Illinois Supreme Court strikes down Chicago pensions plan

The Illinois Supreme Court dealt another devastating blow Thursday to the state’s impatient attempts to control its ballooning public pension debt by striking down a state law that would have cut into an $8 billion hole in two of Chicago’s employee pension accounts.

The law forced the city to significantly ramp up its taxpayer-fueled contributions, but also cut benefits and required larger contributions from about 61,000 current and retired municipal civil servant workers. The high court unanimously sided with workers who sued the city, arguing that the law violated the Illinois Constitution’s protections against reducing promised pension benefits.

The city – whose decades of underfunding is overwhelmingly to blame for the crisis – has warned that the funds would be insolvent within 15 years without the change. But the court said that despite those warnings, the law’s provisions “exceed the General Assembly’s authority.”

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The ruling mimicked one by the high court less than a year ago involving a separate pension bailout: the $111 billion deficit in state-employee retirement accounts.

City officials were reviewing the ruling and had no immediate comment, spokeswoman Molly Poppe said. The four unions representing the plaintiffs, led by retired Chicago Public Library clerk Mary Jones, said Thursday’s court ruling was another victory for public-sector workers.

“This ruling makes clear again that the politicians who ran up the debt cannot run out on the bill or dump the burden on public-service workers and retirees instead,” the unions said in a joint statement.

The city has argued that the law didn’t skirt the “pension protection clause” because the huge increase in tax-dollar contributions required by the law was a benefit that ensured there would be pensions to pay out to 61,000 workers and retirees in the coming decades. Determining how the state pays its obligations doesn’t constitute a benefit, Justice Mary Jane Theis wrote in the court’s opinion.

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The city also has noted that the plan was agreed to in negotiations by 30 unions representing the affected workers. The court found those discussions did not invite members’ input and therefore violated individual workers’ rights.

Critics targeted the law from the start, in part because it addressed only two of the city’s pension funds. When including police and fire pension programs, the city’s total liability was $20 billion – not counting a $9.6 billion shortfall in the Chicago Public Schools teachers’ pension account.

The law eliminated 3% cost-of-living increases on benefits, compounded annually. It also limited benefits to simple cost increases at the level of 3% or half of the inflation rate, whichever was less. It inserted three “pause years” – 2017, 2019 and 2015 – when no cost-of-living jumps would be paid. And it dunned employees for gradual increases in contributions to their retirements.

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The city was required to sharply increase its contributions based on a multiplier tied to employee contributions: from $267 million in 2014, to $623 million in 2020. It’s funded by a 56% increase in the 911 emergency communication tax, which freed up for pension payments general corporate dollars that had been shoring up emergency dispatch operations.

Without the changes, the city estimates the liability in the municipal and labourers’ funds alone would grow $900 million a year, busting the municipal fund by 2026 and the labourers’ fund by 2029.

Two justices took no part in the decision but didn’t indicate why.

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