The state supremes blew up Illinois's pension-reform law—the one that would reduce benefits for retirees and workers already in the system—with a minimum of fanfare, dropping a long opinion with nary an announcement today.
It's big news, because the general assembly had put a great deal of political work into creating it, and the governor had hitched his hopes and dreams to its predicted savings.
But it's also not a surprise. Having written about pension reform in Illinois for a couple years now, it became clear to me that diminishing benefits for people already in the system was a tremendous long-shot. It could have worked, and the GA somewhat desperately and kind of cynically tried to sweeten the deal by excluding judges from the law, but no one familiar with the state's constitutional amendment—why it exists and the case law surrounding it—would have expected success.
The very thin hope for its constitutionality rested on the state's "police powers," which basically allow the state to do stuff it normally couldn't do (like reduce pensions guaranteed by constitutional amendment) to stave off crisis.
The Supreme Court didn't just tell the General Assembly that this isn't enough of a crisis to invoke police powers; we'll get to that in a minute. The Supreme Court specifically rejected that argument in the strongest possible terms:
In accordance with these principles, we have repeatedly held that the General Assembly cannot enact legislation that conflicts with provisions of the constitution unless the constitution specifically grants it such authority…. Police powers are no exception to this rule. Although the police powers of the legislature are broad and far-reaching, our case law makes clear that their exercise must not conflict with the constitution…. If the constitution mandates that something be done or not done, the legislature may not rely on its police powers to violate that mandate….
Translated from legalese: No.
Beyond just saying "sorry, nothing we can do," the decision goes on to say "there are things you can do (and every GA could have done before you)." Underfunded pensions are not a new thing in Illinois; generally speaking, that's been the state of affairs. So the state courts have been to this rodeo before, and the decision is full of reminders of this.
In 1989, the General Assembly enacted a new funding plan to take effect in 1990, but it failed as well. In the years that followed, Dawn Clark Netsch, then comptroller of the State, noted that the State failed to adhere to the new statutory funding levels and exacerbated the problem by diverting funds earmarked for State employee pensions into the General Revenue Fund.
Starting in 1995, yet another funding plan was implemented by the General Assembly. This one called for the legislature to contribute sufficient funds each year to ensure that its contributions, along with the contributions by or on behalf of members and other income, would meet the cost of maintaining and administering the respective retirement systems on a 90% funded basis in accordance with actuarial recommendations by the end of the 2045 fiscal year. That plan, however, contained inherent shortcomings which were aggravated by a phased-in “ramp period” and decisions by the legislature to lower its contributions in 2006 and 2007. As a result, the plan failed to control the State's growing pension burden.
Nor did it start there.
As the deficient contributions continued even during the post-WWII boom, the Commission wondered: “[i]f the State of Illinois and local governments are today resisting the full or substantial funding of pension obligations under present conditions of economic prosperity, how much more unfavorable will be the financial status of the funds when the obligations mature in greater proportions and economic conditions may not be as promising?” Report of the Illinois Public Employees Pension Laws Commission of 1957, 10 (1957). Still, nothing changed. More than a decade later, as the citizens of our State were about to take up the question of whether a new constitution should be adopted, the Illinois Public Employee Pension Laws Commission continued to sound the same alarm, noting that with respect to State-financed pension funds, appropriations “had been below mandatory statutory requirements as expressly provided in the governing law” and were “grossly insufficient.”
Which is specifically why the constitutional amendment exists. The historical context in which laws are created is critical to how courts interpret law, and the amendment was passed in full recognition that the state had done a poor job funding pensions and, as a result, was likely to come for those pension benefits at some point in the future. The decision, again, is explicit about this context.
In other words, the scenario facing the Illinois Supreme Court today is the one the constitutional amendment was designed to address. Given that, it was hard to expect a different result.
It's been said that the Supreme Court didn't offer a "roadmap" to address the pension deficit. But they did, to an extent: Pay for it.
Pay for it more slowly, perhaps:
Moreover, no possible claim can be made that no less drastic measures were available when balancing pension obligations with other State expenditures became problematic. One alternative, identified at the hearing on Public Act 98-599, would have been to adopt a new schedule for amortizing the unfunded liabilities.
Pay for it using mechanisms that we've shown capable of using:
The General Assembly could also have sought additional tax revenue. While it did pass a temporary income tax increase, it allowed the increased rate to lapse to a lower rate even as pension funding was being debated and litigated.
But pay for it, even if it hurts:
That the State did not select the least drastic means of addressing its financial difficulties is reinforced by the legislative history. As noted earlier in this opinion, the chief sponsor of the legislation stated candidly that other alternatives were available. Public Act 98-599 was in no sense a last resort. Rather, it was an expedient to break a political stalemate.
The message of this paragraph is pretty clear: do your job, because your predecessors haven't.
What will that job entail? It could, as the decision specifically suggests, include a longer and more expensive amortization schedule and higher taxes.
It could, as Hannah Meisel suggests, go back to Senate President John Cullerton's desire to negotiate changes with the unions. It's worth noting that Cullerton's chief legal counsel, Eric Madiar, wrote the most thorough analysis of unilateral pension reform awhile ago, and was proven correct today. And Cullerton had pushed a plan that would give workers a choice between health-insurance premiums and a reduced COLA. By reframing it as a new contractual agreement, rather than a unilateral diminishment of benefits by the state—a broken contract—it could pass constitutional muster.
No matter what, today the Illinois Supreme Court made it clear—not for the first time—that it's not the job of the courts to fix the state's pension mess. That will lie with the General Assembly, to take up the task that generations of its predecessors have failed to do.