Judge throws out Chicago pension reforms

The Illinois constitution has once again gotten in the way of pension reform in the state.

State pension reforms passed in 2013 were tossed by the state Supreme Court. Now Chicago's pension reform plan has been declared unconstitutional by a state judge.

Wall Street Journal:

Mr. Emanuel’s proposed law attempts to shore up nearly $10 billion in unfunded liabilities in two of Chicago’s pensions by asking workers to accept benefit cuts in return for the city making higher annual payments.

In a written ruling, Cook County Judge Rita M. Novak said the law “contains provisions that diminish” pension benefits for individual workers, declaring it “unconstitutional and void.”

The city will appeal the decision to the Illinois Supreme Court, said Stephen Patton, Chicago’s chief lawyer. Mr. Emanuel’s pension law “does not diminish or impair pension benefits, but rather preserves and protects them,” Mr. Patton said.

Chicago has been grappling with a solution to its bulging pension obligations, which have hampered the finances of the nation’s third-largest city. Pension woes prompted Moody’s Investors Service to downgrade Chicago’s bonds to junk, a rare poor mark for a major city with a healthy economy.

State and local governments have pushed through cuts to retirement benefits as they try to balance the books with their retirement systems. Most overhauls target new or retired workers, by asking for higher contributions, altering benefits or increasing the minimum age or service requirements to collect a pension.

Some of those pension laws have faced legal challenges. In April, the Oregon Supreme Court reversed the state’s 2013 pension overhaul, ruling that cost-of-living adjustment cuts to retirement workers was unconstitutional. The following month, the Illinois Supreme Court struck down the state’s 2013 pension law, which attempted to make cuts similar to those proposed by Mr. Emanuel.

Other lawsuits against pension cuts are ongoing in Oklahoma and New Jersey.

The proposed pension overhaul in Chicago would have affected more than 60,000 city workers. Under Mr. Emanuel’s law, the city would have increased its annual contribution this year by around 50%, or $89 million, to $266 million, the city said.

In return, city workers would have accepted caps on salaries used as the basis for pension calculations, a reduction in cost-of-living adjustments and higher contributions from employees. A coalition of labor unions and retired workers sued, arguing pension benefits were contractually protected in the Illinois state constitution.

Many states have constitutional provisions similar to the Illinois law. So there would seem to be little hope for pension reform until government unions give in. What we've seen in Illinois is that despite the most dire circumstances, public unions refuse to compromise. They would rather see the state fall into bankruptcy than reform what almost everyone agrees is a too generous system.

The answer is some kind of constitutional amendment to change the law. But there's little support for that idea in Illinois. So states and localities will continue to limp along until the crisis reaches unbearable levels. At that point, we will see something like what happened in Detroit where a bankruptcy judge ends up making the cuts in the pension system that bring the fund back to solvency.

The Illinois constitution has once again gotten in the way of pension reform in the state.

State pension reforms passed in 2013 were tossed by the state Supreme Court. Now Chicago's pension reform plan has been declared unconstitutional by a state judge.

Wall Street Journal:

Mr. Emanuel’s proposed law attempts to shore up nearly $10 billion in unfunded liabilities in two of Chicago’s pensions by asking workers to accept benefit cuts in return for the city making higher annual payments.

In a written ruling, Cook County Judge Rita M. Novak said the law “contains provisions that diminish” pension benefits for individual workers, declaring it “unconstitutional and void.”

The city will appeal the decision to the Illinois Supreme Court, said Stephen Patton, Chicago’s chief lawyer. Mr. Emanuel’s pension law “does not diminish or impair pension benefits, but rather preserves and protects them,” Mr. Patton said.

Chicago has been grappling with a solution to its bulging pension obligations, which have hampered the finances of the nation’s third-largest city. Pension woes prompted Moody’s Investors Service to downgrade Chicago’s bonds to junk, a rare poor mark for a major city with a healthy economy.

State and local governments have pushed through cuts to retirement benefits as they try to balance the books with their retirement systems. Most overhauls target new or retired workers, by asking for higher contributions, altering benefits or increasing the minimum age or service requirements to collect a pension.

Some of those pension laws have faced legal challenges. In April, the Oregon Supreme Court reversed the state’s 2013 pension overhaul, ruling that cost-of-living adjustment cuts to retirement workers was unconstitutional. The following month, the Illinois Supreme Court struck down the state’s 2013 pension law, which attempted to make cuts similar to those proposed by Mr. Emanuel.

Other lawsuits against pension cuts are ongoing in Oklahoma and New Jersey.

The proposed pension overhaul in Chicago would have affected more than 60,000 city workers. Under Mr. Emanuel’s law, the city would have increased its annual contribution this year by around 50%, or $89 million, to $266 million, the city said.

In return, city workers would have accepted caps on salaries used as the basis for pension calculations, a reduction in cost-of-living adjustments and higher contributions from employees. A coalition of labor unions and retired workers sued, arguing pension benefits were contractually protected in the Illinois state constitution.

Many states have constitutional provisions similar to the Illinois law. So there would seem to be little hope for pension reform until government unions give in. What we've seen in Illinois is that despite the most dire circumstances, public unions refuse to compromise. They would rather see the state fall into bankruptcy than reform what almost everyone agrees is a too generous system.

The answer is some kind of constitutional amendment to change the law. But there's little support for that idea in Illinois. So states and localities will continue to limp along until the crisis reaches unbearable levels. At that point, we will see something like what happened in Detroit where a bankruptcy judge ends up making the cuts in the pension system that bring the fund back to solvency.