Business-friendly watchdog groups want lawmakers to cut pension benefits for existing public employees. It's unlikely, however, that they have that constitutional authority.
The pension reform bill that flew through the General Assembly before spring recess won't trim much money from the state's current deficit. That's because the changes only apply to future employees, most of whom won't accrue retirement benefits for another 30 years or 40 years. To reduce costs more quickly (as well as eliminate a portion of the state's hefty pension obligation), lawmakers would need to extract similar benefit cuts from existing employees, a policy favored by business-friendly groups and strongly opposed by the labor community in Illinois. It's not clear, however, whether the constitutional authority exists to alter current contracts.
Article VIII, Section 5 of the Illinois Constitution, rewritten in 1970, seems pretty clear on the question of pension revision. "Membership in any pension or retirement system of the state," the document reads, "shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired." That operating principle has guided any discussion of pension reform in the succeeding years.
In a legal analysis commissioned by the Civic Committee of the Commercial Club of Chicago and highlighted by the Tribune editorial board, lawyers from Chicago-based Sidley Austin LLP think there is adequate precedence to test Section 5. They point to Peters v. City of Springfield, a 1974 case heard by the Illinois Supreme Court that centered on an attempt by the Springfield city officials to reduce the mandatory retirement age of its policemen and firemen from 63 years to 60 years of age. The court essentially ruled that while the statute insures pension rights of public employees for benefits already earned, packages may be amended for all employees going forward. In other words, Sidley Austin told their client what they wanted to hear: that if the General Assembly cut pension benefits for current employees, it would survive a court challenge.
But other legal experts are skeptical. "It has always been the understanding of the various retirement systems," J. Fred Giertz from the Institute of Government and Public Affairs told us via email, "that the rules regarding benefits could not be changed (even prospectively) once an employee begins state service."
"They are pulling this out of thin air," added Gilbert Feldman, a veteran Chicago-based employment lawyer. "It's a contract, plain and simple."
Indeed, the operative word is "contract." Undoubtedly, any attempt to change current pension agreements would lead to an appeal from those labor unions representing state employees (including the SEIU Illinois State Council, which sponsors this website). Such a challenge would likely focus on Article I, Section X, of the U.S. Constitution, which trumps Illinois' document. It's known as the Contract Clause. "No state," the provision reads, "shall pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility."
The Contract Clause, while written to protect contracts in the private sector, has been applied frequently to "public contracts" in which the state is the primary employer. In 1983, the U.S. Supreme Court laid out a three-part test for whether a law violates it:
First, a court must determine if a contract exists. If so, the court must enquire whether the law in question impairs an obligation under the contract. If a contractual right has been impaired, the court must determine whether the impairment is substantial. If the impairment is substantial, the three-part test expands to encompass a fourth factor, and the court will enquire whether the impairment is reasonable and necessary to serve an important public purpose.
Legislation slicing future benefits would certainly pass the first
two tests. The last one -- whether or not the bill "is reasonable and
necessary to serve an important public purpose" -- is the sticking
point. Closing Illinois' massive public pension shortfall is clearly in
the public interest. But cutting promised benefits is not the only way to fix the problem. The state's pension task force recommended
a fundamental overhaul of the state's tax system, for example, one that
would generate enough revenue to make good on pension payments going
forward. As such, the unions could make a very reasonable argument
that benefit cuts for current employees aren't "necessary."
From a practical perspective, it's also important to consider the time required for these legal battles. Even if legislation aimed at current workers is passed, unions could request that the court issue an injunction to stop the state from implementing the changes while the new law is being challenged. Giertz estimates that those proceedings "would take years." And by the time the state finally receives a verdict, Illinois would be out of the recession and likely generating new revenue (hopefully via a revamped tax structure) to pay off its debts.
Meanwhile, Senate President John Cullerton has conducted his own legal research and came to a different conclusion than Sidley Austin, so the Tribune's dream bill is unlikely to surface anytime soon.