s saw Illinois’ passage of the pension overhaul as beneficial, but not enough to move the credit ratings needle – because a court challenge was suspected. The recent court ruling likewise wasn’t not enough to prompt a change, though Moody’s called the decision “credit negative” in a notice sent out Tues., Nov. 24.

“We do get a lot of inquiries about states, particularly Illinois where there are problems that are in the news, and where the situation is in flux. And publishing these comments helps us get our opinion out to those investors, or to the general public,” Hampton said.

Fitch and S&P said the pension ruling didn’t move the needle much as far as the state’s credit rating. From Governing:

Fitch Ratings and Standard & Poor’s were far more forgiving. Both said they had already factored in the likelihood of court challenge into their current ratings for Illinois. “More importantly, from a credit perspective,” S&P added, savings from the pension reform are not included in the fiscal 2015 budget.”

Interestingly, Fitch’s main concern wasn’t the pension ruling. Instead, the agency said the real concern was the expiration of several tax increases. From Governing:

Fitch did note another trouble spot for Illinois’ credit lurking just ahead: the scheduled expiration of temporary tax increases in 2015. “The state passed a placeholder budget for the current fiscal year with a stated intent to revisit the issue after the November elections,” Fitch said. “Taking steps to address the long-standing structural mismatch between revenues and spending would put the state on more solid financial footing, while failure to take action would be a return to past practices and leave the state poorly positioned to confront future downturns.”

Reeder: Pension Ruling Puts Illinois in a Bind

Last month, a circuit court struck down Illinois’ pension reform law, deeming it unconstitutional.

Scott Reeder, a journalist who has covered politics across the country for 25 years, wrote about what could happen if the Supreme Court upholds the circuit court’s ruling in his column in the Journal Standard:

Belz’s ruling sets the stage for the crisis to deepen.

While government worker unions were touting the ruling as a victory, it’s actually sowing despair for many current employees and sets the stage for generational warfare.

If the high court upholds this ruling, tax dollars that would be go to support schools, prisons and other state services will be diverted to fund pensions.

Look for teachers, prison guards and other state workers to receive pink slips to free up money for increased pension payments.

Who else but government workers routinely retire in their 50s, have guaranteed cost of living adjustments and pensions guaranteed to grow until the day they die?

Not most of us in the private sector, that’s for sure.

Things won’t be pretty during the 2015 legislative session, which begins in January.

Don’t be surprised if deep cuts are made in state spending, less money flows to schools and more government workers head toward the unemployment line.

And things could get worse when summer comes. That’s when the labor contract with the largest state workers’ union expires.

One should expect Gov.-elect Bruce Rauner to demand wage concessions.

It’s simple math.

With more money going to pensions, less will be available for wages and other benefits.

Of course, the Illinois Supreme Court could rule that the crisis is so extreme that the state’s emergency powers allow it to reshape pensions on their own.

Just how severe is the crisis?

If all of state government were to shut down and its entire operating budget were diverted to fund pensions, Illinois pensions would still be in the hole three years from now.

Now, that’s a crisis.

Read the entire piece here.

Judge: Illinois Pension Reform Law Is Unconstitutional

A Circuit Court judge ruled Friday afternoon that Illinois’ sweeping pension reform law is unconstitutional.

Judge John Belz said in his ruling that the Illinois constitutional makes a promise to protect employee pension benefits.

The ruling will be appealed and will soon head to the state Supreme Court.

From Crain’s Chicago Business:

Sangamon County Circuit Court Judge John Belz ruled today that the state’s pension reform law is unconstitutional, setting up an immediate appeal to the state’s highest court.

“The State of Illinois made a constitutionally protected promise to its employees concerning their pension benefits,” Belz said in his seven-page ruling. “Under established and uncontroverted Illinois law, the State of Illinois cannot break this promise.”

While the state lost this round, the constitutional question ultimately has to be resolved by the Illinois Supreme Court. The longer the case takes to get there, the longer state finances remain in limbo and the longer any “Plan B” for pension reform goes undiscussed.

“Seven people will decide this at the end of the day,” said Illinois Sen. Daniel Biss, D-Skokie, one of the principal co-authors of the pension reform law. “It’s a victory for the state to get it to the Supreme Court faster. The state suffers from uncertainty. Ultimately what matters most is how we resolve this problem eventually.”

The decision was widely expected, given the state Supreme Court’s ruling in Kanerva vs. Weems, a similar case in July testing whether retiree health care benefits can be reduced. The justices ruled that the state constitution’s pension protection clause is “aimed at protecting the right to receive the promised retirement benefits, not the adequacy of the funding to pay for them.”

Proponents of the reform law called today’s ruling “significant”, but not a be-all-end-all judgment by any means. That’s because the Illinois Supreme Court, who will hear arguments on the law at some point in the coming months, will have the final say.

The state has 30 days to appeal the ruling up to the Supreme Court.

Illinois House Passes Bill That Would Take Pensions Away From Convicted Public Officials

The Illinois House passed a measure today that aims to prevent full pension benefits from being paid to public officials who have been convicted of felonies related to their public service.

It passed the House by an overwhelming 99-14 count.

Pension Reform in Illinois Likely to Look Different Under Rauner If Supreme Court Rejects Current Law

Under Gov. Pat Quinn, Illinois passed a sweeping pension overhaul that cut COLAs and raised retirement ages for some workers.

But the state Supreme Court could reject the law. If that happens, it will be Bruce Rauner who will be able to shape reform legislation, which will likely look different than Quinn’s. From the Wall Street Journal:

Confronting the nation’s worst state pension shortfall was the top concern of Illinois Gov. Pat Quinn. The same will likely be true for Bruce Rauner, his newly elected successor.

The Illinois Supreme Court in coming months could dump the $100 billion problem in the lap of Mr. Rauner, who defeated Mr. Quinn on Tuesday to become the state’s first Republican governor in more than a decade.

A year ago, Mr. Quinn, a Democrat, won passage of a bill that lowered future pension costs by shrinking cost-of-living increases for retirees and raising retirement ages for younger employees, among other steps. State workers and retirees challenged the law, and a recent ruling by Illinois’s top court signaled the justices may end up overturning the law.

Mr. Rauner, who was a longtime private-equity executive before deciding to run for governor, has said he favors moving to a 401(k)-style system over pensions, but the shape that would take at the state capitol remains to be seen. Mr. Rauner was quiet the day after his big victory and his campaign declined an interview request.

Part of the challenge for any plan for Mr. Rauner will be getting it through the Democratic-controlled legislature. Many there agree the state has a big problem, but Mr. Quinn had a bruising fight with his own party to broker a deal.

To be sure, Illinois will continue to be a focus of the national debate that’s raging over how to fix ailing public pension systems. But on Tuesday, the Land of Lincoln wasn’t alone in having the issue play a role in the elections.

Bruce Rauner gives some hints about what his plans for pension reform would look like on his website:

I believe we must choose to address this problem head-on. No tinkering around the edges.

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.

Teacher Group: Illinois Pension Reform Is “Direct Violation” of Lawmakers’ Oath of Office

Last week, the Illinois State Journal-Register published a piece by Ty Fahner exalting the state’s pension reform law and detailing the consequences that would face Illinois in the wake of a court rejection.

Now, the newspaper has published a rebuttal from Bob Pinkerton, president of the Illinois Retired Teachers Association.

The letter reads:

“What if pension reform is rejected?”

These words were written by Ty Fahner, president of the Civic Committee of the Commercial Club of Chicago, sometimes referred to as the Millionaires’ Club.

The question should be, “What happens when the Supreme Court reminds us what the Illinois Constitution says in Article 13, Section 5, ‘… benefits, of which, cannot be diminished or impaired?’”

What does the legislature do when it is forced to acknowledge the pension reform lawmakers voted for is in direct violation to their oath of office?

Mr. Fahner writes, “A decade ago, only a small fraction of state revenues went to fund the pensions.”

This is the problem. Over the years, the legislature violated the laws they passed by skipping or reducing pension payments so they could afford new projects.

The state cannot expect retirees to fill the pension gap left by irresponsible lawmakers. It is not right that the legislature is now attempting to reduce benefits to pay for the past negligence of the state.

Over the years, no one complained when new programs were implemented without new revenues because stealing from the pensions seemed harmless to them at the time and these were available dollars already allotted in the state budget.

The bill is coming due for all those years of pension holidays. Illinois has the fifth-largest economy in the country. I believe we can figure out a way to pay our bills.

Read Ty Fahner’s original column here.

Former Illinois Attorney General: Pension Reform “Single Most Important” Issue Facing Illinois

Ty Fahner, president of the Civic Committee of The Commercial Club of Chicago and former Illinois attorney general, has been pushing Illinois lawmakers for months to come up with a “Plan B” for pension reform.

He contends that it’s likely the Illinois Supreme Court will overturn the state’s pension reform law. And if it does, Illinois has no contingency plan in place.

In a column in the Belleville News-Democrat, Fahner says of pension reform: “no issue of greater importance to Illinois’ future”. He writes:

What if?

It’s the single most important question that Illinois residents should be asking, and candidates for office should be answering.

Yet as Election Day approaches, too few are asking about the most critical issue facing the state.

What if the Illinois Supreme Court rejects pension reform?

Illinois needs an open and honest conversation about the potential impact this decision could have on the state and its citizens. Regardless of the outcome, the consequences are far-reaching and voters deserve to know whats at stake.

This is about what is good for the state and its future. Illinois needs to be in a position to grow its economy, create jobs for Illinois residents, invest in education and infrastructure and provide for the most vulnerable among us. The pension law decision will have a sweeping impact that will touch every Illinois resident in one way or another.

Illinois can no longer kick the can down the road. Half measures will not suffice. We need to address these issues now. Even if the law is upheld, we are still lagging virtually every state in the nation. All of the answers to these questions will take time to develop, win approval from the General Assembly and implement. Many of the social services already have been cut to the bone and educational funding reduced by $2.7 billion since 2009 — what is the plan?

[…]

With the future of pension reform hanging in the balance, now is the time to ask the question.

What if?

No issue is of greater importance to Illinois’ future.

And if the Supreme Court does reject the state’s pension reform law, Fahner writes:

If the court rejects the law, $145 billion in state contributions is immediately added to the taxpayer tab over the next 30 years. Whether through even more tax hikes or continued service cuts, that money has to be accounted for. We would pay a lot more for a lot less in return.

Property taxes could rise to the highest in the nation. School districts could face further budget strain. Tens of thousands of seniors, children and mentally ill could face significant reductions, if not loss, of the state assistance on which they rely. The security of the pension systems themselves would be jeopardized.

Illinois needs this conversation. The sad truth is that all of the state”s biggest problems are directly tied to the pension crisis, which has already resulted in paralyzing tax hikes, steep cuts to social services, unreasonable burdens on students and the loss of jobs to neighboring states. Already, Illinois ranks last or near last among the states on every economic indicator from unemployment, to property taxes, to jobs climate and state support for education.

Read the entire column here.

Illinois Pension Case Stays On Fast Track; Arguments Set For November

Illinois’ pension reform law is going to get its day in court soon. A judge on Wednesday scheduled arguments for and against the law for next month. That means a final ruling on the law could be made by the end of the year.

The law’s opponents and defenders have one thing in common: they both want a ruling on the law’s legality sooner than later.

From Reuters:

Sangamon County Circuit Court Judge John Belz, who is overseeing five consolidated lawsuits filed by labor unions and others, set Nov. 20 for arguments for and against the constitutionality of the law passed by the Illinois legislature last December.

Public labor union coalition We Are One Illinois and other parties have been seeking an expedited ruling in the wake of a July 3 Illinois Supreme Court decision in an unrelated case that determined health care for retired state workers is a pension benefit protected by a provision in the state constitution.

The same provision, which prohibits the impairment or diminishment of retirement benefits for public workers, is the focus of the lawsuits against the state’s pension reform law. The new law, which is currently on hold, reduces and suspends cost-of-living increases for pensions, raises retirement ages and limits the salaries on which pensions are based.

In documents filed with the court on Friday, Illinois Attorney General Lisa Madigan argued that the high court’s July 3 ruling only dealt with retiree health care subsidies being part of the contractual relationship Illinois has with members of the state’s public pension systems.

“The court did not address whether such benefits are immune from the state’s exercise of its police powers. That issue was not before the court,” Madigan’s court filing noted.

In its defense of the pension reform law, Illinois is leaning heavily on its so-called police powers trumping the constitutional provision against reducing public employee retirement benefits. Those powers include the state’s ability to properly fund education, healthcare and public safety. Those sectors would experience substantial cuts if the state’s already large pension burden grows, Madigan said in the filings.

We Are Illinois released the following statement on Wednesday:

“As we have always maintained and the recent Kanerva decision confirms, the pension protection clause of the Illinois Constitution is absolute and without exception. There is no merit to the State’s purported justification for the unconstitutional diminishments and impairments that SB1 imposes. We are hopeful for a swift resolution in the plaintiffs’ favor, so that we can work with legislators willing to develop a fair—and legal—solution to our state’s challenges, together.”

Quinn: No Plan “B” On Pension Reform

Most experts agree that Illinois’ pension reform law, passed in December, currently stands on shaky ground after a July ruling from the Illinois Supreme Court extended constitutional protection to retiree health premiums.

But Illinois Gov. Pat Quinn isn’t ready to write off the law just yet. In recent interviews, he’s also been steadfast that he’s not ready to start drawing up a backup plan, either.

From the Associated Press:

Gov. Pat Quinn argued Friday that it makes no sense to develop a contingency plan.

The Chicago Democrat, who “fervently” believes the plan is constitutional, said in an Associated Press interview that he’d like to get feedback from the courts before proceeding despite Illinois’ urgent financial difficulties.

“You don’t exactly help your position before the court if you say, ‘Well I’ve got a plan b out here, maybe you could take that instead,’ and it’s not even passed by the Legislature,” Quinn said. “That’s a very bad strategic position …”

Quinn’s comments come as he faces a tough re-election challenge from Republican businessman Bruce Rauner (ROW-nur). He opposes the law Quinn signed in 2013.

After years of debate, lawmakers approved a plan that cuts benefits for most employees and retirees aimed reducing the state’s massive unfunded liability.

Unions sued over the law, saying it violates the Illinois Constitution.

But in a separate case on retiree health care, the Illinois Supreme Court in July ruled a law requiring retirees to pay more for health insurance was unconstitutional. The decision centered on the constitution’s strong protections for retirement benefits.

Quinn has drawn criticism for the lack of backup preparations. Last week, a columnist for the Chicago Tribune wrote:

Gov. Pat Quinn says he doesn’t need a “Plan B” to address the problem because he believes the Illinois Supreme Court will uphold the pension reform law he signed in December.

[…]

Quinn’s faith in the Illinois Supreme Court is farfetched. In July, the court issued a thumping 6-1 ruling striking down a previous legislative effort to cut health care subsidies to state retirees and employing language that seemed to serve as a funeral oration for the pension reform law.

Addressing the state’s “but we can’t afford to provide the benefits we promised!” argument, the majority wrote that the unequivocal pension protection clause in the Illinois Constitution “was aimed at protecting the right to receive the promised retirement benefits, not the adequacy of the funding to pay for them.”

Even if Quinn genuinely has hope that the court will gymnastically OK the pending law nevertheless, he still owes it to us to reveal what he proposes to do when — I mean if — those hopes are dashed.

As Pension360 has covered, pensions are becoming a bigger part of the race for Illinois governor in light of the July court ruling that opened the door for reworked reform measures.

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