Illinois Supreme Court should uphold Chicago pension deal

COMMENTARY Budget and Spending

Illinois Supreme Court should uphold Chicago pension deal

Nov 3rd, 2015 2 min read

Visiting Fellow

Nov. 17 — that's the date set for the Illinois State Supreme Court to hear oral arguments regarding a 2014 deal to overhaul the city of Chicago's pension plans. It's a golden opportunity for the court to clarify or — better yet — overturn its misguided decision earlier this year, which invalidated the 2013 statewide pension reforms. Let's hope the court does so.

Back in May, the Illinois Supreme Court threw out a 2013 compromise that would have been a good first step toward fixing that state's budget mess. Years of profligate spending has bled state coffers dry. It has become so bad that the state is handing out IOUs to lottery winners: This is embarrassing, and not a solution to fiscal mismanagement. Part of the mess that needs to be cleaned up is the pension system, which is underfunded by more than $100 billion.

To start closing this gap, lawmakers decided to make a few modest adjustments to the state pension system. This included capping pensions at a maximum $109,971, making inflation adjustment more accurate, deferring payments for those under the age of 46 by up to five years, and changing the benefit base for annuity payments. This total package would have eliminated only one-fifth of total unfunded liabilities: a modest change, but a good start.

The government workers' unions didn't see it that way, however. They sued immediately, claiming that the state constitution sets pension benefits in stone through its "pension protection clause." That clause provides: "Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired."

Perhaps unsurprisingly, given Illinois politics, the state Supreme Court agreed with the unions and struck down the entire law. In essence, the Court ruled that pension obligations, once codified, were unamendable contracts immune from renegotiation, excuse, or bankruptcy. Not only does this go beyond how business relationships ordinarily operate, but it threatens to allow one state legislature to tie the hands of all future state legislatures, even if voters throw the irresponsible ones out. The court's decision, if interpreted broadly, hamstrings the state government and burdens the taxpayers. In fact, as circumstances change, the decision could even be a millstone around the necks of pensioners themselves.

Recognizing this last point, unions and the city actually negotiated a deal to refinance Chicago pensions back in 2014. The deal would have increased city payments into the plans in exchange for requiring additional worker contributions and reduced cost-of-living increases. When the choice is between getting nothing and getting something, the choice is easy. Unions and the mayor got the picture.

But a lower court in Illinois threw out this deal as well, setting up Chicago taxpayers to lose at least $200 million per year. When the fiscal crisis really hits and the choice is between picking up trash and delivering water on the one hand, or paying bloated pensions on the other hand, it seems the city has no choice. Chicago streets will remain filthy, because the Illinois Supreme Court has held that the Illinois Constitution demands it.

And that's why the state Supreme Court should overturn its earlier decision and affirm the city deal. The state constitution, including the pension protection clause, cannot be a "suicide pact," to paraphrase Abraham Lincoln. Yes, the state of Illinois and the city of Chicago should only make promises they intend to keep. But unforeseen (albeit completely predictable) fiscal crises call for prudent action. And in the Land of Lincoln, these are desperate times indeed.

-Andrew R. Kloster is a legal fellow in the Heritage Foundation's Edwin Meese III Center for Legal and Judicial Studies.

This piece originally appeared in The Washington Times