SPRINGFIELD — Attorney General Lisa Madigan is arguing a trial court went off course when it found the state’s 2013 rewrite of public pension laws unconstitutional.
In her appeal now before the Illinois Supreme Court, the attorney general says the state, under extraordinary circumstances, has the power to modify contracts.
Central to her argument are police powers, also known as reserve sovereign powers. The concept lets the state step outside normal contract law when its actions are meant to ensure it can continue to provide for society’s health, safety and welfare.
Resolution of the pension lawsuit will have a big impact on the state’s – and taxpayers’ – finances.
The Legislature approved the pension overhaul in an attempt to tackle an unfunded pension debt of more than $100 billion. Pension reform supporters say the pension debt is economically strangling the state as its payments, unchecked, will account for $1 of every $4 the state collects in general revenue.
The 2013 pension act obligated the state to increase its payments to the pension funds, but it also reduced cost-of-living allowances for retirees, which they successfully argued diminished their pensions in violation of the state’s constitution.
In her pleading before the Illinois Supreme Court, Madigan acknowledges the 1970 state constitution created a contractual right for government retirees.
So while she does not argue the state has a contract with retirees, the attorney general does say the circuit court erred when it struck down the 2013 act.
She contends the court’s reading or application of the 1970 constitution’s pension protection clause essentially creates “super contracts” and ignores the state’s police or sovereign reserve powers.
If “the pension clause really bars the state’s exercise of its police powers under every possible circumstance, no matter how dire the consequences, then the contractual relationship the clause creates is unlike any other contractual relationship ever recognized in American law,” she argues.
The attorney general contends history and precedent clearly allow for the use of police powers in such a case and the trial court’s ruling is a “major and unprecedented reformulation of the meaning of ‘contractual relationship.’”
Her legal opponents say, “Not so.”
They say the state-funded retirement systems are outside the reach of police powers because that’s exactly what the framers of the 1970 Illinois Constitution intended.
They cite the language of Article 13, Section 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.”
Said one attorney for the state retirees, “It was specifically written into the Illinois Constitution out of fear that the state would be unable to meet its pension obligations because it had refused to fully fund pensions in the past and had been treating pensions as not contracts but as gratuities.”
Attorney Aaron Maduff continued, “The pension protection clause was added to the constitution for the purpose of ensuring that wouldn’t happen. For the state to come in and say, ‘We are going to invoke the reserve sovereign power, the police powers,’ is contrary to what the clause was created for in the first place and therefore, among other reasons, we don’t think the pension protection clause is subject to a police powers argument.”
Edward Kionka practices appellate law and is a professor emeritus at Southern Illinois University School of Law. He argued on behalf of a group of retirees in a similar 2014 case, Kanerva vs. Weems.
He says the reason for the pension protection clause is clear, the language is plain and it does exactly what the framers of the 1970 document and the voters that approved it wanted it to do — protect public pensions from underfunding by government.
“If a self-created fiscal emergency is enough to override the constitution, then the Illinois Constitution is meaningless,” Kionka said.
The attorney general, whose father was one of the drafters of constitution, sees it differently. She says a reversal of the trial court’s decision would “preserve the longstanding balance between contractual rights and the state’s sovereign duty to provide for the general welfare that is at the heart of our constitutional structure.”
Even should the state’s argument on police powers and the pension clause not succeed, the attorney general argues the trial court erred when it found the entire 2013 act unconstitutional. The state wants the case returned to the trial to determine which parts of the act can stand and which cannot.
Who or what created the funding crisis is somewhat in play. Madigan makes a detailed argument that The Great Recession of 2007-2009 had a devastating effect on state finances, including the state’s pension funds.
Opponents contend the recession may have accelerated the crisis, but say the cause was years of short-funding by Illinois legislatures that simply diverted the money to other wants and needs.
Others say pension systems by their very nature are flawed and it is impossible for an employer to guarantee payments under all circumstances for the life of any given recipient.
Critics also contend the protection clause elevates state employees’ pensions and rights above of those of everyday citizens and private-sector workers.
But it appears that the central question before the court is whether the pension protection clause of the 1970 constitution is absolute or is subject to limitation by police or reserved powers.
It doesn’t appear the case will be up for oral arguments before the Illinois Supreme Court before March.
Maduff said the plaintiffs have until mid-February to respond to the state’s pleading, and the attorney general’s office will have another week after that to file a response. Presumably, the case will be argued before the state high Supreme Court sometime in March, he said.
The timing of a decision is not certain. While an Illinois Supreme Court decision on a complex matter might normally take six months to a year, the court has granted this case expedited status and the state has asked for a ruling as soon as possible so it may proceed on work for its next budget.
Mark Fitton is a reporter for the Illinois News Network.