Tag: pensions constitution

Union Coalition Wants Illinois Court To Act Faster In Case Against Reform Law

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A coalition of some of the largest labor groups in Illinois filed a motion today calling on the court to speed up its ruling regarding the constitutionality of Illinois’ pension reform law.

The coalition, We Are One Illinois, says the Supreme Court’s July decision—where the court ruled retirees’ health benefits are protected under the state’s constitution—confirms that Illinois’ pension reform law is illegal.

From CapitolFax:

Yesterday, the We Are One Illinois coalition, along with other plaintiffs, filed a motion in Sangamon County urging the Circuit Court to enter judgment in the plaintiffs’ favor on the State’s affirmative defense in light of the recent Supreme Court decision in the case of Kanerva v. Weems. The We Are One Illinois coalition and other plaintiffs assert that the Kanerva decision confirms that the Pension Protection Clause in the Illinois Constitution is absolute and without exception, even with respect to the fiscal circumstances alleged by the State in its defense.

Illinois says its dire fiscal situation gives it the authority to cut to pension benefits, even if they are constitutionally protected. From Reuters:

The state has contended that its sovereign powers allow it to act in a fiscal emergency. Illinois has a $100 billion unfunded pension liability and the country’s worst funded state retirement system. Illinois’s credit ratings are also the lowest among U.S. states.

But the court’s July decision doesn’t bode well for the state’s case. At the time, the court wrote:

“[I]t is clear that if something qualifies as a benefit of the enforceable contractual relationship resulting from membership in one of the State’s pension or retirement systems, it cannot be diminished or impaired … Giving the language of article XIII, section 5, its plain and ordinary meaning, all of these benefits, including subsidized health care, must be considered to be benefits of membership in a pension or retirement system of the State and, therefore, within that provision’s protections.”

We Are One Illinois issued the following statement after filing the motion:

“The Kanerva decision confirms what we have always argued, that the state’s constitutional language guards against any diminishment or impairment of pension benefits that Senate Bill 1 imposes. We believe, then, that the State’s defense is without merit and so have asked the Court in this motion to rule in our favor on the State’s defense that seeks to justify Senate Bill 1. We maintain that the constitution protects the hard-earned and promised retirement savings of our members and remain ready to work with any legislator willing to develop a fair and legal solution to our state’s challenges.”

 

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

Could Detroit-Style Cuts Come to California?

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Pension benefits, once thought safe, now stand on shakier footing than they ever have. Detroit’s citizens live in a state where pensions are protected by the Constitution, but that didn’t matter when a bankruptcy judge ruled that the city could cut worker pensions as part of its bankruptcy restructuring plan.

California workers are now wondering what this all means for them—particularly the workers in the bankrupt cities of Stockton and San Bernardino. The state heavily protects its pension benefits, present and future.

Still, the question on everyone’s mind is: Could Detroit-style pension cuts come to California? Ed Mendel explored that question in a post today on CalPensions:

U.S. Bankruptcy Judge Steven Rhodes, acting earlier than expected, ruled last December that Detroit pensions can be cut, even though the Michigan constitution says pensions are a “contractual obligation” that can’t be “diminished or impaired.”

The ruling that federal bankruptcy law allowing contract impairment overrides state law was appealed by unions. But the early ruling, along with potential loss of “grand bargain” financial aid, may have added to fear of deep pension cuts, influencing the vote.

A cut of 4.5 percent in active and retired general worker pensions and the elimination of cost-of-living adjustments was approved by 73 percent of voters. Leaving police and firefighter pensions intact but trimming their COLAs from 2.25 to 1 percent was approved by 82 percent.

In a brief supporting the appeal of Judge Rhodes’ ruling, CalPERS argued, among other things, that Detroit has a city-run plan and that an “arm of the state” like CalPERS cannot under federal bankruptcy law be impaired in a municipal bankruptcy.

The judge handling the Stockton case, U.S. Bankruptcy Judge Christopher Klein, has said one of his options is ruling on the general issue of whether CalPERS pensions can be cut without necessarily finding that Stockton pensions should be cut.

CalPERS filed the brief in question shortly after the Detroit ruling. The premise of CalPERS argument was that the Detroit ruling didn’t apply to them because Detroit is a city, while CalPERS operates on the state level.

But as Mendel points out, there are a few key similarities between Detroit‘s bankruptcy and those of California. From CalPensions:

Although differing on pensions, the Detroit and Stockton plans to exit bankruptcy are similar on retiree health care. Detroit announced last week that a 90 percent cut in retiree health care was approved by 88 percent of voters.

Judge Klein ruled in 2012 that retiree health care can be cut in bankruptcy, acknowledging the result may be “tragic hardships” for some. A Stockton retiree health care debt of $544 million was reduced to a one-time payment of $5.1 million.

Another similarity is that the Detroit and Stockton “plans of adjustment” to cut debt and exit bankruptcy face challenges from bondholders. Making little or no reduction in massive pension debt, but deep cuts in bond payments, is said to be unfair.

What happens in California will have a ripple effect across the country as cities nationwide are increasingly weighing the prospect of going through municipal bankruptcy proceedings. The judges presiding over these cases will be wading in uncharted waters—and their word will be law. Pension360 will be following subsequent developments closely.