Eric Madiar: State’s pension obligations must be met.

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-By Eric Madiar. This op-ed appeared in the State Journal-Register.

Through its recent decisions, the Illinois Supreme Court delivered a clear message that pension reform efforts seeking to unilaterally reduce benefits simply cannot be squared with the Illinois Constitution’s pension clause. That outcome was hardly surprising given the plain language, drafting history, and prior court decisions interpreting the pension clause.

Now that the Illinois Supreme Court has clearly reaffirmed that welching is simply not an option the General Assembly may pursue, the question becomes what can legislators do?

As I recently wrote in the Chicago-Kent College of Law’s Illinois Public Employee Labor Report, the court’s recent decisions reveal that adherence to usual contract principles — offer, consideration, and acceptance — provides a legal avenue for structuring pension reform legislation that can achieve meaningful savings and square with the pension clause. In particular, the proposal offered by Senate President John J. Cullerton provides one such viable approach consistent with those principles despite recent criticism. Another perhaps more collaborative approach is engaging public sector labor unions and forging an agreement that reduces the pension benefits of current union employees through the collective bargaining process.

While some stakeholders portray amending the pension clause to permit unilateral benefits cuts or authorizing Illinois municipalities to file for federal bankruptcy to discharge their pension obligations as viable options, the Article shows that is simply not the case. Indeed, even if the clause were amended — a big if — a court would most likely find that the amendment violates the U.S. Constitution’s contracts or takings clause.

Moreover, the General Assembly simply lacks the legal power to enact the valid state law necessary under federal law to authorize its municipalities to file for bankruptcy. As the Illinois Supreme Court recently explained, there is “no possible basis for interpreting the pension clause to mean its protections can be overridden if the General Assembly deems it appropriate.” Accordingly, the clause withdraws from the legislature, as a matter of state law, the legal power to pass any statute authorizing municipal bankruptcy as a means to unilaterally discharge public pension obligations.

In the end, while contract principles and other permissible options can help mitigate the burden of State and municipal pension obligations, the state must still restructure its revenue system so it can meet, not simply defer its fiscal obligations. As Paul Simon observed in 1971, “We mortgage the future not only when we create bonded indebtedness; we also mortgage the future when we don’t pay into the pension systems as we should.”

Revising our State’s revenue system, of course, will require political courage and entail tax increases. Welching on public pensions, however, is still not an option for Illinois.

— Eric Madiar is an attorney and government relations consultant based in Springfield, who previously served as chief legal counsel to Senate President John J. Cullerton from 2009-2014. To read his recent article, go to http://www.madiar.com/articles.

9 thoughts on “Eric Madiar: State’s pension obligations must be met.

  1. He is trying to carve out one exception still…t won’t work and it won’t effect those retired or even signed up…..I may have to eat crow on trump he is getting darker.

    • Distancing himself from Cullerton. Changing benefits by bargaining each district contract not really doable. Current employees are still protected. Pay up he says.

    • Fred, I enjoy reading your blog on a daily basis. I’m more of a reader than a contributor. David, your comment above states that Eric Madier’s pension reform idea based on consideration “won’t effect those signed up.” Could you elaborate on this? Is you statement based on the ISC decision from last year? I am in the pipeline and will retire in three years. I am, as you can guess, very apprehensive. Any thoughts you can share would be appreciated. Thank you for your time. Jim

      • Jim,
        David can explain his point of view. But I would say that based on the ISC decision, every current member of a state pension system, including TRS, is covered by the pension protection clause from the moment they were hired to the day they depart this earth once vested. That means you.

  2. It’s simply yet seemingly impossible to fix; the tax revenue we lose by 2/3’s of corporations paying no state taxes, as well as the wealthy making over 250K, are the real cause of the budget mess in Illinois. Let’s call it what it is – when the corporate wealthy elite pay less and less yet demand more and more tax breaks, where’s the money coming from? We need a progressive tax system in Illinois plain and simple. California is exhibit A for taxing high income earners at higher, not lesser, rates. Most of all it is just FAIR. They will never even notice the difference in their lifestyles.

  3. Yes exactly what Fred says. That doesnt mean the Gov or GA wont try to grab it or try some sort if buyout so always be wary.

  4. California has a strange definition of high income earners. The rates for middle-class earners are over 8% for income over $40,000. No thanks.

    Unlike Illinois, California also taxes retirement income. If you have a $75,000 pension in California, your effective tax rate is 7.5%. How many Illinois retirees – paying no state income taxes – would consider that fair?

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