Democratic lawmakers from Wisconsin and Indiana who saw Illinois as a safe haven in their battles to protect public employee rights might be surprised to learn that top Democrats here may accede to a Republican effort to force pension reductions on current public employees.
After years of state government failing to contribute its share, Illinois’ five public pension systems are underfunded by an estimated $84 billion, the worst situation in the nation. Furthermore, the state’s required contribution and pension debt service for the coming fiscal year could grow as high as $6.4 billion, according to the Illinois auditor general, or more than 18 percent of state government’s anticipated revenue.
Although lawmakers already have decreased pension benefits for all state employees hired after January 1 of this year and increased state corporate and personal income taxes, some believe those actions didn’t go far enough to ease the state budget crisis. Now, they are targeting future pensions of current employees.
The outcome of that battle will hinge on this clause in the Illinois Constitution: “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.” Employee unions and others say it’s clear that those words forbid any tinkering with current employees’ pensions. Republican legislative leaders, spurred on by the Civic Committee of the Commercial Club of Chicago and others, interpret it to mean that although benefits earned in the past can’t be touched, future ones could be reduced.
Both sides wave legal opinions supporting their positions. And both claim support from average citizens. Those who favor changing future benefits say it’s unfair for public employees to have better pensions than most workers. Those against more changes point to a New York Times/CBS News poll that showed 56 percent of Americans oppose cutting public employee pay or benefits to balance state budgets.
Although the Democrats who control the General Assembly and the governor’s office may only be posturing, they are indicating that they might allow legislation to pass and be tested by the courts.
Senate President John Cullerton says he believes it would be unconstitutional to reduce benefits for current employees. He cites a legal opinion by his chief counsel, Eric Madiar, that “the Clause [in the Constitution] bars the General Assembly from adversely changing the benefit rights of current employees via unilateral action.”
Madiar cites court cases and points to transcripts of debates on the clause during the 1970 Constitutional Convention. He concludes:
“The Pension Clause was prompted by concerns raised by state university employees over the underfunding of the university pension system and the lack of constitutional protection for mandatory retirement plans, and by firemen and police officers that municipalities would use their new ‘home rule’ authority to abandon their local pension plans. … The Pension Clause serves as a bar against any unilateral legislative or governmental action to reduce or eliminate the pension benefit rights in place when an employee became a member of a pension system.”
Although Cullerton believes such legislation would be unconstitutional and says he would vote against it, he also says he would allow the Senate to vote on it if it first passed the House.
House Speaker Michael Madigan, a delegate to that Constitutional Convention who voted in favor of adding the pension clause, says the courts should decide whether changes are constitutional.
“What we’re saying is that there’s a benefit plan in place up until today, but starting tomorrow, there’s going to be a new benefit plan that’s not going to be as rich as the old,” Madigan said on television’s Illinois Lawmakers program. “Whether the Illinois Supreme Court approves this idea, that’s a matter for the court.”
Driving the push to reduce benefits is a legal opinion written for the Civic Committee, an influential group of Chicago-area business leaders. That analysis by the Chicago law firm of Sidley Austin concludes: “The Illinois Constitution does not prevent Illinois pension reform applicable to current state employees or other members of state pension funds, provided that all contract rights vested by current employees for past service — all rights earned up to the time the pension reforms are implemented — are protected.”
Both sides also have issued further legal analyses recognizing the other’s opinions and attempting to discredit them. Caught in the middle are public employees — state workers, teachers, university employees, judges and, yes, legislators — who have faithfully contributed a portion of their salaries toward their promised pensions and now, because state government didn’t pay its share, coupled with the deep recession, find their retirement funds in trouble.
“Public employees have paid their required fair share of pension costs; it is incumbent on the State to meet its end of the bargain,” Madiar wrote in his opinion for Cullerton.
As of press time, the major pension reform proposal gaining traction in the House was sponsored by Republican Leader Tom Cross. It would give current state employees three options:
- Keep current pension benefits but pay a higher percentage of their salaries into the system. State employees typically contribute 4 percent of their pay to their pension plan, for instance, while public school teachers contribute 9.4 percent. (Teachers and public university employees cannot contribute to Social Security during their public employment.)
- Sign up for the same reduced pension plan available to employees who started work after January 1 of this year.
- Join a self-managed plan, to which employees and the state would both contribute at least 6 percent of the employees' salaries, similar to many private workers’ 401(k)s.
There is no guarantee that the Republican bills would be the final plan. As it did last year, the General Assembly could again ram unexpected pension reforms through the entire legislative process in one day.
There’s also a question about what Gov. Pat Quinn might approve. After signing the pension reforms last year, he said he would oppose targeting current workers: “That’s the wrong way to go because it’s unconstitutional.” This year, however, he seems to backpedal: “I believe that the Illinois Constitution should be complied with, but if we can make pension reforms as we did last year that are reasonable and common sense and good for taxpayers — and good for beneficiaries, really for the system — then we should certainly explore that,” he told Statehouse reporters.
If pension reforms affecting current employees do become law, Illinoisans can expect a prolonged and expensive legal fight.
“I think you’d have a mile-long line at the courthouse to challenge it,” says Anders Lindall, spokesman for the largest state employee union, Council 31 of the American Federation of State, County and Municipal Employees. “It would be a costly legal battle that the state would lose.”
In a letter to the Chicago Tribune last year, former federal Judge Abner Mikva contended that previous court rulings indicate that “every existing employee is protected against changes in benefits.” Even if legislation did reach the courts, Mikva said, “judges, whose pension rights would be impaired if it applied to existing employees, would be making the decision.”
On the other hand, though, Illinoisans who have seen their private pensions cut or eliminated over the past 30 years are unlikely to be heavily supportive of public pensioners, and Illinois Supreme Court justices might also take that into account in their ruling on a lawsuit.
In other words, any way you stir up this issue, you’re going to end up with a mess.
(In the interest of transparency, if I stay at Illinois Issues for several more years, I could receive a small public pension when I retire. It would supplant benefits I might lose by not being allowed to contribute to Social Security. D.H.)
CORRECTION: Democrats hold a 4-3 majority on the Illinois Supreme Court. An earlier version of this article incorrectly stated that Republicans are in the majority.
Illinois Issues, April 2011
