Illinois Supreme Court rules state pension reform law unconstitutional

The Illinois Supreme Court on Friday unanimously ruled unconstitutional a landmark state pension law that aimed to scale back government worker benefits to erase a massive, $105 billion pension debt.

Republican Justice Robert Karmeier, writing for the entire court, said the law violated provisions of the 1970 Illinois Constitution known as the pension protection clause. The clause says public employee pensions are a contractual relationship with government and benefits cannot be diminished or impaired.

The December 2013 law called for curbing automatic and compounded annual cost-of-living increases for retirees, extending retirement ages for current state workers and limiting the amount of salary used to figure pension benefits.

Karmeier rejected arguments by the state that economic necessity forced curbing retirement benefits despite the constitution’s pension protections.

“Our economy is and has always been subject to fluctuations, sometimes very extreme fluctuations,” Karmeier said.

But, he noted, “The law was clear that the promised benefits would therefore have to be paid and that the responsibility for providing the state’s share of the necessary funding fell squarely on the legislature’s shoulders.

“The General Assembly may find itself in crisis, but it is a crisis which other public pension systems managed to avoid and… it is a crisis for which the General Assembly itself is largely responsible,” Karmeier wrote.

Karmeier also faulted lawmakers for failing to keep in place a 2011 temporary income tax hike that boosted the personal tax rate to 5 percent. At the start of the year, the tax increase automatically phased down to 3.75 percent for individuals, costing the state $4 billion in annual revenue.

Much of the tax increase was used to make the state’s share of pension payments during those four years.

“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,” he wrote.

Karmeier added: “The financial challenges facing state and local government in Illinois are well known and significant. In ruling as we have today, we do not mean to minimize the gravity of the state’s problems or the magnitude of the difficulty facing our elected representatives.”

“It is our obligation, however, just as it is theirs, to ensure that the law is followed. That is true at all times. It is especially important in times of crisis when, as this case demonstrates, even clear principles and long-standing precedent are threatened. Crisis is not an excuse to abandon the rule of law,” he wrote.

The state Supreme Court’s ruling upheld a November decision by Sangamon County Circuit Judge John Belz to strike down the law, ruling that state constitutional protections to pension benefits were “absolute and without exception,” prompting the state to appeal to the high court.

For decades, governors and state lawmakers failed to put enough money into the public employee pension systems covering most state workers, university employees, as well as suburban and downstate teachers.

Now, state spending on pensions amounts to almost a quarter of every tax dollar that goes into the state’s general bank account.

The decision by the high court came almost two months after justices heard oral arguments from the state, contending the constitutional pension protection clause was not an absolute guarantee, particularly at a time of great financial emergency.

But lawyers for public employee unions and retirees argued cuts to retirement benefits shouldn’t occur because of decades of financial mismanagement by the state for failing to adequately fund the employer’s share of pension costs.

The decision not only affects Illinois, but taxpayers in Chicago and towns throughout Illinois struggling to cope with growing pension debts that are straining government budgets.

Previously, the state’s highest court ruled an effort to make state retirees pay more for their state-subsidized health care violated the constitution’s pension protection clause.

In that case, the court found that the constitutional guarantee was “aimed at protecting the right to receive the promised retirement benefits, not the adequacy of the funding to pay for them.”