One sentence at core of pension reform debate

State constitution offers guarantee, but Democrats and Republicans disagree on how far it extends

Monday, April 09, 2012

State government leaders are trying to figure out how to reduce ballooning public worker pension costs, but success or failure ultimately could hinge on one sentence in the Illinois Constitution.

While there are a host of options on the table, the central question being debated is whether lawmakers can cut benefits for current employees.

There are two perspectives on that approach, and they center on different interpretations of a line buried in a document written 42 years ago. Article XIII — the General Provisions section of the state constitution — says membership in any government worker pension or retirement system "shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired."

Republicans argue that legalese applies only to retirement perks that already have been earned by public employees. They say future benefits can be scaled back without a problem, and such an approach would go a long way toward solving the pension money shortfall that threatens to gobble up budgets at the Capitol and City Hall for years to come.

Democrats warn that path could be illegal and result in a legal battle with unions that puts the state back at square one after years in court. But there's a new interpretation of that line in the 1970 constitution by a lawyer for Senate Democrats that some hope provides a measure of legal cover.

The theory focuses on two words in the first part of that key sentence: "contractual relationship." The thinking is that the state might not be able to unilaterally cut pension benefits for current workers, but perhaps it could negotiate certain reductions in pension costs in return for other considerations for employees.

After years of nibbling around the edges of pension reform, Democrats and Republicans acknowledge they've got to do something significant. Illinois is expected to spend more than $5 billion to make the next annual pension payment. That's roughly $1 billion more than last year and about 15 percent of the state's approximately $34 billion general fund. At the same time, the five Illinois pension systems that cover state workers, teachers, university employees, judges and legislators remain underfunded by more than $80 billion.

Democratic Gov. Pat Quinn said the state can no longer shoulder such a huge pension burden, but he's waiting to take a position on what course should be pursued until a panel he called for reports back. The governor set an April 17 deadline.

Potential suggestions include raising the retirement age, reducing cost-of-living increases and requiring local school districts to pick up pension costs the state currently pays teachers. Any proposed changes will likely face a tough battle at the Capitol this spring, however, as all 177 legislative seats are on the November ballot. That means lawmakers may seek to put off tough decisions until after then, particularly union-friendly Democrats who rely on campaign contributions and foot soldiers from organized labor in their re-election bids.

Senate President John Cullerton, D-Chicago, once held firm to the belief that the state's hands were tied when it comes to cutting benefits to current workers. Now Cullerton is open to the idea, citing research by his chief legal counsel that held it can be done within the confines of the law.

Attorney Eric Madiar concluded that lawmakers cannot "unilaterally" cut employee benefits on their own. Instead, Madiar says pension benefits rights are akin to a contract agreement and could be changed through a bargaining process in which workers will willingly agree to certain reductions in exchange for some concessions from the state.

To reach that finding, Madiar studied debate transcripts from the 1970 Illinois Constitutional Convention to examine the intention of delegates when they put in that sentence about pensions. Madiar argues that courts have long considered not only the wording but the "object and purpose" behind provisions in state laws.

Madiar said he found that delegates purposefully inserted language to protect benefits that employees were promised when they were hired and entered the pension system, citing concerns that benefits would be targeted for cuts during a funding crisis.

The lawyer cites several court cases upholding that strict interpretation of the constitution, including the first attempt by lawmakers to reduce the pension benefits of a government employee who was not yet eligible to retire.

In that case, a police officer was hired and entered the pension system in 1956 but was placed on disability in 1967 after an on-duty injury.

At the time the officer was hired, the pension code allowed police officers to receive regular pensions if they turned 50 and had 20 years of service, including time on disability. The officer would receive a pension of 50 percent of the salary based on the rank held the year the officer decided to retire.

But in 1973 — before the officer in question turned 50 and met the 20-year requirement — lawmakers changed the rules to base a pension on what the officer was making when he went on disability, a lower salary.

An appellate court concluded that the state constitution barred such a move because employees are entitled to pension benefits that were set in law at the time they were hired and began paying into the system. But the court also determined that pension benefits were contractual in nature, noting that "there is nothing to prohibit an employee from agreeing, for consideration, to accept a reduction in benefits."

That's the idea Cullerton is now pushing. The Senate president envisions a scenario in which negotiations take place that involve sacrifice from the state and union workers. If it works, employees would agree to benefit cuts of some sort in return for potential perks that could be as tangible as better pay or as simple as ensuring the pension system is shored up enough that workers will actually get benefits when they retire.

It'll be a tough sell, but Cullerton has begun talking with unions to help build support for the idea among members, according to a spokeswoman.

"He sees this as the only constitutional way to address the (pension) problem," said Rikeesha Phelon, Cullerton's spokeswoman.

Republicans say the Senate Democratic analysis amounts to just one legal interpretation. GOP lawmakers contend the General Assembly should pass sweeping pension changes and let the matter be decided in court.

"We need to go as far as it is reasonable," said Patty Schuh, a spokeswoman for Senate Republican Leader Christine Radogno, of Lemont. "While the Senate president and his attorney hold an opinion, they are not the Supreme Court of Illinois. We cannot allow that to hinder our efforts to sincerely reform the public employee pension systems."

Radogno backs a plan put forth by House Republican Leader Tom Cross, of Oswego, to set up a three-tiered benefit system for employees. Under the proposal, workers could choose to keep the same level of benefits but pay more for them, take less in benefits without paying more or join a self-managed plan similar to a 401(k) retirement fund.

While that measure is co-sponsored by Democratic House Speaker Michael Madigan, it has stalled since being introduced last year. Cross contends Madigan refused to provide votes for the bill, while Madigan has dismissed that suggestion as political posturing.

Quinn and Cullerton argue the proposal is unconstitutional, a stance that former Illinois Attorney General Tyrone Fahner, president of the Civic Committee of the Commercial Club of Chicago, says is "about politics, not law."

Fahner's group worked with Cross to develop the pension legislation and hired law firm Sidley Austin to write a legal analysis of the proposal. The firm's findings contradict those of Senate Democrats; its analysis suggests a three-tiered pension system would not violate the Constitution because that document "protects only benefits that have been earned to date." Under that interpretation, lawmakers could alter future benefits and remain within the confines of the constitution.

"There is no constitutional issue the way the bill has been presented because we are not taking away any earned benefits, we are changing things going forward," Fahner said.

Speaker Madigan has summed up both sides of the debate this way: "The question is, for a person on a public job today, can we say to them, 'Everything you've earned up until today you keep, no change?' But ... can we say to that person, 'Starting tomorrow, it's going to be a different deal. It won't be as rich. The benefit level will not be as high, but we will save the stability and the fiscal integrity of your pension system.'"

Meanwhile, Fahner argues Democratic leaders used the constitutionality issue as a red herring to delay action on pension reform until after the March primary, when many lawmakers will know their fate and may be more willing to take unpopular votes.
"Nobody is trying to hurt union members; we're trying to preserve what they have," Fahner said. "But what Cullerton has to do is get support. He's being political so unions aren't beating up his members."

A spokesman for the state's largest employee union said it is working with lawmakers to find a solution that doesn't punish workers who have held up their end of the deal by dutifully making contributions while the state continually failed to invest enough money in the system.

"Everybody needs to be a part of the solution," said Anders Lindall, spokesman for theAmerican Federation of State, County and Municipal EmployeesCouncil 31.

Despite the publicly professed desire to avoid a legal fight, the issue is likely to end up in court no matter which route lawmakers take.

Dawn Clark Netsch, a Democrat who served as a delegate during the 1970 constitutional convention, said that while the original intent was to protect workers from having their benefits stripped, no one could predict the demand the system would eventually place on the state's budget.

"My sense is that at some point, we're going to have to find out where the line really is drawn, and the court is probably the one that is going to have to do that," Netsch said. "I don't think we thought that far ahead.”