Chicago argues its pension deal unlike failed state law; But plaintiffs’ attorneys, justices raise issues with that tack
SPRINGFIELD — Lawyers for Chicago and two of its struggling pension funds on Tuesday argued the city’s effort to shore up those funds is legal because the plan guarantees future funding and provides security for participants.
But opposing attorneys told Illinois Supreme Court justices that buying that argument would mean averting their their eyes from the explicit wording of the state constitution and the city’s previous shaky commitment to those pension funds.
The city last year negotiated a deal with 27 of 31 unions to revamp the rules for its pension funds for laborers and other city workers, excluding police officers and firefighters, who have their own pension funds.
In return for concessions such as greater contributions from employees and reduced cost of living allowances for retirees, the city agreed to bolster its contributions to the funds.
In July, Cook County Circuit Court Judge Rita Novak voided the deal. She ruled the plan amounted to a reduction in benefits and violated the Illinois Constitution’s pension protection clause.
That clause says membership in a public pension system is a contractual relationship, “the benefits of which shall not be diminished or impaired.”
Chicago’s lead attorney on Tuesday argued the city’s effort actually provides a net benefit to plan participants and is distinctly different from revisions in state pension law that the court struck down in May.
“This case is unique; it is different because the act here overwhelmingly benefits fund participants and avoids insolvency. It does not diminish or impair pensions under the plain language of the pension clause,” said Stephen Patton.
As things now stand, the funds will become insolvent in a matter of years, Patton said. But this law obligates Chicago to massively increase its obligation to pay into the pension funds and will secure their future, he argued.
“In this act, the city steps up and assumes an obligation it never had before,” Patton said. A secure future for the funds amounts to “a significant benefit to all of the participants collectively.”
Attorney John Kennedy, representing the laborers’ fund, said, “The bottom line, your honors, is that the act confers retirement security and certainty for the laborers fund.”
But plaintiffs’ attorneys argued the city’s plan flies in the face of the plain language of the pension clause and the court’s own ruling that nullified the Illinois Pension Reform Act of 2013.
“As the court made clear in May, the General Assembly has no authority to unilaterally diminish pension benefits,” said John Shapiro, one of the plaintiffs’ attorneys.
Shapiro also argued the city shouldn’t seek judicial favor for essentially paying what it owes.
“Setting aside money to pay what is already a constitutional guarantee is not a benefit, new or net,” he argued.
The plaintiffs also attacked the idea that rights of pension plan participants — especially retirees — were not individual, but collective, and could be bargained away.
Attorney Clint Krislov said the entire approach to the legislation amounted to the city and pension systems treating the law with a cavalier attitude akin to “we’re gonna do this by a tag team deal where we get a bunch of people to sign on as some sort of rump group … and that should satisfy.”
The court took the matter under advisement and will announce its decision later.
The justices’ questions were mostly put to the city and fund attorneys and at times seemed skeptical of the city’s position.
“You’re saying that the constitutional guarantee that promises benefits will be paid is limited by whatever amount there is in the pension fund and, if the pension fund runs out of money, that guarantee no longer applies?” asked Justice Mary Jane Theis.
If the court does hold the law invalid, Chicago’s financial status appears headed deeper into uncharted territory.
The two pension systems at issue in Tuesday’s hearing — the municipal and laborers — are underfunded by about $9 billion and are projected to fail in roughly ten years if the shortfall is not addressed. All told, Chicago’s pension funds are nearly $20 billion short.
Chicago Mayor Rahm Emanuel’s 2016 budget plan includes a package of tax hikes — including a $543 million property tax increase over four years — aimed largely at addressing the city’s debt, but it requires mechanisms such as those in the disputed pension deal.