Lawyer Argues for Reinstatement of Illinois Pension Reform

Tim Bishop, a partner with Mayer Brown LLP, filed an amicus brief on behalf of the International Municipal Lawyers Association in support of the State of Illinois in its appeal of a circuit court decision that struck down the legislature’s attempt to reform the state’s public pensions.

“A State’s government may not stand at the sidelines while a fiscal disaster of this dimension plays out, trusting to luck that some economic miracle will come along and save the day. Government has an obligation to all the State’s citizens—and to the United States of which it is an integral part—to use its police powers to avoid impending disaster. That is just what the General Assembly did when it passed the Pension Reform Law,” Bishop wrote.

Last November, Judge John W. Belz, of the Illinois Circuit Court for the 7th Judicial Circuit in Sangamon County, Illinois, found the 2013 law “without question” diminished and impaired the benefits of membership in state retirement systems, in violation of the Pension Protection Clause of the state constitution. Among other things, the 2013 law reduced the annual cost-of-living increases for retirees and raised the retirement age for workers 45 and younger.

According to Bishop, the Illinois Circuit Court made two errors in striking down the pension reform law: The court curtailed Illinois’s police powers in a way that the United States Constitution prohibits, and the court did not give deference to the Illinois’ General Assembly’s interpretation of the Pension Clause of the Illinois Constitution.

He conceded that the Circuit Court has ultimate authority for deciding what the Illinois Constitution means, but the General Assembly’s considered interpretation of the Pension Clause was entitled to considerable deference, and the court gave it none. Bishop argues that if the court had given the appropriate degree of deference to the legislature’s interpretation that the Pension Clause leaves room for the state to exercise emergency police powers, the court would have upheld the pension reform law.

“Every legislator was aware, when enacting the Pension Reform Act, that the constitutionality of the Act was in issue and would be challenged,” Bishop says. “The legislature gave consideration to whether the Act satisfied the Pension Clause and expressly concluded that the Act is ‘consistent with the Illinois Constitution.’ Where, as here, the legislature has made an express determination that a statute is constitutional, in the face of arguments that it is not, the statute should be upheld unless it is clear beyond reasonable doubt that it is violative of the fundamental law.”

The amicus brief also argues that police powers are an inherent attribute of state government that may not constitutionally be alienated. Bishop says a failed or failing state is a drain on the federal government and the entire nation, and a state that fails to exercise its police powers—or gives them away to others—would open itself up to Fourteenth Amendment claims from its own citizens that it had failed to govern.

He notes that courts have adopted the rule that, where a contract is silent on alienating the state’s reserved powers, the contract will be understood as reserving them to the state. The Pension Clause of the Illinois Constitution, in providing that pension rights are contract rights that may not be diminished or impaired, contains no clear statement of intent to override the state’s police powers. 

“[The International Municipal Lawyers Association] believes that under these principles, Illinois did not divest itself of its police power to regulate the public pension system, including its power to adopt emergency measures when the solvency of the system and financial future of the State became endangered. It did not do so explicitly in the Pension Clause. And it certainly may not be held to have done so sub silentio through a constitutional provision that creates affirmative rights but does not even mention the police power,” Bishop wrote. 

He adds that the dire financial straits in which Illinois finds itself is exactly the type of emergency situation in which police powers survive even clearly expressed contractual, statutory, and constitutional obligations. He concludes that the Circuit Court’s ruling that the Pension Clause alienated those police powers is inconsistent with the U.S. Constitution. 

The amicus brief notes that the adverse effects of the 2007 to 2008 crisis on the U.S. economy and its aftermath resulted in a decline in the funding level of the Illinois state pension system from about 75% in 2000 to less than 50% today. Obligations under a 1994 law designed to fund current benefits and make up most of the shortfall by 2045 now consume 23% to 27% of the state’s general revenues annually and will require annual commitments of about 20% of general revenues every year for the next two decades. 

In an effort to meet its obligations, Illinois increased individual and corporate taxes and slashed essential state programs, including education, corrections, police, and health and social services. In addition, the state borrowed $7 billion through bond issues to pay pension obligations. 

Bishop argues that increasing Illinois’s already high income, corporate, and sales taxes would decrease the state’s competitiveness, driving away residents and businesses. He notes that Illinois’ pension debts and poor fiscal situation have led ratings agencies to give it the lowest rating of all 50 states, so increasing borrowing to meet obligations would be costly and require more belt-tightening to meet interest payments. And, further cutting basic services would disproportionately harm the most vulnerable segments of Illinois’ society. 

“A city like Detroit can declare bankruptcy and—eventually—move on. But a State does not have that option. A State must address dire fiscal crisis by using its police powers to work its way out of the crisis,” Bishop stated.

The amicus brief is here.