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'We may not rewrite the pension protection clause to include restrictions and limitations that the drafters did not express and the citizens of Illinois did not approve...' Illinois Supreme Court rules that public worker pensions -- and health benefits -- are protected by the Illinois Constitution

In a dramatic decision announced one day after the Chicago Public Schools resumed its campaign to renege on its obligation to fully fund worker pensions, the Illinois Supreme Court upheld a provision in the state's constitution that public worker pensions "cannot be diminished or impaired". The ruling came in a case about whether retired worker health benefits could be reduced, and was by a wide, six to one, majority. Despite screaming headlines and lurid prose pouring out of Crain's Chicago Business and other business publications, the ruling, which is not surprising, simply means that a contract such as a pension cannot be broken just because the plutocrats who try to rule over Chicago and the state want to declare a "pension crisis.'

The decision came in the case of KANERVA et al, v. WEEMS et al. The majority opinion was written by Justice Freeman and supported by Chief Justice Garman and Justices Thomas, Kilbride, Karmeier, and Theis. Only Justice Anne Burke, wife of Chicago Alderman and Emanuel loyalist Edward Burke, dissented.

Experts now expect that the court will uphold public employee pensions, despite attacks by members of the Illinois General Assembly and Governor Pat Quinn. The stage is now set for a demand from the public that "pension reform" be done as it always should have been: by raising taxes to cover the obligations of government.

The key portion of the 20-page decision came with the insistence by the court that health benefits were part of the pensions, not something that could be cut away from them separately. If they [those who wrote the Illinois Constitution] had intended to protect only core pension annuity benefits and to exclude the various other benefits state employees were and are entitled to receive as a result of membership in the state's pensions systems, the drafters could have so specified. But they did not, Judge Freeman's decision said. We may not rewrite the pension protection clause to include restrictions and limitations that the drafters did not express and the citizens of Illinois did not approve."

The Illinois decision contrasts sharply with what has been happening during the quarter century long attack on the pensions of private sector workers, including those who devoted their working lives to some of America's most prestigious corporations. The attempt to reduce retiree health benefits for public wokrers follows the cruel work of private sector corporations, who developed sophisticated methods, often aided by highly paid consultants, for stealing health benefits from retirees first, before obliterating their pensions entirely.

The attack on seniors and retirees has been well documented, but until recently was described as almost inevitable by many commentators. As the book Retirement Heist has documented dramatically (the book is currently being studied by members of CORE in the Chicago Teachers Union), the attack on pensions has been a plan of the plutocracy for more than a quarter century -- as old as many of the state's youngest teachers and as young as yesterday's Wall Street Journal. But the false "austerity" of the past quarter century, which is what created the rise of the hundreds of billionaires across the USA, will now be challenged more directly. The court also rejected the idea that the state's "budget crisis" could justify a change in retiree benefits.

CHICAGO TEACHERS UNION PRESS RELEASE ON PENSION DECISION:

Illinois Supreme Court Kanerva v. Weems decision makes clear that politicians cannot break the promises made to Chicagos teachers

CHICAGOThe Illinois Supreme Court today strongly ruled today to uphold the Illinois Constitutions protections for the retirement benefits of Illinois teachers and other public employees. Rejecting a law cutting teachers and other public employees retiree health benefits, the court held in Kanerva v. Weems that, under the Illinois State Constitutions Pension Clause, any benefit of an Illinois retirement system cannot be diminished or impaired, with no exceptions for health benefits.

The law in Illinois is now crystal clear: Politicians cannot break the promises made to Chicagos teachers and other city employees concerning retirement benefits. City and state legislators and the mayor of Chicago cannot fix the past failures of politicians to fund adequately our retirement benefits by cutting those benefits promised to teachers, paraprofessionals, nurses, firefighters, police officers, and other public employees.

This was a tougher case than the one currently pending in the Sangamon County challenging the pension theft of retirement benefits last December, said CTU Legislative Director Stacy Davis Gates. That case should now be resolved easily in favor of the retirees and current participants hired before 2011 keeping their benefits, and our elected officials are now forced to recognize that recently passed laws to cut promised retirement benefits are clearly unconstitutional.

This decision will have to refocus future negotiations with the Chicago Board of Education and the leadership of the legislature, said Chicago Teachers Union President Karen Lewis. The big issue will now have to be how to fund pension and retiree health obligations without breaking the operating budget. The mayor, the Board of Education and all elected officials now must look to responsible reforms to increase revenues to fund education for our citys children and retirement security for our educators and other public employees. CTU looks forward to being a partner in that effort.

Lewis added: We thank our sisters and brothers in the Illinois Federation of Teachers, the American Federation of State, County and Municipal Employees, and other unions who brought this case to protect all of Illinois teachers and other public employees.

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The Chicago Teachers Union represents 30,000 teachers and educational support personnel working in the Chicago Public Schools and, by extension, the students and families they serve. CTU, an affiliate of the American Federation of Teachers and the Illinois Federation of Teachers, is the third largest teachers local in the country and the largest local union in Illinois. For more information visit CTUs website at www.ctunet.com

CRAIN'S CHICAGO BUSINESS STORY JULY 3

Pension reform dealt blow by Illinois Supreme Court, By Paul Merrion July 03, 2014

In a case with ominous implications for the state's pension reform law, the Illinois Supreme Court ruled today that the state constitution prevents any diminishment of health care benefits for retired state employees.

According to the 6-1 decision, the pension protection clause -- which says that retirement benefits are a contractual agreement that cannot be diminished or impaired -- applies to other retirement benefits, not just pensions. That overrode the state's argument that its emergency powers, in dealing with its budget crisis, justified an increase in what retirees must pay for their health benefits. The decision comes while the state is defending against challenges to an overhaul in December 2013 of pensions for state workers and schoolteachers outside Chicago. It also has implications for recent cutbacks in health care retiree benefits by the city of Chicago, which filed a friend-of-the-court brief supporting the state's position.

This is a major victory for members of state retirement systems, said John Fitzgerald, a partner at Chicago law firm Tabet DiVito & Rothstein LLC who represents retired state teachers and school administrators. I expect it will have a very significant effect on pending litigation over the state's pension reform law. It means that the Illinois Supreme Court is giving the pension protection clause the broad and liberal interpretation that the drafters intended.

The court rejected the state's argument that health care benefits are not covered by the pension protection clause, finding that there is nothing in the state constitution to support that. The only question now is whether the reduction in the state's health care subsidies constituted an impairment or diminishment of those benefits.

Illinois Attorney General Lisa Madigan said the court's opinion "has no direct impact on the pension reform litigation arguments," according to the Associated Press. Gov. Pat Quinn's offices is confident last year's pension law will be upheld, AP reported.

But Senate President John Cullerton, who has warned that pension reforms would be found unconstitutional, issued a statement saying that the decision indicates he was correct.

The court cannot rewrite the pension clause to include restrictions and limitations that the drafters did not express and the citizens of Illinois did not approve, he said. If the court's decision is predictive, the challenge of reforming our pension systems will remain.

'RIGHTS OF THE PENSIONER'

In an opinion written Justice Charles Freeman, a Chicago Democrat, the court indicated that it would not take a deferential approach. The court said any changes to a pension statute "must be liberally construed in favor of the rights of the pensioner," quoting one of its own opinions, written in 2013, that involved a dispute over early retirement between an electrical department supervisor and the downstate city of Peru.

If they had intended to protect only core pension annuity benefits and to exclude the various other benefits state employees were and are entitled to receive as a result of membership in the state's pensions systems, the drafters could have so specified. But they did not, according to the 20-page opinion. We may not rewrite the pension protection clause to include restrictions and limitations that the drafters did not express and the citizens of Illinois did not approve."

In one key paragraph, the court rejected the idea that the state's budget crisis could justify a change in retiree benefits.

In its examination of the floor debate on the pension protection clause during the drafting of the state constitution in 1970, the opinion says: The intent of the pension protection clause was to guarantee that retirement rights enjoyed by public employees would be afforded contractual status and insulated from diminishment or impairment by the General Assembly. In light of the constitutional debates, we have concluded that the provision was aimed at protecting the right to receive the promised retirement benefits, not the adequacy of the funding to pay for them.

Throughout the majority opinion, the justices seem to make abundantly clear that they read the (constitutional) language to read exactly what it said, former state budget director Steve Schnorf said. If they can read the pension clause to protect health benefits . . . they certainly would use it to protect pension benefits.

In the challenges to the overhaul of pensions for state workers and schoolteachers outside Chicago, the state has argued that changes in the cost of living allowance are not protected by the pension clause because they are not a core retirement benefit.

This definitely shuts down the argument that the COLA isn't part of the benefit, said Amanda Kass, budget director and pension specialist at the Center for Tax and Budget Accountability, a nonprofit advocacy group in Chicago.

BURKE'S DISSENT

In a 10-page dissenting opinion, Justice Anne Burke tried to narrow the impact of the majority opinion, possibly with an eye toward the bigger pension cases to come.

The plaintiffs, representing retired state employees and teachers, were challenging a 2012 law that repealed a previous statute requiring the state to pay the full cost of health care benefits.

While ruling that health coverage is covered by the pension protection clause, the majority did not address whether the 2012 law actually violated the constitution, according to Ms. Burke, a Chicago Democrat and wife of Alderman Edward Burke.

The trial court did not decide whether the 2012 law 'would be an unconstitutional diminishment or impairment of those rights, or whether they were subject to a justifiable exercise of a power to adjust private contractual rights, including in contracts with the government itself,' Ms. Burke says, quoting the attorney general's brief.

Yet Mr. Freeman made clear the 2012 changes were not minimal. He distinguished a decision by New York's highest court, which held that health care benefits are not covered by that state's pension protection clause, by saying it involved a mere increase in contribution levels.

The Supreme Court's decision sends the case back to the Sangamon County circuit court, which had dismissed the case at the state's request.

The merits of plaintiffs' pension protection clause claims remains an open question, Ms. Burke wrote. That is the issue that will be decided by the circuit court on remand.

The reports from Chicago's other corporate media became more hysterical as the afternoon wore on following the decision. The Tribune, for example, reported:

Supreme Court ruling signals trouble for state, Chicago. By Monique Garcia and Hal Dardick

Tribune reporters. 12:57 p.m. CDT, July 3, 2014

The Illinois Supreme Court ruled today that subsidized health care premiums for retired state employees are protected under the Illinois Constitution, signaling potential trouble for an overhaul of pension benefits thats also being challenged in court.

Todays ruling also could affect the city of Chicagos ongoing phase-out of retiree health insurance subsidies, a program Mayor Rahm Emanuel was counting on to save millions of dollars a year, as well as legislation recently approved to modify the pension plans of city workers and laborers.

The 6-1 decision centers around a 2012 law that allowed the state to charge retired workers for health care insurance premiums, which many did not have to pay depending on how long they worked for the state.

Retired workers sued, arguing the changes violated a provision in the state constitution that declares pension benefits shall not be diminished or impaired. Attorneys for the state argued the constitution did not specifically declare health care benefits were protected.

In Thursdays ruling, the justices argued there is nothing in the text of the Constitution that warrants such a limitation.

We conclude that the states provision of health insurance premium subsidies for retirees is a benefit of membership in a pension or retirement system within the meaning (of the Constitution) and therefore the General Assembly was precluded from diminishing or impairing that benefit, justices wrote in their opinion.

The same constitutional clause protecting pension benefits is at the heart of several lawsuits challenging broader pension changes lawmakers passed in December. That measure reduces costs-of-living increases and raises retirement ages, among other changes.

Opponents in the pension battle have long argued over whether the framers of the 1970 state Constitution intended to protect pension benefits against any future changes, or whether there was wiggle room in their language. The high court did not settle that debate in the healthcare case today, but the language in the majority opinion seemed to support the contention that pension benefits cannot be reduced. The court said comments by the constitution's framers demonstrate the pension clause "was intended to eliminate the uncertainty that existed under the traditional classification of retirement systems and to guarantee that retirement rights enjoyed by public employees would be afforded contractual status and insulated from diminishment or impairment by the General Assembly."

State Senate President John Cullerton said today the opinion reinforced his longtime fear that the court will reject the pension reform law signed by Gov. Pat Quinn last year and hailed by some politicians as the best solution to a $100 billion unfunded liability in pension obligations to state retirees.

Today, the Illinois Supreme Court made it very clear that the Pension Clause means what it says," Cullerton said in a statement. "If the Courts decision is predictive, the challenge of reforming our pension systems will remain."

But a spokeswoman for Attorney General Lisa Madigan said the decision "has no direct impact" on the pension litigation. "While this decision is very clear on the fact that the pension clause covers health care benefits, the arguments in the pension reform litigation are different than the ones in this healthcare case," attorney general spokeswoman Maura Possley said in an email. "We will continue to vigorously defend the pension reform law."

Supporters of the pension reduction law say those legal issues revolve around the question of whether the legislature essentially has emergency powers to modify the benefits in order to deal with a funding crisis and ensure the stability of the pension funds.

"This landmark law was urgently needed to resolve the states $100 billion pension crisis," Quinn spokesman Grant Klinzman said in an email. "It was also urgently needed to ensure that teachers, university employees and state workers who have faithfully contributed to the pension system have retirement security.

"Were confident the courts will uphold this critical law that stabilizes the states pension funds while squarely addressing the most pressing fiscal crisis of our time by eliminating the state's unfunded pension debt."

But leaders of the state's largest public employee labor union hailed the decision as a positive sign in their opposition to the pension changes.

"The Supreme Court ruled today that men and women who work to provide essential public services -- protecting children from abuse, keeping criminals locked up, caring for the most vulnerable and more -- can count on the Illinois Constitution to mean what it says," AFSCME Council 31 executive director Henry Bayer said in a statement. "Retirement security, including affordable health care and a modest pension, cannot be revoked by politicians."

Justice Anne Burke dissented from the majority, saying the pension protection clause does not cover healthcare premiums. The action reverses a ruling by a Sangamon County Circuit Court judge and returns the case to the lower court for a decision on the merits of the case.

The decision may also trigger new action in the legal fight over Chicago public employees.

When it comes to city retiree health insurance, a federal appellate court was waiting for todays decision before weighing in on a lawsuit that aims to reverse Emanuels decision to phase out the insurance, said Clint Krislov, the attorney who challenged the phase-out in court.

Before the phase-out started on Jan. 1, Krislov sued to block it, but a federal trial court ruled against him. The appeal, he said, was put on hold by an appellate court pending todays Supreme Court decision, he added.

This is great, Krislov said of the decision. This is basically what weve been saying. . . . I think this will finally get the (city) retirees back to where they ought to be.

Krislov, who first sued the city 27 years ago to protect retiree health care in the so-called Korshak case, said city retirees have an even stronger case than their state counterparts.

A ruling against the city could exacerbate financial shortfalls, as the city in 2012 paid $109 million on the health care that is now being phased out.

Emanuel also was counting on savings from the health insurance phase-out to help pay the citys increased costs under recently passed legislation to modify the pension funds of city workers and laborers. That legislation also specifically barred city and municipal laborers funds from contributing to retiree health care costs.

There was no immediate response from the city on the ruling.

mcgarcia@tribune.com

hdardick@tribune.com

FORBES HYSTERIA:

Illinois Supreme Court Delivers Huge Fiscal Blow To Taxpayers

The Illinois Supreme Court issued an opinion this morning that is a godsend to retired public employees, but a huge blow to the states taxpayers and creditors. The ruling concludes that retiree health insurance falls under the protection of the states constitutional non-impairment clause. In addition to overturning the attempt to save state taxpayers money on retiree health insurance for public employees, the even bigger implication is what this may say about the constitutionality of the states recent pension overhaul.

It is no secret that Illinois is in deep fiscal distress. The state already has the lowest credit rating of any state in the nation. And the future looks bleak as well: according to a report by the Fiscal Futures project at the University of Illinois (disclosure: I serve on the University of Illinois faculty), the states deficit under current law (prior to the enactment of pension reform) was expected to mushroom to approximately $14 billion over the next decade. The cause of these shortfalls, while multi-faceted, trace to a long history of fiscal profligacy by the states political leaders in both parties.

In recent years, the Governor and Legislature have finally made some initial steps at addressing through politically difficult actions to raise revenues and cut expenditures. On the revenue side, Illinois passed a very large temporary tax increase that raised personal income tax rates from 3% to 5% and corporate rates proportionately, increases that are currently scheduled to phase out.

On the expenditure side, the state has put public employees in the cross-hairs. In 2012, a new law took effect that substantially reduced the generosity of the states contributions to health insurance premiums for retirees under the states three largest public pension systems (SERS, SURS, and TRS). In December 2013, the state passed a controversial pension overhaul bill that was set to take effect earlier this week, but the implementation of which was delayed by a judicial stay, pending various constitutional challenges.

Illinois is one of several states that have specific constitutional protections for public retirement benefits. Specifically, Article XIII, Section 5 states:

SECTION 5. PENSION AND RETIREMENT RIGHTS

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.

Most commentators including me have previously interpreted this as applying to pension benefits, but not retiree health care. Todays ruling in Kanerva v. Weems, the court issued a 6-1 opinion that this provision extends to the protection of retiree health insurance. The Court notes:

although some of the benefits are governed by a group health insurance statute and others are covered by the Pension Code, eligibility for all of the benefits is limited to, conditioned on, and flows directly from membership in one of the States various public pension systems. Given the language of article XIII, section 5, its plain and ordinary meaning, all of these benefits, including subsidized health care, must be considered to be benefits of membership in a pension or retirement system of the State and therefore, within that provisions protections.

In addition to the immediate impact on retiree health insurance, the potentially larger implication is for the recent pension legislation. That legislation, which raised retirement age, reduced post-retirement benefit increases, imposed a salary cap, and made numerous other changes, is estimated to have reduced the states unfunded pension obligations by about $20 billion and reduced the annual cash outflows to support these pensions by more than $1 billion per year.

Notably the court said today that:

we have concluded that the provision was aimed at protecting the right to receive the promised retirement benefits, not the adequacy of the funding to pay for them.

This is as clear of a statement as I have seen on the subject. Essentially, it says to the state that we do not care whether or not you have the money to pay for pensions and health care you are required to pay them.

Now it is up to our elected officials to figure out if and how we can afford to do this.

Although this is terrific news for public employees, it may be an irrecoverable fiscal blow to the state. This may signal that the only way the state has to dig out of its fiscal hole is through further increases in tax rates, an approach that could begin a fiscal death spiral if it drives businesses and individuals across state lines. Alternatively, the state could cut back on all non-constitutionally-protected services, including investments in public K-12 and higher education, but that creates a death spiral of a different variety. Finally, the state could try to amend the constitution. This last option may be the best economically, but whether it is politically feasible is anybodys guess.

In summary:

If you are a public sector retiree, rejoice!

If you are an Illinois taxpayer, prepare for permanent tax increases!

If you own Illinois bonds, sell!



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