The Illinois Supreme Court announced that the centerpiece of its civil docket for 2015, the State’s appeal from the Circuit Court’s order striking down public pension reform, will be heard on a “rocket docket” schedule. The State’s opening brief will be due January 12. The appellees’ brief is due February 16, and the State’s reply brief will be due February 27. Oral argument will be heard during the March term, making it likely that a decision will be handed down before May 31.
For decades, while state employees have made their required contributions through payroll deductions, the State of Illinois has failed to adequately fund its five public pension systems. The result has been an enormous pension debt. Things turned especially ugly during the 2008-2009 recession, when unfunded liabilities and required state contributions escalated quickly while revenues to fund those contributions were plummeting. According to a definitive study of the problem, the five systems had around $84.21 billion in unfunded liabilities in 2012. The teachers system alone was $45.9 billion in the red.
On December 3, 2013, after years of acrimonious debate, the State finally adopted a comprehensive reform package. Through a combination of benefit cuts and funding guarantees, the bill was estimated to save the State around $160 billion over the next 30 years.
But there’s a problem – as readers of this blog will remember from Kanerva v. Weems, the Illinois Constitution has a pension protection clause (Art. XIII, Sec. 5):
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.
In the weeks following Governor Quinn signing pension reform into law, five different lawsuits were filed challenging the constitutionality of the Act under the pension protection clause: Heaton v. Quinn (see here); Retired State Employees Association Retirees v. Quinn (see here); Illinois State Employees Association v. Board of Trustees of State Employees Retirement System of Illinois (see here); Harrison v. Quinn (see here); and State Universities Annuitants Association v. State Universities Retirement System (see here). All five suits were consolidated in Sangamon County Circuit Court.
The Act had at least five features which everyone concerned acknowledged amounted to a reduction in benefits: (1) changing the formula by which the 3% compounded automatic annual increases retirees were receiving would be calculated; (2) stopping the automatic annual increases on alternating years for newly retired employees; (3) changing the cap on pensionable salary of retirees; (4) raising the retirement age on a sliding scale depending on the employee’s age; and (5) changing the method for determining the effective rate of interest used to calculate pensions. The State argued that the Act was nevertheless constitutional because the legislature retained a sovereign or police power to act to avert a threatened financial disaster.
On November 21, 2014, the Sangamon County Circuit Court entered an order holding that the Act was unconstitutional on its face, and permanently enjoining enforcement. Illinois courts have repeatedly held, the Court found, that the pension protection clause has no exceptions. The Court found that the plain language of the clause said nothing about a retained sovereign or police power, and the courts could not add an exception that the voters hadn’t approved. Besides, the Court held, that Illinois courts had rejected several times before the notion that the State retained any power to diminish pensions.
The Court turned from there to the question of severability. The act provides that thirty-nine enumerated sections – including many of the provisions the Court struck down – were not severable, but that the Act was severable as a general proposition. The Court found that because the stricken parts of the act were important elements of a broad package imposing sweeping changes, nothing in the Act was several, meaning that the entire statute had to fall.
Since the Court struck down the statute, the appeal went straight to the Supreme Court. We’ll be writing often about the pension dispute as the pace of activity increases throughout the spring.