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If Illinois' new pension law is found unconstitutional, which looks more likely in light of a recent Illinois Supreme Court decision, one obvious remedy is to amend the constitution.
“We need that flexibility,” said Rep. Joseph Sosnowski, R-Rockford, who introduced a constitutional amendment proposal last year that died in committee. “Now, based off this court ruling, this may be our last ability to look at trying to modify pensions.” He plans to re-introduce his proposed amendment in the spring, “especially in light of the court's decision.”
Proponents of pension reform, from Gov. Pat Quinn and Attorney General Lisa Madigan to the business groups that pushed for it, are not conceding defeat. Other issues, such as the state's ability to remain solvent, may prevail over a clause in the constitution that says retirement benefits can't be impaired or diminished.
However, it's not too early to start thinking about alternatives, given that the state Supreme Court's 6-1 ruling July 3 in Kanerva v. Weems is so strongly worded, expanding the pension protection clause to include retiree health care benefits. There's talk of trying to expedite a court challenge of the broader pension law.
“I don't think this case will end up going to trial,” said John Colombo, interim dean of the University of Illinois College of Law in Urbana.
The pension reform law “is as dead as a doornail,” he said. “The state needs to start thinking about what it's going to do when the inevitable happens.”
One big question raised by the Kanerva decision is whether the state Supreme Court will rule that the current benefit structure is locked in for existing employees, which means a constitutional amendment would not retroactively allow reductions in the benefits in place when current employees were hired.
“Even it passes, it's very likely it could apply only prospectively,” said Mr. Colombo. “It depends how strict the (Illinois) Supreme Court ends up being. I think the court is going to be pretty strict.”
Even so, amending the constitution would not be easy, to say the least, given recent history and the state's current political climate. It would need approval by a three-fifths vote in both the Illinois House and Senate. That's just to put a proposed amendment on the ballot, where it would need 60% of those voting on the issue to be approved.
Chances for a constitutional amendment are “a lot better than it was last time,” says Mr. Sosnowski, after the Kanerva decision signaled how strictly the court viewed the pension protection clause. “A lot of people looked at that and said we've got possibilities.”
But it can't be done quickly. The Illinois Constitution requires a six-month waiting period before a proposed amendment can be placed on the ballot, so November 2016 is the soonest it could be put up for a vote. Meanwhile, the statewide pension law changes have been stayed, keeping benefits and contributions and inflation adjustments all in place.
Two years ago, a relatively innocuous constitutional amendment that would have required supermajority approval by the state Legislature and municipalities to increase pension benefits was pushed through the Legislature by House Speaker Michael Madigan.
Widely panned as a meaningless measure that would not reduce the state's pension debt, it passed the House unanimously, with only two dissenting votes in the Senate. But only 56 percent of voters approved, falling short of the supermajority needed.
“It was more of a PR issue,” said Rep. Tom Morrison, R-Palatine, who co-sponsored Mr. Sosnowski's bill to repeal the pension protection clause in the last session of the Legislature. “What elected board is going to increase pension benefits in this environment?”
But a union coalition quickly mobilized to defeat it at the ballot box.
“They're going to be ready; this time it wouldn't get a majority of votes,” said John Kindt, professor emeritus of business and legal policy at the University of Illinois in Urbana, who chairs the U of I's faculty and staff benefits committee. “A constitutional amendment could get through the General Assembly, but voters have already rejected it and they will be well-organized if the Legislature does it again.”
However, voters may act differently if a constitutional amendment is framed as the only alternative to higher taxes, not only for the state but to cope with poorly funded plans at the county and city level, too.
“Is it feasible? I don't know,” said Mr. Morrison. “The really frightening thing is that the general public is largely in the dark about how bad the state's finances are and how heavy these pension obligations are. As more and more people become aware of that, hopefully there will be greater demand from the public to amend the constitution.”
If benefits can't be cut and the constitution can't be amended, that leaves only two alternatives: raise taxes to pay the guaranteed benefits, or restructure the pension plans to spread payment of the state's $100 billion pension debt over a longer period of time.
A proposal by the Center for Tax and Budget Accountability, a Chicago nonprofit advocacy group, suggests that taking 43 years to make the plans fully funded, instead of the normal 30 years, would reduce annual pension payments to a feasible level. Requiring equal annual payments instead of back-loading contributions to later years would make it more fiscally responsible than the state's current plans.
“The only thing they can do that's rational is re-amortizing the debt they owe,” said Ralph Martire, CTBA's executive director. “It works and it's constitutional. The only people who will yell and scream are the actuaries.”
Paul Merrion writes for Crain's Chicago Business, a sister publication of Business Insurance.
Cook County Annuity & Benefit Fund, Chicago, would see its two public pension plans return to full funding in 30 years under a bill passed late Tuesday by the Illinois Senate.